Utility-scale solar in 2014: Unpredictable, diverse and counting down to ITC sunset

By Ryan Edge

2014 was the year when the market for utility-scale solar stopped being predictable. The geographic, system capacity and policy trends that had been fairly consistent over the past five years underwent some noticeable changes last year.

• Perhaps most significant was the influence of the federal investment tax credit (ITC). From its role as a major driver of growth, the approaching termination of the 30 percent ITC at the end of 2016 is now a factor in the downsizing or withdrawal of once-promising projects that can’t complete construction before the deadline.
• In terms of overall gains, 2014 was utility-scale solar’s most successful year ever, with 115 projects of 5 megawatts (MW) or more completed for a total of 3,550 MW. By comparison, 2013 saw 78 projects add 2,201 MW, while in 2012, 26 projects accounted for 1,600 MW. For the purpose of its quarterly and yearly utility-scale market analyses, the Solar Electric Power Association (SEPA) defines utility-scale projects as those of 5 MW or greater.
• Beyond the raw numbers, data from 2014 reveal a greater maturity and diversity in the utility-scale segment of the solar market. For example, project procurement and ownership models other than power purchase agreements (PPAs) between utilities and solar developers are becoming more common.
• Markets outside the Southwest, including in coal-heavy states such as Utah and Indiana, are seeing substantial growth. The nearly 3,000 MW of projects now under construction comprise the highest level SEPA has ever observed.

Solar expands outside California and the Southwest

Geographically, California and the Southwest have led the utility-scale solar market, followed by a few states with discrete drivers for procurement, most notably, New Jersey, North Carolina and Massachusetts. While New Jersey and Massachusetts have robust markets in Solar Renewable Energy Certificates (SRECs) markets, North Carolina offers a generous calculation for avoided costs — the cost a utility would pay if it provided the power itself — under the Public Utilities Regulatory Policies Act (PURPA).

In addition, all three states have their own state-level incentives, as well as Renewable Portfolio Standard (RPS) mandates requring utilities to procure a certain percentage of their power from renewables.

But, the significant change on the map is the rise of markets in the Southeast and Midwest, where attractive economics, not policies, have made solar suddenly competitive with other resources.

The first big signal of change came when Georgia Power, which is not subject to an RPS, confirmed it was procuring solar power for around $65 per megawatt hour (MWh).

Read Ryan Edge’s insights and analysis on the utliity solar market  in 2014’s fourth quarter here.

Meanwhile, Austin Energy in Texas entered a PPA last year at slightly under $50 per MWh, a price that beats many new fossil fuel plants. The Tennessee Valley Authority (TVA) recently announced a $61-per-MWh PPA with NextEra Energy Resources to site and build an 80-MW plant in northern Alabama.

Idaho and Utah have seen a few hundred megawatts of PURPA-qualifying facilities seeking PPAs at around $70 per MWh. Such facilities are compensated at the utility’s avoided-cost rate.

System capacity of plants east of the Rockies also grew dramatically last year. In the past, SEPA typically reported projects in these states in the 5 to 10 MW range. Then last September, Duke Energy announced three projects in North Carolina sized at 65 MW, 40 MW and 23 MW.

In December, three electric cooperatives in Georgia partnered for a 131-MW project. TVA recently completed two 16-MW plants in addition to its 80-MW project. More projects larger than 10 MW are being developed in other states, including Indiana, Florida, Idaho and Utah..

Utility PPAs no longer the only way to go solar

Before 2014, utility-scale solar development seldom advanced without a utility PPA. Utilities rarely owned these plants, and nonutility offtakers were sparse. Now alternative forms of procurement and ownership are becoming more common.

Kauai Island Utility Cooperative in Hawaii, Public Service Electric and Gas in New Jersey, and Arizona Public Service in Arizona are a few recent examples of utilities that brought plants online that they own directly.

Corporations and other large institutions or public agencies with ambitious climate and energy goals are directly procuring renewable energy. Google, Apple, the University of California and Kaiser Permanente have struck significant PPA deals with solar developers for hundreds of megawatts over the past several months. Similarly, the U.S. military has been partnering with utilities and developers for solar power contracts.

Keep track of the utility-scale solar market with SEPA’s Utility Solar Database here.

Some plants are coming online with no PPA at all. First Solar is building the Barilla solar project in West Texas as a merchant power plant to serve the state grid operated by the Electric Reliability Council of Texas (ERCOT). Phase 1 is complete and already supplying energy to the grid at varying wholesale rates. First Solar is also selling smaller “slices” of power from the plant to two Texas universities.

Utility-scale solar is being sold into the PJM market in New Jersey, with the financial sweetener of that state’s SREC market.

The ITC takes on a new meaning

Responsible for much of utility-scale solar’s gains since 2006, the ITC is now accelerating project build-out ahead of the deadline. Expected solar power growth in the United States is strong for 2015 and 2016, but 2017 will see a dramatic drop when the ITC falls from 30 percent to 10 percent.

California’s Palen solar project is probably the most visible example. First, the concentrating solar power (CSP) project was reduced from two power towers to one, then withdrawn altogether despite passing significant regulatory benchmarks. Like other large-scale solar projects, Palen faced adversity from environmental and Native American interests, but officials for project co-developer BrightSource Energy cited the ITC deadline as a significant factor.

It’s where utilities talk solar — SEPA’s Utility Solar Conference, April 27-29 in San Diego.

The project has since been wholly acquired by Abengoa Solar, which has put it on hold pending a decision from Congress on the future of the ITC. Outside of Palen, two more CSP projects are in development, and a third, Crescent Dunes, is under construction.

The question now is whether the impact of the ITC deadline can be mitigated by  the other positive changes 2014 brought to solar markets. Greater geographic diversity, increasingly competitive economics and a broader range of offtakers should make the utility-scale solar sector more resilient as developers, utilities and the solar industry contemplate the possibility of a post-ITC market.

Sources: SEPA used primary data from SNL Energy and independent sources. SEPA’s quarterly or annual totals may differ from other sources for a variety of reasons. Megawatts are reported in alternating current (AC); SEPA’s totals only include projects of 5 megawatts or greater; project announcement, construction and completion dates can be interpreted differently and assigned to differing quarters or years.

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