Utility-scale solar starts 2015 with a whimper, but rebound to follow

By Ryan Edge

Following 2014’s fourth quarter and its record-breaking 1,617 megawatts (MW) of new capacity, the U.S. utility-scale solar market started 2015 with a temporary nosedive — but a healthy project pipeline that will likely drive a quick recovery.

Analysis by the Solar Electric Power Association (SEPA) shows an anemic first quarter with 13 completed projects totalling 213.3 MW — a 79 percent drop from the 1,022 MW of new capacity added in Q1 2014.

Table 1: U.S. Utility Solar Market Growth, New and Cumulative Capacity (MW). Source: SNL, SEPA Research

Still, the low numbers more likely represent a bottoming out of the market, and they contain some noteworthy developments among the utility-scale projects of 5 MW or more SEPA tracks for its quarterly market analyses.

— Bucking the historical trend of developer-owned projects, six of the 13 projects completed in Q1 are wholly owned by regulated utilities.

— The niche opportunities for merchant solar plants that bid into wholesale markets continued to expand this quarter with two new projects coming online, one in New Jersey and one in Massachusetts.

— The scheduled step-down of the federal investment tax credit (ITC) from 30 percent to 10 percent at the end of 2016 appears to be having two somewhat predictable impacts. It is one of several factors — such as compliance with state-mandated renewable energy targets — driving the pre-2017 new project pipeline. At present, 273 projects are set to break ground in the months ahead to ensure completion before 2017. At the same time, new project announcements — a mere 10 for Q1 — have all but dried up in the short term.

— Finally, for the first time since the third quarter of 2012, California gave up its No. 1 spot in the utility solar market, replaced in this case by Nevada.

While the utility-scale solar market typically peaks during the fourth quarter of any given year, then drops in the first few months of the following year, the transition from 2014 to 2015 produced an unprecedented gap of 1,400 MW. True, last year’s first quarter figures were bolstered by the addition of 502 MW of concentrated solar power, specifically from the Ivanpah and Genesis projects, both in California.

Read Ryan Edge’s 2014 utility solar market analysis here.

But even excluding those outliers, Q1 2015 posted less than half as much new photovoltaic (PV) generating capacity as the same quarter of the previous year.

One possible explanation for the wide disparity is that developers pushed projects to completion before year’s end in order to capture the ITC tax and accelerated depreciation benefits for their 2014 bottom lines. Regardless, with 71 projects totaling about 3,238 MW now under construction — including 184 MW being added to projects already in operation — the slump is expected to be short-lived.

The market should also get increased momentum from the 273 projects set to break ground in the months ahead to ensure completion before 2017. This pipeline includes 219 projects that are expected to construct initial phases and begin generating some power this year, ultimately providing 2,138 MW of new capacity when they are online.

Meanwhile, an additional 139 projects, totaling about 5,138 MW, are in advanced stages of development, with completion dates reaching out as far as 2020. As these numbers might suggest, some of these projects are potential megascale facilities of well over 100 MW, such as the 485-MW Blythe project and 280-MW California Flats project.

Diverse drivers signal market maturity

The fact that the utility solar sector can weather a significant seasonal fluctuation reflects its growing diversity and maturity.

Undoubtedly, the most noteworthy development emerging from the Q1 data is the spate of utility-owned power plants. Six of the 13 completed projects are owned outright by either Public Service Company of New Mexico (PNM) or Southern California Edison (SCE). Utility-owned projects have been rare in previous quarters; only six were added in all of 2014.

PNM’s three projects total 22.8 MW, while SCE’s three projects total 19 MW. Edison has a power purchase agreement for an additional 20-MW project bringing its Q1 total to 39 MW.

A small but steady stream of utility-owned projects also appears to be taking shape, with as many as nine more such plants under construction and an additional two in advanced stages of development.

Check out SEPA’s Utility Solar Database, the definitive source for information on utility solar projects, here.

Merchant solar plants, financed and built without power purchase agreements (PPAs), are yet another part of the market diversification underway. The 5-MW North Run solar project in New Jersey and the 6-MW Leicester solar project in Massachusetts were completed in Q1 as supply-side resources selling their generation wholesale into the PJM and ISO New England (ISO-NE) markets respectively.

The Leicester project is the first merchant plant over 5 MW in the ISO-NE region, according to SEPA’s data. While the specifics of wholesale market structures and practices vary between regions, only two other transmission operators in the United States — PJM in the mid-Atlantic and Midwest, and the Electric Reliability Council of Texas (ERCOT) — are interconnecting merchant solar power plants.

The Post-ITC pipeline: A megascale comeback?

As might be expected, given the low numbers, most of the projects coming online in Q1 stayed at the smaller end of the utility solar scale — 20 MW and under. But, two outliers totaling 130 MW gave Nevada more than half of the quarter’s new capacity, pushing California from its usual dominance of the market to the No. 2 position.

Again, California’s four projects totaled 39 MW, followed by New Mexico with three projects totaling 22.8 MW. Massachusetts, Texas, North Carolina and New Jersey each added one new project, all hovering between 6 MW and 5 MW.

Table 2: Q1 2015 New Utility Solar Capacity by State

Nevada’s outliers were Copper Mountain Solar II and III, both of which added final project phases to existing generation. As the quarter’s largest project, Copper Mountain III’s 71 new megawatts brought the project to 255 MW, while Copper Mountain II completed a final 59 MW, raising its total to 153 MW.

Southern California Public Power Authority is the PPA offtaker for Copper Mountain III, and Pacific Gas & Electric is the offtaker for Copper Mountain II.

Located near Boulder City, southeast of Las Vegas, the entire Copper Mountain complex will consist of four projects totalling 550 MW, developed through a partnership between Sempra U.S. Gas & Power and Consolidated Edison Development. The first phase, with 48 MW, was completed in 2010, and the final phase, which will total up to 94 MW, will start construction later this year with an expected completion date of 2016.

Which utilities and states led the utility solar market in 2014? Check out SEPA’s Top 10 listings here.

Meanwhile, the looming impact of the ITC step-down continues to depress the number of new project announcements, with Q1 posting the third decline in as many quarters. Further, among the 10 projects announced in the quarter, only two are scheduled to be completed before the end of 2016.

The remaining eight have yet to specify target dates for completion, but smaller projects with faster turnaround times can be expected as developers race to get under the wire for existing federal tax benefits.

All that said, as the solar industry continues to focus on driving down costs — for both hardware and balance of system “soft costs” — industry expectations for the post-2017 market remain guardedly optimistic.

A May 10 article on the Clean Technica website noted that new wind and solar accounted for 81 percent of total new generation in the United States in Q1, with utility solar alone providing 1 percent of the country’s total electricity generation capacity. The International Energy Agency has put solar at 1 percent of total global electricity generation capacity. While these figures seem relatively small, they represent strong solar growth rates that, if continued, other analysts predict, could result in energy market dominance in a matter of decades.

In such a scenario, Q1 could be a respite between 2014’s strong year-end performance and what could be the biggest year yet for utility-scale solar power.

Disclaimers: SEPA drew its primary data for this article 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 of 5 MW 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 with SEPA. He can be reached [email protected].