Power producer AES Corp. of the US and private equity firm Riverstone Holdings LLC are creating a joint venture, AES Solar, with an investment of up to $1 billion, for solar power development in Europe and Asia.
The two partners will invest $500 million each. The venture will develop, own and operate utility-scale solar photovoltaic installations of sizes ranging from less than 2 MW to 50 MW, which will be connected to power grids supplying electricity to homes and businesses. Photovoltaic panels are used to capture sunlight and convert it into electricity, which is then (in a utility-type installation) fed to the power grid.
According to AES, the venture will follow "the traditional independent power producer and wind business growth models" by initially focusing on developments and projects in those countries offering the most attractive tariffs. As the costs of both PV panels and installation come down, AES Solar will consider expanding into other countries with appropriate market incentives, with the goal of "grid parity" - being competitive with conventional fuels.
This is why, perhaps, these American companies are not considering the US market right now. Some European and Asian countries, such as Germany, Italy, Spain and South Korea, offer long-term subsidies allowing power companies to earn over 10 per cent annual return on average on renewable energy.
The US policy is not so friendly, which is why, according to a study, the installation of photovoltaic panels is a mere eighth of that in Germany, which provides several incentives for renewable energy plants. If the US, which has plenty of sun and wind, follows the European policy lead, it could become the biggest market for renewable energy.
Says AES president and chief executive officer Paul Hanrahan, "Renewable energy is an increasingly significant part of AES's overall portfolio and currently accounts for 20 per cent of our global generation capacity. Solar is a natural extension of our business, much as wind generation has been, and we see tremendous opportunity for growth in this market."
Ralph Alexander, a managing director at Riverstone Holdings, says, "Because of its scale, this joint venture has the potential to change the fundamental economics of solar power."
Alexander believes the timing is right for this project, given the spread of renewable power standards around the world, high energy prices and the continued progress of the solar photovoltaics industry to improve performance and reduce costs. "Together, these trends present a substantial opportunity to create value and meet the world's growing demand for clean energy," he says.
The joint venture will be managed by a seven-member board of directors, three each will appointed by AES and Riverstone, with Robert Hemphill as president and CEO and the seventh member of the board. Hemphill joined AES in 1981 and has held senior positions in the company, including as its executive vice president of global development.
The Arlington, Virginia, based AES is one of the largest global power companies in the world, with 2007 revenues of $13.6 billion and operations in 28 countries on five continents. The company's 13 regulated utilities have annual sales of over 78,000 GWh and its 121 generation facilities have the capacity to generate approximately 43,000 MW. The company has a global workforce of 28,000 people.
Riverstone Holdings LLC is a New York-based energy- and power-focused private equity firm founded in 2000. It makes buyout and growth capital investments in the midstream, upstream, power, oilfield services, and renewable sectors of the energy industry. The firm has committed over $8 billion to 47 investments across these five sectors, representing companies with nearly $70 billion of assets.
Currently, solar power is more expensive than wind power, but industry analysts say improvement in technology and reduction in the cost of silicon (possible halving the cost of solar modules by 2011), could make solar energy highly competitive.
AES, which is making its debut in the photovoltaic panels business, already has a significant presence in other forms of renewable energy (wind, hydroelectric and biomass), which provide a fifth of its 43,000-MW generation capacity worldwide.
According to AES, the company is "committing significant resources to meet growing market needs for new alternative energy resources and technologies, to help create a secure and sustainable energy future.
"As alternatives to traditional fossil fuels become more economically competitive, more necessary and more in demand, we see opportunity. That's why AES is investing potentially as much as $10 billion over the next 5-10 years in alternative energy including wind generation, liquefied natural gas and visionary climate change technologies."