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OCI Solar deal delivers big gains in renewables with no risk to customers
By Tracy Idell Hamilton on January 25, 2013
CPS Energy customers benefit from some of the lowest rates and highest reliability ratings in the industry, as well as a credit rating that keeps borrowing costs low. Reducing risk, whether regulatory, environmental or financial, has been a key component to the utility’s success.
So as recent news reports question the financial viability of Nexolon America, currently in discussion with the Brooks Development Authority to build a solar manufacturing plant that would employ at least 400 people at Brooks City Base, CPS Energy feels it is important to reiterate one message: CPS Energy customers are shielded from risk.
The agreement between CPS Energy and OCI Solar calls for CPS Energy to buy the output of power from 400 MW of solar power to be developed by OCI Solar and its consortium partners. Nexolon America is one of those partners. Because our agreement is with OCI Solar, it is ultimately responsible for delivering on behalf of the consortium.
CPS Energy only pays for the power that will be produced; the agreement also includes financial penalties, paid to CPS Energy, if milestones are not reached. To date, OCI Solar has met all the milestones required by our agreement. CPS Energy remains confident that the deal with OCI Solar will benefit our customers, expand the city’s economic base and enhance the environment.
CPS Energy was criticized in 2011 for taking so long to select a partner for what will be one of the largest solar projects in the U.S., but CPS Energy leadership understood that this one-of-a-kind deal demanded such due diligence. Senior CPS Energy executives thoroughly vetted OCI Solar and parent OCI Company, a widely-diversified South Korean chemical company founded in 1959. In addition to reviewing the companies’ financials, CPS Energy reviewed the entire supply chain. The consortium’s ownership of the entire solar production process, from raw materials to panel manufacturing, as well as the strong financial strength of OCI Co., were decisive factors in CPS Energy’s final decision.
News stories note that Nexolon America’s recent losses are due to a global oversupply in polysilicon, a key component of solar panels. Polysilicon prices have dropped by 43 percent since last year, according to Bloomberg. CPS Energy is well aware of the drop — it’s one of the reasons the utility was able to secure such a good deal. Nexolon’s decision to sell off assets and make major shifts in its business can be attributed to its strategy to create Nexolon America and headquarter the new company in San Antonio.
CPS Energy and OCI Solar are not involved in the ongoing negotiations between the city of San Antonio and the Brooks Development Authority. We can only reiterate that CPS Energy remains confident in its agreement with OCI Solar and its consortium partners, and their ability to execute their contractual obligations.
“One of CPS Energy’s greatest strengths is our diverse resources for generating power, including natural gas, nuclear, coal, wind and solar,” said Executive Vice President and Chief Strategy and Technology Officer Cris Eugster. “This diversity shields customers from the risks that arise from price volatility, environmental restrictions and other issues that can’t be predicted. In the same way, our team has worked to ensure that our customers are protected from the risks of particular projects, and this 400 MW solar deal is no exception.”