A Solar Story from Arkansas Shines Light on Q1 Utility-Scale Market

By Chirag Pansuriya and Ryan Edge

Demand for renewable energy among large corporations has expanded significantly in the past few years, spurring the growth of solar power in many areas of the country — even in decidedly slow-growth markets such as Arkansas. A case in point — at the end of March, Aerojet Rocketdyne, an aerospace and weapons manufacturer located in Camden, Arkansas, started receiving power from a 12-megawatt (MW) solar project that nearly quadrupled the state’s solar power.

The Aerojet Rocketdyne solar project. (Photo courtesy of Silicon Ranch Corp.)

Beyond its size and location, the project is significant for two reasons. First, Aerojet is neither a big-box retailer nor an Internet high-tech firm, the companies that have been the most visible drivers behind corporate renewable energy projects. Second, is the involvement of two electric cooperatives — Ouachita Electric Cooperative (OECC), Aerojet’s local utility, and Arkansas Electric Cooperative (AECC), OECC’s contracted power provider.

Cooperatives are comparatively late to the field in large-scale solar power, primarily because they are not usually subject to the same renewable energy mandates as their investor-owned counterparts. Co-ops are either exempt or subject to lower thresholds, and Arkansas has no renewable standard whatsoever, which makes the Aerojet project even more noteworthy.

However, cooperatives are close to their communities and in touch with their members, as seen in the leading role co-ops have played in the development of community solar projects across the country. And those community ties played a significant role in the Arkansas project.

Motivated by a commitment to sustainability and the local community, Aerojet began by working with Southern Arkansas University Tech (SAU Tech), the area’s community college, to develop an energy project to capitalize on local resources. When early ideas to use lignite coal or biomass didn’t pencil out, the falling cost of solar power and Aerojet’s previous success with a 3.5-MW solar project in California made PV an increasingly attractive and feasible option.

Corbet Lamkin, who was, at the time, chancellor of SAU Tech and also sits on the OECC board, helped bring in the cooperatives. The idea of solar may not have been a huge stretch for OECC. The co-op already offers its members a suite of options to improve the energy efficiency of their homes, for example, free energy audits and on-bill financing for home efficiency upgrades.

But the fact that OECC, like many local co-ops, is a distribution-only utility that must contract for its electricity from a regional power generator — in this case, AECC — made structuring a power purchase agreement (PPA) for the project more difficult.

Enter Silicon Ranch Corporation, a Nashville-based solar developer, that built the project under a unique 25-year PPA with both Aerojet and AECC. (See Figure 1) Under the contract, Aerojet Rocketdyne is the primary PPA offtaker, receiving up to 100 percent of its electricity from the solar plant, and AECC purchases all excess generation. The contract differs from most multiparty PPAs, in which individual offtakers contract for a fixed share of system capacity.

Figure 1: The Aerojet Rocketdyne PPA

The contract also allows for energy from the solar project to be bundled with its associated renewable energy certificates (RECs), meaning that Aerojet and AECC receive RECs in proportion to their share of solar energy. At present, Arkansas does not have a market for RECs, but certificate ownership can be a significant driver for corporate customers in other markets.

Meanwhile, OECC interconnected the project to its distribution grid and will continue to provide Aerojet’s electricity beyond what the solar project generates. According to Mark Cayce, OECC general manager, the project benefits co-op members by ensuring predictable energy prices, while contributing to local economic growth.

The project also won the Arkansas Department of Environmental Quality’s Environmental Technology, or TECHe, Award, announced on Earth Day in April.

The Aerojet project underlines cooperatives’ growing interest in utility-scale projects, even without key corporate customers as offtakers. Last November, Kauai Island Utility Cooperative completed the 12-MW Anahola project, a co-op-owned plant with energy storage. Looking ahead, three cooperatives in Georgia will be splitting the power from a 131-MW project currently under construction and due to come online later this year.

Q1 pipeline signals market acceleration ahead

According to SEPA’s annual utility survey, at the end of 2015 Arkansas had 4.3 MW of solar capacity in operation, none of which was utility-scale. With no renewable portfolio standard and comparatively low retail rates, solar adoption here has lagged behind the rest of the United States.

However, the Aerojet project shows those economics may be changing. Entergy Arkansas, the state’s largest investor-owned utility, last year announced plans for an 81-MW solar plant, which is now in the early stages of development.

Nationally, the solar market had a tepid start in the first quarter of 2016, with 240.7 MW brought online across 23 projects. As of the end of Q1, the cumulative installed capacity for utility-scale solar across the country is 11,033 MW.

Figure 2: Utility-scale solar market by quarter.

Cementing its place as a leading market, North Carolina was the top state for new solar in Q1, with 16 projects totalling 80 MW. California, usually the market leader, followed with three projects totalling 78.7 MW.

The largest project completed during the first quarter was a 38.7-MW phase of NextEra Energy’s Blythe Solar 110 Project, a 110-MW project near the Southern California city of Blythe, located near the Arizona border.

But other projects showed the impact of customer-driven projects such as Aerojet. Perryman Solar Farm, in Maryland, is a 20-MW project providing power to the Archdiocese of Baltimore, Harford County and City of Baltimore under multiyear agreements with Constellation Energy, a subsidiary of Exelon Corp. According to the Harford County Council, this deal could save county upward of $1 million in energy costs.

The Q1 slow-down could be due in part to the extension of the 30-percent federal investment tax credit in December, which has given developers a longer window for project completion. In fact, the robust pipeline of projects now in construction or recently announced indicates strong market acceleration ahead. The construction pipeline grew 302.9 MW during the first quarter — up 42 percent from a year ago.

Significant projects, for both size and location, include two 74.5-MW projects owned by Florida Power & Light Co., and a 5-MW project under contract with Lincoln Electric System in Nebraska. More than 6,000 MW are now under construction nationwide, more than 5,400 MW of which are scheduled to come online this year.

Figure 3: Year-over-year comparison of utility-scale solar market growth.

New projects totaling 271 MW were announced during the first quarter, driven in large part by the 100-MW Holliday Creek Solar Project that EDF Renewable Energy plans to build in Webster County, Iowa. The project underlines, yet again, how solar’s increasing cost competitiveness is expanding the solar market into new geographic areas. According to EDF officials, the location was selected due to the price and suitability of the land, available transmission capacity and the community interest.

Thus, while numbers for completed projects are not, initially, impressive, 2016 has started with significant evidence of the utility-scale market expanding into new states and regions. The Aerojet Rocketdyne plant, among others, shows customer-driven growth, while the Nebraska and Florida projects breaking ground are examples of utility interest in solar projects that are not mandated through a state renewable standard. SEPA will continue to monitor these emerging trends.

Ryan Edge is a SEPA research analyst. He can be reached at [email protected].

Chirag Pansuriya is a research intern at SEPA. He can be reached at [email protected].

Disclaimer:
This analysis by the Smart Electric Power Alliance (SEPA) draws on primary data from SNL Energy and independent sources. SEPA’s quarterly or annual totals may differ from other sources for a variety of reasons. All SEPA megawatts are utility-compatible grid capacity (AC); SEPA’s totals also include only projects 5 megawatts or greater. Project announcement, construction and completion dates can be interpreted differently and assigned to differing quarters or years. Updates or corrections are welcome; send to [email protected].