Early Stages of Utility-Scale Solar Development: A History of SEGS

During the late 1980s and early 1990s, a series of solar thermal generation facilities located in San Bernardino County, California, known as Solar Energy Generating Facilities, or SEGS, I-XII dominated utility-scale solar development in California. Other CSP projects at the time included the 10 MW Solar One central tower research facility, completed in 1981 and operational from 1982 to 1986; Solar Two, which added additional mirrors to Solar One and operated from 1995 to 1999; a 3.19 MW PV system built by the Sacramento Municipal Utility that went on line in August 1984; and the 110 MW Solar 100 project certified by the CEC in 1982 that was never built due to land use issues.¹ The completed projects accounted for about 0.8 percent of California’s energy generation capacity in 1991² and the SEGS projects alone accounted for 95 percent of the world’s solar electricity generation.³ Although the proposed SEGS projects totaled 594 MW in capacity, only 354 MW of capacity came on line before the developer filed for bankruptcy in 1991. The developer, Luz International Limited, cites a number of policies that contributed to the failure:⁴

•    The Public Utilities Regulatory Policies Act (PURPA), passed by Congress 1978, required local utilities to grant grid interconnection access to independent power generators, which stimulated utility-scale solar development. However, PURPA capped the amount of energy that a generating facility could sell at 30 MW. Although this cap was raised to 80 MW in 1989, Luz was forced to build a series of facilities that were less efficient and more expensive per MW than the optimal 200 MW capacity.

•    PURPA also required utilities to purchase energy produced by non-utility-owned generating facilities. The California Energy Pricing Policy for solar energy was based on the avoided cost of producing electricity from oil or natural gas, whichever was lower. Although improved technology brought the solar electricity cost down to $0.08 per kWh, gas prices dropped 80 percent between 1981 and 1989 and oil prices fell to $18 a barrel. The avoided cost pricing policy brought the purchase price down to $0.05 per kWh, making more expensive solar projects economically infeasible.

•    Annual energy tax credit cycles severely limited the company’s ability to secure long-term funding from investors. Each calendar year Luz had to race to obtain site approval, secure financing and complete a facility. In 1989, the tax credit period was cut to nine months and, as a result, Luz endured a cost overrun that consumed two-thirds of their remaining capital.

The failure to complete all of the Luz SEGS projects was due to an unrealistic timeline for tax credit cycles and an electric purchase pricing policy tied to volatile commodity market prices. Conditions remained unfavorable for utility-scale solar development until the 2005 Energy Policy Act increased and extended renewable energy tax credits.

1 California Energy Commission, Large Solar Energy Projects,  http://www.energy.ca.gov/siting/solar/index.html.

2 California Energy Commission, Large Solar Energy Projects,  http://www.energy.ca.gov/siting/solar/index.html. 

3 Julie Gozan, “Solar Eclipsed,” Multinational Monitor, 14 no. 4 (1992), http://www.multinationalmonitor.org/hyper/issues/1992/04/mm0492_07.html.

4 Julie Gozan, “Solar Eclipsed,” Multinational Monitor, 14 no. 4 (1992), http://www.multinationalmonitor.org/hyper/issues/1992/04/mm0492_07.html.