First, states across the country are rapidly reaching grid parity, a long-awaited panacea for the persistent U.S. solar industry. As a quick refresher, grid parity occurs when the cost of generating renewable electricity falls below the cost of purchasing power from electric utilities. Said another way, grid parity makes switching to renewable energy a no-brainer. There are now 20 U.S. states that have reached grid parity as solar installation costs have continued to decline and retail electricity rates have continued to rise. Second, more than 50% of new utility-scale solar in the U.S. in 2016 will be driven by non-RPS obligated development. Although state-mandated renewable portfolio standards have bolstered utility-scale development in past years, the economics of solar now stand on their own enough to support the majority of new utility-scale installations. Let’s dive into what’s driving this sharp increase in mostly voluntary, large-scale development.
Among the 19 states with more than 50 MW of non-RPS, utility-scale development slated for 2016, some unlikely players in the Southeast appear, including SC, GA, FL, AL, MS, and AR. Although large-scale development is a positive sign within these emerging markets, retail customers rarely have the opportunity to directly participate in the benefits of a diversified fuel mix. The West Coast includes much more intriguing markets, including states like Oregon, which just this week passed a senate bill to incentivize utility scale development between 2 and 10 megawatts. California’s progressive utility companies are further up the learning curve and are now directly engaging retail customers in large-scale solar development, just not always for the customer’s benefit. For example, Marin Clean Energy, a community choice energy program, offers retail customers the option of procuring 50% or 100% of their power demand from utility-owned solar farms at rates that are about 3.5% below current retail rates. On the other hand, PG&E, through their Solar Choice program, offers customers the ability to opt into solar at a premium of 3.58 cents per kWh compared to current retail rates, meaning PG&E is charging their customers more if they choose to power their homes or businesses using solar. Although the Solar Choice program accomplishes similar goals of community solar, including access to solar for renters and homeowners with homes that are unsuitable for on-site PV generation, PG&E is actually using their own customer base as off-takers with PPA pricing that far exceeds competitive pricing for traditional utility-scale development. It makes sense that historically conservative utilities across the country are now embracing large, centralized solar generation, but the hope is that a growing number of consumers will also begin to benefit from the cost-effectiveness of utility-scale PV generation.
Corporates and communities ramp up 2016 pipeline
The EIA expects 9.5 GW of new solar capacity to come online in the U.S. in 2016. This comes one year after the solar industry added a record breaking 7.3 GW of new solar capacity, marking the first time in U.S. history that solar exceeded natural gas in terms of new capacity coming online. In addition to the notable increases in utility-scale generation, corporate buyers emerged as a major participant in the large-scale generation market. Companies like Apple, General Motors, Google, and Lockheed Martin are ramping up solar generation to power their own facilities, creating a giant marketplace that barely existed just one year earlier. According to the Rocky Mountain Institute, corporate purchases of renewable energy tripled in 2015 with more than 3.4 GW of installed capacity. However, 15 of the 20 announced deals were from first-time corporate buyers, so the jury is out on whether this pace can be sustained in 2016.
Much has been written about the growth of the community solar marketplace, and if we had to guess, industry estimates are actually conservative. New community solar programs seem to be announced daily, including a provision within the same Oregon solar bill mentioned earlier. New York is rumored to have pent up demand for community solar developments, and Minnesota’s community solar market is red hot. It was reported this week that BHE Renewables, a subsidiary of Warren Buffet’s Berkshire Hathaway Energy, purchased a 66 MW community solar portfolio comprised of 21 projects across 16 counties in Minnesota. The developer, Geronimo Energy, had previously sold 34 MW of Minnesota-based community solar to BHE Renewables, and seems poised for additional development with BHE Renewables as the take out partner. We will continue to keep tabs on the progress of both community solar and corporate solar purchases throughout this high-growth period.
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