Utility-Scale Solar Continues to Generate Good Vibes Among Utilities

Is utility-scale solar that feeds into the grid worth the money? A new report says that it is becoming cost competitive with other fuels and that it will become a fast-growing segment of the green population. GTM Research says that more than half of all such solar plants in 2016 will be built irrespective of state mandates.

The meaning of this? The firm says that utilities are procuring such power because it has value. That is, it is fairly priced and it is displacing fossil-fueled energy at the most expensive time of the day, which helps offset carbon emissions. At the same time, power companies are able to lock-in prices over several years, which provides price certainty while giving the project developers a guaranteed income so that they can build.

“The wheels are in motion for a historic year for the utility-scale PV market,” said Colin Smith, lead author of the report and solar analyst with GTM Research, referring to photovoltaic panels, in its release. “Utilities are embracing solar and voluntarily procuring vast amounts of utility-scale PV outside of (state) obligations.”

According to the firm’s report, the U.S. will install more than 6,000 megawatts of non-renewable portfolio standard utility-scale solar in 2016. That’s compared to the roughly 4,000 megawatts installed in 2015. Utility scale solar aggregates thousands of panels of together at a central location.

Utility-scale solar deals are eligible to receive a tax credit, which reduces developers’ tax bill dollar-for-dollar by up to 30 percent of a project’s worth. That happens to be a strong motivating factor, in addition to the long-term power purchasing agreements that utilities are signing with builders.

The GTM report says that the United States has installed 11,600 megawatts of total utility-scale solar. It adds that 80 percent of that is coming from projects procured by utilities because they need to meet states’ renewable portfolio standards that mandate they generate a certain amount of green energy.

No doubt, the utility-scale projects are expensive to build but they are also more efficient than individual homes and businesses installing rooftop solar panels: From a central location, the solar farms generate electricity that is delivered to the masses over the wires. Even Southern Co.’s Chief Executive Tom Fanning, who is in the business of selling solar panels to individual users says that the larger projects make more economic sense. His company is buying 900 megawatts of utility-scale solar capacity through power-purchase agreements.

“We are one of the biggest owners of renewables in the United States,” says Fanning, at a recent conference. “We are one of the biggest solar companies in America.”

Utility-scale solar has two components: First, it could be used for concentrated solar power that can generate huge amounts of power that is fed through the transmission grid and to end-users. Second, it can also refer to photovoltaic technologies that typically generate electricity via solar panels. They capture light energy from the sun and then use that light to drive an electric current.

But utility-scale solar has two fundamental hurdles to jump: The first is, well, that the sun doesn’t always shine and therefore it is less reliable than a base-load fuel like natural gas, coal or nuclear. The second is that it needs access to the transmission grid, which is congested in many parts of the country because all types of electrons must get transported to end-users.

But solar and natural gas might be a natural pair: When the sun is hiding, combined cycle natural gas plants could kick on. The reality is that Lux Research has said solar costs will continue to fall and eventually, natural gas prices will rise as more and more demands are put on it.

Solar power that is woven together with natural gas can maintain both electricity prices and grid reliability, the firm says. It expects a 39 percent decline in utility-scale solar systems by 2030.

“Solar’s eventual cost-competitiveness means increased gas penetration actually benefits it, by enabling hybrid gas-solar technologies that can accelerate solar adoption without subsidies and increasing intermittent renewable penetration without expensive energy storage or infrastructure improvements,” writes Ed Cahill, lead researcher for Lux, in the reported titled “Cheap Natural Gas: Fracturing Dreams of a Solar Future.”

As new technologies evolve and competition continues to intensify, the hope is that those prices will fall to 5 cents a kilowatt hour without subsidies. As a current benchmark, El Paso Electric and First Solar are entering into a 25-year power purchase agreement that is valued at about 5.7 cents with subsidies per kilowatt hour, all to finance a 50 megawatt PV project.

Will solar deliver? State mandates and financial incentives have worked to increase economies of scale. But if the GTM research report is correct, an increasing amount of utility-scale solar will continue to come on line without mandates. And that’s always been the goal.

*Chart provided by GTM research on its website