Dive Brief:
- Utilities across the U.S. have procured almost 3 gigawatts of utility scale solar projects in the last year to take advantage of power purchase agreement (PPA) prices between $50 per megawatt-hour and $75 per megawatt-hour.
- Growth is being driven by post-2016 PPAs not coming from market-leader California’s 1% pipeline increase but from the 69% pipeline increase in the rest of the U.S. market.
- Justifications for new utility procurement of big solar include that it can (1) be cheaper than a new natural gas plant, (2) be a hedge against natural gas price volatility, (2) allow utilities to shutter coal, and (4) allow utilities to meet present EPA pollution rules and coming EPA emissions rules.
Dive Insight:
Numerous utilities across the country are buying solar. Rocky Mountain Power bought four 80 megawatt solar PPAs without an RFP when First Wind in Utah offered them at below natural gas prices, Kentucky’s Louisville Gas and Electric has an RFP out for 10 megawatts of utility-scale solar, Xcel Energy recently procured 100 megawatts of utility-scale solar in Minnesota, and NV Energy is proposing a 200 megawatt utility-scale solar purchase.
2012 and 2013 installation costs were below what utilities expected but national average PPA prices for 2013 increased slightly over 2012, suggesting utilities that want to own projects should act quickly to procure while prices remain low.
Developers with PPA in-service dates after the scheduled December 31, 2016, reduction in the federal Investment Tax Credit from 30% to 10% are signing pre-PPAs or contracting to sell into electricity markets without a contract in order to qualify for the higher ITC.
The top ten utility scale solar developers own 53% of contracted capacity but can take advantage of current low PPA prices by going to emerging state markets prepared to be price-competitive with natural gas.
