A massive $1.37 billion loan guarantee that the U.S. Department of Energy granted to Brightsource Energy last week could help clear the way for over 15 gigawatts of solar projects in California, and could be the key to launching a new solar thermal industry in the United States.

Solar thermal technology gathers heat from the sun to produce steam and generate electricity. Although it only works in very sunny locations, it could generate electricity at prices competitive with fossil fuels–especially in places where electricity is expensive. And, unlike solar panels that convert sunlight directly into electricity, solar thermal technologies offer relatively inexpensive options for storing energy (in the form of molten salts, for example, which are cheaper than batteries), making it possible to deliver electricity whenever it’s needed.

Solar thermal technology has been around for decades, and in the early 1980s, government incentives encouraged developers to install the first power plants. But when incentives were cut, there was little interest in new projects.

Brightsource’s 400 megawatt Ivanpah solar thermal power plant, first submitted to the California Energy Commission for approval in 2007, is one of a new batch of solar thermal projects that have been proposed as a result of new interest in renewable energy. Ambitious mandates for renewable energy, such as the requirement that 33 percent of electricity in California be renewable by 2020, have helped create demand. But key hurdles have remained, including the permitting process, the need for new transmission lines to carry power from desert locations, and, most importantly, the need to acquire financing for the technology, which is expensive to build, says Charles Ricker, senior vice president for business development at Brightsource.

The DOE’s loan guarantee, and the federal loan it will unlock for the company, will cover most of the approximately $2 billion needed to complete the project. The loan guarantee is the result of an energy bill passed in 2005, although the issuing process has proved very slow, with the first ones granted only last year. Brightsource is the first solar thermal company to get one.

Last year’s stimulus package could help raise the rest of the funding needed. Most importantly, a grant program that covers 30 percent of an investment in solar projects will help the company raise the money not covered by the loan.

Ricker says winning the loan guarantee was a challenge. On the one hand, the deal required that the technology be innovative, not something that was already in commercial production. But on the other, the government–which would be loaning the money–wanted to make sure it wasn’t taking too much of a risk. To prove the technology, Brightsource built a pilot plant in Israel, using full-size components, and has tested it for the past 18 months. The project got a big boost when the contractor, Bechtel, agreed to build the power plant. “The expectation was that if they set out to build it, it would work,” Ricker says.

Once the first project is built–and if it proves successful–investors should have the confidence to fund future projects, which would allow more plants to be built.

But Brightsource’s loan guarantee comes with conditions. The company still has to get the final approval of local, state, and federal regulatory agencies. It hoped to start construction a year ago, but the approval process has taken longer than expected. The company is working with Southern California Edison to upgrade transmission lines for the project. And it’s working through environmental issues, moving parts of the power plant and decreasing its size to preserve rare plant and animal species.

The main problem is that companies lack experience in choosing appropriate designs and locations for solar thermal plants. In one misstep, many companies selected technology that requires large amounts of water–something that’s very difficult to get approved for the desert locations where these plants need to be. Brightsource chose a more expensive technology that consumes relatively little water, and Ricker thinks this has helped its application.

There were some other bad decisions about where to locate new power plants. “After the 2005 energy policy act, there was a rush to develop on public lands in the desert,” says Laurel Williams, a deputy conservation director of the California Wilderness Coalition, based in Oakland, CA. “For a lot of projects that were proposed, people just looked at a map and circled the land, without consultation.”

Several of the sites chosen were on public land that had originally been donated to the government for the purposes of conservation. In December 2009, Senator Dianne Feinstein (D-CA) submitted a bill to Congress that would officially set these areas aside as part of a national parks, prohibiting their use for new solar projects. The bill has led to the cancellation of 11 proposed projects, including one from Brightsource. The Ivanpah project is outside the areas that would be protected.

Regulations make site selection more difficult, but there should still be plenty of land for California to meet its renewable energy targets, Williams says, even if all that renewable energy were to come from solar thermal projects. To meet that goal would require between 60,000 and 128,000 acres of land, but there are over 25 million acres in the Southern California deserts, much of which has already been used for other purposes, eliminating environmental concerns. Efforts are underway by the U.S. Department of the Interior to set aside 350,000 acres of previously disturbed land near existing transmission lines specifically for renewable projects. Solar plants that were canceled because of the proposed Feinstein bill would have first dibs on this land, Williams says.

If the solar thermal industry is to take off, however, one basic change needs to be made to existing law, according to Ricker. Currently, to qualify for the grant in the stimulus package, construction on a power plant needs to start by the end of this year. At the current rate, the Ivanpah project could be the only one to start by then. Ricker says the deadline should be extended a few years to give other proposed projects a chance.