Saturday, May 01, 2010
Betting on Solar ... Again
By Rosalie Rayburn
Copyright © 2010 Albuquerque Journal
Journal Staff Writer
They arrived in a blaze of sunny publicity about high-wage jobs and predictions by the governor that New Mexico was poised to become a Silicon Valley for solar energy.
But some who follow the solar industry are puzzled over how Green2V, a startup company that has yet to create its own website, will keep its promises in a volatile industry that's under pressure from foreign competitors.
Green2V Green Energy Solutions plans to build a 1 million-square-foot solar manufacturing plant in Rio Rancho. Company officials say they will employ 1,500 people by 2014 and have an annual payroll of $64 million. The company made the announcement at a high-profile news conference in April attended by Gov. Bill Richardson, Sen. Jeff Bingaman, D-N.M., and a host of state, county and city officials.
Rio Rancho city councilors have given initial approval for $500 million in industrial revenue bonds to help Green2V build the plant. Green2V says it has an investment company lined up to loan the $500 million — but declines to release details about the firm.
The city will use $6.9 million of the bond money to buy the plant site. It has also pledged to spend $7.2 million to put in a road and sewer line for the plant.
The city and company have an aggressive schedule: The city plans to purchase the plant site from the state Land Office and transfer it to the company by the end of May. Green2V plans to break ground in June, with manufacturing to start in early 2011.
Company CEO Bill Sheppard, a former Intel executive with ties to Rio Rancho, said his experience in the semiconductor industry gives him an edge. He believes he can achieve success through controlling manufacturing costs.
People who study solar developments, though, say it's a rapidly changing industry. Technological developments that affect the cost of production or the efficiency of the solar cells can swiftly boost or sink a manufacturer's bottom line, said Joe Verrengia, spokesman for the National Renewable Energy Laboratory.
Overseas competition is another factor. U.S. manufacturers still have an edge in innovative solar products, but standard photovoltaic panels, the kind Green2V proposes to make, face stiff competition from Chinese producers, said John Chavez, president of New Mexico Angels, a venture capital company that specializes in funding startup companies.
Solar industry watchers say many U.S. solar manufacturers, like Tempe, Ariz.-based First Solar, have shifted toward "thin film" technology that has lower manufacturing costs. It produces a less-efficient but flexible cell that can be applied to a wider range of surfaces.
"The solar space is very crowded," Chavez said. "Everybody sees opportunities; everybody is trying to find a highly efficient low-cost solar cell. There's a gazillion people out there trying to do exactly what these guys are trying to do."
New Mexico Angels invested in Advent Solar, a solar photovoltaic manufacturer launched in Albuquerque in 2003. Advent's future looked promising in 2007, when it moved into an 87,000-square-foot building in Mesa del Sol, signed contracts with European customers and expected to have 1,000 employees by 2010. But Advent had trouble raising capital, laid off most of its workers and was acquired by a California-based company.
Two other solar manufacturing projects, California-based Signet Solar, which planned to build a manufacturing plant in Belen, and Texas-based Solar Array Ventures, which planned to build a plant on the West Mesa, have failed to materialize because of financing problems.
But Chavez said Sheppard's claim that semiconductor industry expertise can translate successfully to solar manufacturing "makes perfect sense" and could be attractive to an investor.
Green2V Executive Vice President and co-founder Bill Housley said the company has investors who have already put up $20 million toward the project.
The majority of the funding, however, will come from $500 million in industrial revenue bonds Green2V is seeking from the city of Rio Rancho. Green2V says it has a buyer for the bonds, and the city would have no financial liability. Industrial revenue bonds typically carry a lower interest rate and give a company a break on property taxes.
Housley said Green2V initially considered locating in Arizona and working with Las Vegas, Nev.-based OCS Capital Group, a company chaired by former Region III Housing Authority executive director Gil Olguin, to help with the bond arrangements.
OCS lists numerous clients and industrial revenue bond financed projects on its website that have never materialized, among them the $16.5 million Big Event Amusement facility and Beach Waterpark in Albuquerque; the $210 million Nuchick poultry processing plant in Artesia; and a $22 million project to build an aircraft manufacturing plant in Odgen, Utah.
The website does not mention that none of these projects came to fruition.
Although the OCS name appears on a letter included in the bond application Green2V submitted to the city, Housley said Green2V never paid OCS money and terminated its relationship because it found another company to work with.
Green2V is now working with GP3 Ltd. of Los Angeles, which is providing financing, Housley said.
Details about GP3 Ltd., though, remain unclear.
Housley said, "GP3 is a private equity partnership focused on environmental and green solutions." He said the investors deliberately want to keep out of the public eye because they don't want to be swamped with requests for funding. An Internet search turns up no reference to the company.
Noreen Scott, president of the Rio Rancho Economic Development Corp., said Green2V's business plan, Sheppard's track record with Intel and local investors — whom she declined to name — convinced her that the venture was worth supporting.
But the amount of financing Green2V expects to obtain makes Advent founder Rusty Schmit skeptical.
Schmit is now CEO of CleanSwitch, a solar system and engineering company in Albuquerque. He cited a recent case in which a 20-year-old California-based company, Amonix, landed $129 million in funding from investors led by Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.
"That was a big deal," Schmit said.
Amonix makes patented photovoltaic cells for utility scale generation systems. Arizona Public Service Co. is one of its customers.
Green2V's target markets are government and public buildings, military installations, large commercial businesses and residential customers.
"They have orders. They have people who are expecting product from them by the end of the first quarter of next year," Scott said.
At present, there are federal and state incentives designed to encourage more solar energy use, but Housley said Green2V's business model is to succeed even if those incentives go away.
"There's no reason for us to get into business unless we could provide a product at a good cost to customers and still make a profit," Housley said.
So far, city officials have publicly asked few questions about Green2V.
Mayor Thomas Swisstack, who was Rio Rancho's mayor when Sheppard managed the city's Intel plant, said he is confident Sheppard can deliver on his promises.
Swisstack said the financing deal will be scrutinized by Rio Rancho's financial advisers RBC Capital and its bond counsel Modrall Sperling. Green2V has hired the law firm Brownstein Hyatt Farber Schreck as its bond counsel.
And Rio Rancho's agreement with Green2V includes clawback provisions should the company not meet production and employment goals.
Nevertheless, the big numbers and Green2V's lavish promises worry some Rio Rancho residents. They remember the hype over Lionsgate, the California movie production company that intended to build a studio. Those plans dissolved when the economy crumbled.
"It scares me when the city wants to put money in a company that doesn't even have a website," said Rio Rancho resident Tom Ruhl, who spoke out at a recent City Council meeting.
"The people of Rio Rancho are not venture capitalists."
Jim Owen, a former Rio Rancho mayor and former Intel executive, also expressed concerns.
"If they had a history of a product, I would be a lot more comfortable," he said.