The Crescent Dunes Solar Energy Project in Nye County, Nev., is one of the largest utility-scale solar power plants in the U.S. The project utilizes more than 10,000 heliostats, or large mirror assemblies, to collect and focus the sun’s thermal energy, which the project then uses to generate electricity for sale. At the time of its construction, the project was unique among solar energy plants for many reasons, including its use of a nondegradable energy-storage technology that can produce electricity at night, in the absence of sunlight.
The construction of the project was financed through a $737 million loan from the Federal Financing Bank to the project’s owner, Tonopah Solar Energy, LLC (TSE). That loan was guaranteed by the U.S. Department of Energy (DOE), which in turn received security interests in substantially all of TSE’s assets, including the solar power plant project. Notably, the DOE loan was obtained from the same 2005 economic stimulus program that financed solar-panel maker Solyndra LLC. That program lost more than $500 million when Solyndra filed for chapter 11 protection in 2011.
In 2011, TSE contracted with Cobra Thermosolar Plants, Inc. (CPI) to construct the project and deliver a “turn-key” power plant. Construction on the project was completed in 2015, and the plant achieved a critical level of operation by 2016. Despite these achievements, the project was beset with operational and financial issues. In late 2016, the project suffered an essential component failure which rendered it unable to produce electricity until July 2017. In 2017, CPI commenced an arbitration proceeding against TSE seeking damages for TSE’s alleged breach of contract with respect to certain project performance metrics, among other claims. In 2018, TSE asserted counterclaims against CPI.
Then in March 2019, the same component essential to the power plant’s operation failed a second time and again required significant repair. Consequently, the plant has been unable to generate electricity — and revenue — since April 2019. At the same time, the market price of renewable energy has dropped below the rate established in the project’s exclusive energy offtake agreement. Given these market realities, combined with the inoperability of the project during its ongoing repairs, the project’s sole electricity purchaser terminated its above-market energy offtake agreement in October 2019.
Faced with these challenges, TSE entered into negotiations with CPI and its investor affiliates (collectively, “Cobra”) and the DOE. On July 29, 2020, TSE and Cobra entered into a Restructuring Support Agreement that provided for a pre-negotiated chapter 11 plan and established certain milestones in connection with solicitation and confirmation. Thereafter, on July 30, 2020, TSE filed a petition for relief under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. As of the petition date, TSE owed over $425 million on the DOE loan, and the arbitration of its claims against CPI remained pending.
Along with its chapter 11 petition, TSE submitted to the bankruptcy court its pre-packaged plan of reorganization. Principally, the plan proposes to satisfy TSE’s obligations under the DOE loan and settle all claims between TSE and Cobra. In particular, the plan provides for, among other things:
· a $200 million cash payment to the DOE financed by Cobra;
· a $100 million contingent note in favor of the DOE guaranteed by Cobra;
· dismissal of the TSE-CPI arbitration and a mutual release of the claims at issue therein;
· 100% of the reorganized company’s equity vesting in Cobra; and
· the unimpairment of all other claims.
The bankruptcy court approved TSE’s disclosure statement on Sept. 4, 2020. In doing so, the court overruled the objection of one of TSE’s equityholders that characterized TSE’s plan as patently unconfirmable, since, among other things, it allegedly strips existing holders of value while transferring the company to Cobra, the very entity allegedly responsible for the power plant’s current operational failures. TSE has rejected this characterization; rather, TSE maintains that through confirmation of the plan and upon emergence from chapter 11, the solar power plant project can return to full operation capacity. A hearing to consider confirmation of the plan is scheduled for Oct. 27, 2020.