Utilities push forward with strategic investments in large-scale solar

Published on October 12, 2017 by Scott Sowers

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As the political winds in Washington seem to be blowing towards the increased use of coal and nuclear energy, the electric utility industry is doubling down on the power of the sun for a very simple reason.

“The cost of solar has gone way down,” noted Richard McMahon, vice president of Energy Supply and Finance at the Edison Electric Institute. The price for a kilowatt-hour of electricity on a utility scale has been cut in half from more than $4 an hour in 2010 to about $2 in 2015.

Photovoltaic panels have become cheaper to build as federal tax credits help spur the rise of solar. Solar has already achieved grid parity pricing with fossil fuels in some markets, which is drawing and holding the attention of several large utilities.

“It’s the utilities you would expect. They’re based in California, Hawaii and Arizona, but increasingly you’re seeing it in other parts of the county,” McMahon told Daily Energy Insider.

A recent report published by the Smart Electric Power Alliance (SEPA) charts a growth rate of 84 percent in 2016 for utility-scale solar interconnections. The segment includes power purchase agreements (PPAs), utility-owned systems not associated with customer accounts, and merchant power plants connected to the grid and selling into the wholesale markets.

The list of utilities adding the most megawatts in capacity include Pacific Gas and Electric, Southern California Edison, San Diego Gas & Electric, and Arizona Public Service in the west. In the east, the major players are Duke Energy Progress, Dominion North Carolina Power and Florida Power & Light.

Federal energy policy defers a lot of the fine grain utility regulation to individual states since energy trading methods vary across the country. Many of the early adopters of residential solar were led there by federal tax credits coupled with state tax credits created by renewable portfolio standards.

As the systems became more efficient and prices dropped the utilities began easing into solar by building their own solar generation systems and through PPAs in which third party developers build the solar farms.

Alex Hobson, senior communications manager for the Solar Energy Industries Association (SEIA), said, “In many parts of the country, solar is now the cheapest electricity option. Through Q2 2017, voluntary procurement has accounted for 59 percent of all utility-scale solar PPAs signed in 2017.” Voluntary procurement refers to moves into solar not affected by portfolio standards but rather market forces.

Portfolio standards are still in place and still greasing the skids for solar. But there are other factors.

Daisy Chung, research manager for SEPA said, “The utilities are being asked to provide greener choices – if the utility doesn’t offer it the customer might go elsewhere.”

The utilities are also working with third parties, some with roots in Silicon Valley to construct and market “community solar,” projects to apartment buildings or other residences that may not get enough sun exposure for solar to make sense.

The elephant in the room is the uncertain future of the Solar Investment Tax Credit, the financial incentive for homeowners who want to add roof mounted solar, buy into a PPA or participate in a community solar project.

Could uncertainty about the tax breaks be pushing the recent rise in utility scale solar?

According to K Kaufmann, a spokesperson for SEPA, “Uncertainty always affects things and obviously there is a fair amount of uncertainty going on right now in the market.”

Publically owned utilities and co-ops generally lack a tax appetite and yet these entities are also moving into solar. Furthermore, coal and nuclear have both fallen on hard times due to the low cost of natural gas and yet solar capacity continues to grow.

“There’s always a desire for utilities to have a diverse fuel stack. Solar is just another cost effective renewable resource and utilities are leading all investors in investments in solar in the last several years,” McMahon said.