Bill Gross is known as a man with many ideas. During the dot-com days, he founded IdeaLab, a technology incubator that spun out a number of huge successes (GoTo.com, which became Overture, the model for Google's advertising juggernaut), as well as its fair share of huge failures.

In recent years, Gross has reoriented his focus towards alternative energy and sustainability themes. His latest company, eSolar, is a provider of medium-to-large scale concentrated solar power (CSP) plants that use innovative software to cut production costs. "We use smart software instead of more steel," says Gross.

The company has a raft of impressive investors including Google.org, Oak Investment Partners and NRG. The company is about to unveil its first working power production plant located in California. The plant will serve California utilities Southern California Edison and Pacific Gas & Electric (PCG). It has already been running for two weeks. DailyFinance spoke to Gross about eSolar, CSP, and the changing economics of solar power.

DailyFinance: If CSP is so great, why does it have such small market share in the alternative energy space?
Bill Gross: CSP is by far the lowest-cost solar energy there is. But it doesn't get subsidies like photovoltaics. You could say that 100 percent of all the market cap of all the PV companies in the world is equaled by the subsidies for PV installation and electricity generated by PV farms in Spain, Germany, Japan and other countries. CSP does not get a subsidy.

So, in a sense, CSP is competing on a much more level playing field against fossil fuels. That's why its gotten a much smaller market share. It was hard to compete with natural-gas plants. Also, PV is competing with the retail price of electricity, because of the government subsidies it receives, and also because utilities are forced to buy back PV-generated solar power from retail customers. CSP is competing at the wholesale price. That's why our new CSP breaks that barrier. We can finally compete without a subsidy with the price of natural-gas power generation in California. Until today, that has only been theoretical.

Daily Finance: Tell us about the new power plant you're announcing today.
Bill Gross: We've always thought CSP could be a great savior for solar electricity and alternative energy. It creates no pollutants and requires no toxic inputs like photovoltaics, and it doesn't need chemicals or expensive silicon processes. CSP is built out of steel and glass. So CSP can scale, but it was a matter of making CSP power plants cost effective. That's what we're doing with this plant.

Daily Finance: How?
Bill Gross: We have done something that no else has done. eSolar has built software that controls and directs tens of thousands of small mirrors that are a meter wide. We put a lot of processing power into it, and we use a lot of smaller motors to constantly correct the position of each mirror to maintain the perfect parabolic shape. It's a lot like the adaptive-optics systems on a giant telescope. No one else even builds a telescope without those systems anymore, because those systems constantly correct for small deformities in the shape of the light collection surface. These AO systems make a huge difference in image quality on the big scopes.

Daily Finance: So your system is more efficient for the same reason that AO telescopes have better images?
Bill Gross: To a small degree. The thermal energy harvest is moderately better than for standard large-scale CSP plants. But where we really win is the cost of construction. Our systems can actually be flat-packed. We can build the whole plant in a factory and fold it up with the wiring embedded and processors attached. We can ship that to a site in a container. Workers can lift it out, put it on the ground and the system can easily be unfolded.

It's a huge cost savings on labor because installation is so simple and fast. Labor in the field costs $45 an hour. Labor in a factory using a robot costs $1 per hour. We minimize the need for field labor. The result is that our CSP plants can be 30 percent to 40 percent cheaper to make and much faster to install.

Daily Finance: So other CSP plants don't do this?
Bill Gross: No, other people take glass and steel and form a large parabola the size of a tennis court. They use re-bar, huge trusses and hundreds of adjustable screws to curve the mirror. It takes a week to curve the mirror into the right shape. Then they use to huge motors to point that parabolic mirror at the sun and track it across the sky.

Daily Finance: For all alternative energy projects, getting financing has been really hard, even with the Obama stimulus package. How did you fund this first plant?
Bill Gross: With a lot of innovation and our own money. Our 50 megawatt plants cost $100 million rather than $1 billion for larger installations. We came up with a sizing scheme for CSP as a 50mw plant. That keeps the capital costs low enough and the land area required small enough to make it much easier to build these sorts of projects. We raised $170 million and we build the first plant, for $100 million, using our own cash. We have about $50 million in capital left.

Now that we have this plant running, banks can look at the risk factors. Not until we built this plant did NRG come look at the plant and decide to finance the next plant. The same thing happened with Acme in India. So these next plants we won't have to self-fund, and the utilities themselves may foot all or part of the construction costs.

Daily Finance: Usually it takes forever to get power plants permitted. Does that destroy your time-to-construct advantage?
Bill Gross: No, we've figured out ways to make it easier to erect a plant not only logistically and mechanically but also politically. We started construction of this plant last July, only a year after we purchased the land for the plant. We don't know of anyone who accomplished this in a year. And we think we can get it down to six months.

Here's how we did it. When everyone else makes these CSP plants, they have really tall towers. Its simpler to do that, because its easier to aim the mirrors, but tall towers are harder to permit. We decided to build out towards at roughly the same height as a standard electrical transmission tower. And we bought land next to transmission towers for our plants. If a nearby property has already been permitted for a permission tower, additional permitting time for a comparable tower is minimal.

We also avoided use of pristine land where an environmental impact study is mandatory. Instead, we purchased pre-tilled farmland. So an EIS or something like it was already done years ago. The land is already in commercial use. In effect, we are just taking over land that is already disturbed and putting a power plant on it. That makes the permitting process closer to a rubber stamp. Locating the plants next to existing transmission facilities made land costs higher, but it meant lots of other things were easier.

Daily Finance: Such as?
Bill Gross: A huge cost for building power plants is the transmission lines connecting the plant to the power grid. Greenfield transmission lines costs roughly $1 million per mile to build. And permitting takes about a year per mile. Building seven miles of new transmission lines will take seven years.

To avoid permitting lag and line-construction costs, all the land we purchased for our plants sits no more than one-quarter of a mile from an existing transmission line. Rather than figure out how to get the transmission lines from the plant to the grid, we looked for spots where we could build at least 46 megawatts of generating power right next to existing transmission towers. Land was only three percent of our total costs, and we saved years and years of permitting time.

Daily Finance: Will your plant be getting above-market rates for its power -- subsidies, in other words?
Bill Gross: We have already signed the power purchase agreements, but they are confidential with PGE and ConEd. But we can say that we did not have to go to the California Utilities Commission to ask for any rate payer increase to cover the cost of our PPAs. All other solar power plants in the Southwest have had to ask for a rate payer increase and an exemption. We did not.

This means our plant is competitive with other forms of power generation in California, such as natural gas. It also removes a barrier to scalability. Consumers and utilities don't want to pay for a lot of capacity that runs at increased rates, so utilities were incented to keep use of subsidized renewals to a low level. With our plant, that barrier is gone. Our plant is the first solar plant in the country to do this. Each tower can generate 2.5 megawatts. So you if you want to add more generating power, you can add a tower, and the cost structure scales. Our cost structure allows us to be a highly profitable gross margin company. Our plan is to be highly profitable with higher margins than the PV competitors.

Daily Finance: One problem with solar, though, is storage of power, right?
Bill Gross: That's not true. It's very, very hard to store electrons, which is what the PV companies have to do. But it's very easy to store thermal energy. If power plants could store energy efficiently, we wouldn't have anywhere near the challenges we have with the grid. Peak demand dwarfs average demand, so if the grid operators could store power produced in off-peak hours to use later, during peak hours, that would be tremendous. You can do that with CSP.

Built into the plant is 20 to 30 minutes of thermal storage, simply because the pipes stay warm. That's very, very useful. At the end of the day, our plant can run for 30 minutes after the sun goes down, and during the day, if there's ever a cloud shadow passing over, power doesn't go to zero. CSP production mirrors power demand.

Daily Finance: Twenty to 30 minutes of thermal energy storage doesn't seem like much.
Bill Gross: We can add more storage in any increment we like, if you put a big enough storage tank for steam, hot rocks, or hot salt. You take any material that's cheap and make a big heat tank out of it. We could spend $500,000 and make a million-gallon tank that's a giant heat collector.

Eventually, we will be adding storage to our plants. Our first customer doesn't want storage on the first plants, because they want all the energy at peak hours. And they are paying a bonus for all the power we give them during peak hours. In the future, when solar becomes a large part of the grid, up in the 5 to 10 percent range, then utilities will need storage and will want some of our power at night.

Daily Finance: One thing that several alternative-energy analysts have told me is that mechanical breakdowns are a real issue for wind power. They assume there would be similar issues for CSP plants because, after all, you use a lot of motors, actuators, and moving parts. How much of a problem is this?
Bill Gross: We are modeling a yearly maintenance cost of roughly 1.5 percent of construction costs. But we think that is extremely conservative. We have already had hundreds of thousands of operational hours to confirm we are better than that.

In fact, we think we're much better than most other alternative energy projects. First, our mirrors are very light, far lighter than a standard CSP trough or a PV panel. This means the motors are under far less strain. Second, the unit only moves from left to right once per day. Assuming that our parabolic mirror systems have a 10-year life, that means the motors are only moving 3,000 full revolutions over its entire life. The typical ball bearing in a car is designed for 1 billion revolutions. In tests we've run, our system handled the equivalent of 80 years of use and still did not break. We have had a test facility running for two years with 500 mirrors, and we've had a field test with 24,000 mirrors running since January. We have not had a single mechanical failure yet.

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