PSI Seeks To Build A Distributed Solar Utility Deep In The Heart Of Texas


Dallas-based Principal Solar Inc. (PSI) does not have an explicit goal to become the world's largest provider of solar power, but it does not discourage the notion that the strategy it is following could produce that result.

On Dec. 23 of last year, PSI filed its S-1 registration statement with the U.S. Securities and Exchange Commission; the same day it inked a deal with Carlyle Capital Markets Inc. to help it develop a strategy for the acquisition and development of solar photovoltaic projects. Michael Gorton, chairman and CEO of PSI, says the two events have put the company into acquisition mode.

‘We now have capital,’ Gorton says. ‘If you have a solar asset to sell and we want to buy it, we can.’

The company flickered into existence in March 2011. Since then, PSI has worked to attract investors, build up engineering expertise and credibility in the solar sector, and engineer the occasional acquisition of a solar project.

Perhaps the most significant accomplishment of the company's early years is the establishment of the Principal Solar Institute an online reference center and resource guide for the commercial and utility scale solar market. The outfit's principal function is to evaluate and rate solar photovoltaic modules. The research organization publishes its results for any to access. However, the work also serves to inform the business side about the products that go into the projects it considers buying.

‘The institute enables us to evaluate potential projects from a strong engineering perspective,’ Gorton says.

The future of the power industry, as Gorton sees it, belongs to companies that can put together a diversity of generating resources. He agrees with the view, voiced by many, that public utilities today are in the same boat that the Regional Bell Operating Companies (RBOCs) found themselves in after the breakup of AT&T in the 1980s. While the RBOCs functioned for a while as de facto regional monopolies, competition from a new generation of communications firms forced them to adapt or succumb.

‘We played in an area that belonged to the telcos,’ Gorton says of himself and his contemporaries. Gorton was active in the reorganization of the telecom industry, pioneering the development of voice-over-IP and DSL networks with his company Internet Global. ‘We saw that world and told ourselves, 'Now we are going to own it.' The same things are going to happen in the power industry.’

PSI styles itself as the world's first distributed solar utility. The literal accuracy of this moniker is arguable; however, it clearly shows the identity the company is striving to build for itself.

PSI acquired its first solar asset in September 2012 when it bought a 3.5 MW solar project under development in Andover, Mass., from SunGen and R&D Solar.

Last June, PSI purchased the 3 MW Powerhouse One LLC (PH1) solar power farm, which consists of four 750 kW ground-mounted PV systems, located in Fayetteville, Tenn. PH1 was built by vis solis Inc. and commissioned in November 2011. The plant has a 20-year agreement with Fayetteville Public Utilities.

These relatively modest acquisitions functioned as practical tutorials for the company's business model. Gorton and his partners are banking that the solar sector is moving irrevocably into the mainstream, backed by well-understood technology, solid business plans and increasingly inexpensive access to capital. He believes solar's future is assured even in parts of the country not usually thought of as solar-friendly.

‘It's a shame that solar power is so politicized,’ Gorton says. ‘The one benefit of the federal government getting out of solar grants is that it takes some of the politics out of it. Although I would have preferred another year of government support.’

Nevertheless, Gorton sees solar power as standing on its own due to the inherent merits of the technology. He says solar power is a ‘peaker’ in that it generates electricity when you need it most – when people fire up their air conditioners.

West Texas, Gorton says, is natural solar country. It has the same solar irradiance benefits as the Southwest and California, along with what he says is a better regulatory and business environment. In many ways, the big oil, big business legacy of Texas has produced business market opportunities that are extremely favorable to the solar sector.

For example, utilities in Texas are planning almost $9 billion worth of electric transmission improvements in the coming years, according to a report by Electric Reliability Council of Texas, the state's grid operator and manager of the wholesale electric market. The planned projects are expected to improve or add nearly 7,000 circuit miles of transmission lines and more than 17,000 megavolt amperes of autotransformer capacity to the grid. Gorton says the expansion of transmission capacity will give power companies in Texas similar reach to those in California.

Another interesting aspect of the state's hydrocarbon heritage is the way land rights are managed. Surface rights are separate from mineral rights, so if you buy a plot of land to build on, you do not automatically own what is underneath.

‘If you own the surface rights of some land and find a diamond, you have to give it back,’ he says. ‘However, you can buy acreage for a solar farm for a fraction of the cost of land in other states.’

Gorton is hopeful that the combination of natural solar resources, infrastructure and state policies will enable a growing solar sector to thrive in Texas, and that distributed generation solar utilities like PSI will help make it happen and make money in the process.

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