U.S. utility-scale solar increasingly driven by economics, not mandates

This is going to be a massive year for utility-scale solar in the United States. Driven by a number of projects which were scheduled to come online before the expiration of the Investment Tax Credit, which has since been extended, GTM Research expects 12 GW of utility-scale solar to be installed by the end of the year.

And while state-level renewable portfolio standard (RPS) policies have driven the large majority of utility-scale solar installed to date, this year could be different. A new report by GTM Research, The Next Wave of U.S. Utility Solar, predicts that this year only 48% of the utility-scale solar PV which will be put online will be driven by these mandates.

GTM Research expects the other 6 GW to be driven by economics, including both the raw cost advantage due to falling prices and the stability of long-term solar contracts versus fluctuating natural gas costs.

“Utility-scale projects are now economically competitive with other generation sources and are meeting utilities’ peak power needs,” explains the report. “Second, utility-scale arrays lock in multi-year pricing agreements, offering stability compared to more variable natural gas prices.”

GTM states that the ceiling for solar power purchase agreements (PPAs) has fallen below $60 per megwatt-hour (MWh), and estimates that the average installed cost per watt for utility-scale solar fell to $1.45 per watt in 2015. Individual projects can be lower, and Palo Alto is currently considering a utility-scale solar PPA for $37 per MWh, the lowest price known to pv magazine to date.

Of the 6 GW of utility-scale solar to be installed this year outside of RPS requirements, half is in the states of Texas and North Carolina, with large volumes also in Georgia, California, Utah and Idaho.

2/3 of this capacity is through voluntary procurement by utilities. While municipal utilities in Austin and San Antonio, Texas were early leaders, utilities in a dozen states in the Mountain West, South, Midwest and Atlantic Coasts are voluntarily procuring significant volumes.

A second significant driver is a landmark energy law from the 1970s. The Public Utility Regulatory Policy Act (PURPA) mandates that utilities must purchase electricity from independent producers if it is below their cost of generation from other sources, called “avoided cost”. While this number in the past was too low for solar generation to benefit, record low prices for solar PV are changing this.

PURPA is an important driver of solar projects in North Carolina, Utah and Idaho, although changes by Idaho regulators are expected to close off that state market.

Finally, an increasing number of corporations are choosing to sign PPAs with off-site utility-scale projects. GTM Research names Amazon, Google, Kaiser Permanente and Cisco as some of the more active companies in this space.

In the long run, GTM Research Solar Analyst and report lead author Colin Smith expects voluntary procurement to remain the leading factor. “I think they are really going to start stepping up,” Smith told pv magazine. “One of the more interesting signs is moving from the investor owned-utilities dominating that to municipal utilities and cooperatives.”

?“I think we are going to see a snowball effect of more utilities procuring solar because it is cost-effective and meets their needs.”