First Solar has announced the completion of the first 18 MW-AC phase of the Barilla Solar Project in West Texas, which will be 30 MW-AC when complete. This initial phase is in the final stages of the commissioning process, and may be the beginning of a new business model for the solar industry.
Barilla has no power purchase agreement, and First Solar plans to sell the electricity generated by the plant into the spot market on Texas' grid (ERCOT). While this is described as the "merchant" sale of power, First Solar notes that this may be a temporary arrangement.
We're open to certain types of contracts for entities interested in using the output from our Barilla as a hedge against rising peak power prices, so we don't consider this a merchant plant, that's why we've called it an "open contract" investment, explains First Solar Director of Regulatory and Public Affairs Colin Meehan.
It's pretty clear that First Solar has been trying to shop this project for a utility off-taker, explains GTM Research Solar Analyst Corey Honeyman. They are banking on the near-term attractiveness of the wholesale spot market in ERCOT.
While other operational solar plants in Chile sell electricity on the spot market, Barilla is the first such project to be completed in the United States.
Texas' grid is relatively isolated from the rest of the United States, and the project benefits from both excellent natural solar irradiation and high spot prices. This is particularly true during times of peak demand in the hot summers, which coincide with hours of solar production.
High peak power prices demonstrate the value that Barilla brings to the ERCOT wholesale market, says First Solar's Meehan. ERCOT is a dynamic market and recent decisions by the PUC to increase the wholesale offer cap and an administrative scarcity pricing adder definitely played a role on our decision to enter the Texas market with a competitive asset.
GTM's Honeyman agrees that market conditions make Texas uniquely suited for this arrangement. He also says that while it may take longer for the rest of the United States, due to falling prices other parts of the nation are approaching a tipping point where merchant solar may be viable.
And while merchant solar brings fundamental risks and a higher cost of financing as a new business model, Honeyman says that Barilla could pave the way for more merchant solar in Texas. When this project comes online and they see returns that pencil out well, it makes the case for additional projects in ERCOT.
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