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Cheapest Solar Ever? Austin Energy Buys PV From SunEdison at 5 Cents per Kilowatt-Hour

Texas utility Austin Energy is going to be paying 5 cents per kilowatt-hour for solar power, and it could mean lower customer rates.

City-owned Austin Energy is about to sign a 25-year PPA with Sun Edison for 150 megawatts of solar power at “just below” 5 cents per kilowatt-hour. The power will come from two West Texas solar facilities, according to reports in the Austin American-Statesman. According to reports, around 30 proposals were at prices near SunEdison’s. Austin Energy has suggested that the PV deal will slightly lower rates for customers. 

This is one of the lowest, if not the lowest, reported prices for contracted solar that we have seen. Last year, First Solar (FSLR) entered a 25-year PPA in New Mexico for 50 megawatts of solar power at 5.79 cents per kilowatt-hour. That number included a significant PTC from the state. The Macho Springs project, the Austin project and most solar projects of this nature rely on the 30 percent federal Investment Tax Credit.

Austin Energy’s net sub-five cent price does not include any state PTC, according to Monty Humble of energy development firm Brightman Energy LLC. He said that the utility was “to be commended” for this solicitation. Humble added, “Based on our analysis, it can be done. There’s not a whole lot of profit in it, but it’s not a loss leader. It’s a legitimate bid.”    

GTM Solar Analyst Cory Honeyman points out that “new PPAs signed in North Carolina fetched prices between 4.5 and 5 cents per kilowatt-hour.” Like Macho Springs, those projects could also take advantage of an in-state tax credit to make the economics work. Honeyman said that none of the projects in Georgia or North Carolina were larger than 20 megawatts, so 5 cents does seem like “an unprecedented low for large-scale projects.”

Bret Kadison, COO of Austin-based Brazos Resources, an energy investment firm, said this was “a highly competitive solicitation.” Although historically, “Texas hasn’t been a hotbed of solar, you’re starting to see that change. ERCOT needs the generation.”

He expects to see more solar activity “not just as a green source of energy, but as an affordable source of energy. Texas is seeing economic growth, but the power grid has not kept pace.” Kadison added, “When you think about the volatility of natural gas, a 25-year PPA starts to look pretty attractive.”

Kadison notes, “This is below the all-in cost of natural gas generation, even with low fuel prices and before factoring in commodity volatility and cost overruns.” He also points out that the original RFP was for 50 megawatts, but the utility ended up buying 150 megawatts “in a red state where hydrocarbons dominate the political landscape.” Kadison suggests that “one of the biggest cost reduction drivers that allowed solar to reach this parity came from the massive reduction in financing costs.” 

The 5-cent price falls below Austin Energy’s estimates for natural gas at 7 cents, coal at 10 cents and nuclear at 13 cents. The utility points out that it approved a 16.5-cent price for the Webberville solar plant in 2009.

Austin Energy has a 35 percent renewable energy resource goal by 2016 and a solar goal of 200 megawatts by 2020. The utility is currently at about 25 percent, much of it made up by its 850 megawatts of wind.   

Humble of Brightman Energy said, “I expect that this will force a lot of players to reexamine their approach and get far more aggressive. Because of the size of the ERCOT market and the size of the state, Texas is potentially the largest solar market in the country.” According to GTM Research’s 2013 U.S. SMI report, Texas ranked 8th in the nation with 75 megawatts installed in 2013.

GTM’s Honeyman notes, “This is the second major announcement in which a utility has stated plans to procure more than 100 megawatts of solar PV based on its cost-competitiveness with natural gas, as opposed to RPS-driven demand.”

If developers continue to bid in at these prices — it won’t be the last.

Lazard’s estimates of unsubsidized levelized cost of energy

greentech mediaGreentech Media (GTM) produces industry-leading news, research, and conferences in the business-to-business greentech market. Our coverage areas include solar, smart grid, energy efficiency, wind, and other non-incumbent energy markets. For more information, visit: greentechmedia.com , follow us on twitter: @greentechmedia, or like us on Facebook: facebook.com/greentechmedia.

Content Discussion

Nate Gilbraith's picture
Nate Gilbraith on March 13, 2014

Was the PPA for 150MW from a utility scale solar array, or were smaller arrays bundled together?  This is very interesting news, especially given the price comparison with NG, coal, and nuclear.

 

Nate

Bas Gresnigt's picture
Bas Gresnigt on March 13, 2014

That lowest price will be surpassed by much lower prices within some years!

Gary Tulie's picture
Gary Tulie on March 13, 2014

Every situation is different in terms of the network costs which might be incurred through the need to balance power and demand.

The main important factors are the proportions of different types of generation, the inherent flexibility of the existing system, the degree to which intermittent sources tie in with peak demand, and the degree to which the grid is interconnected with adjacent grids which can share the balancing duty, and the efficiency of the market at monetising balancing services.

Texas could potentially get certain advantages if states to the West of Texas develop large amounts of solar power as sunset in New Mexico, Nevada and California is progressively later in the day so potentially meeting evening demand in Texas. 

In Texas in the summertime, air conditioning makes up a substantial part of the load and is fairly well linked to sunshine levels – especially if some panels face West rather than South. 

Where hydro-power is a significant contributor, but is constrained by water availability, solar is an excellent pairing, as water can be kept in the dam throughout the day and released in the evening to cover the power lost when the sun goes down. 

Clayton Handleman's picture
Clayton Handleman on March 13, 2014

What is talked about very little is the societal costs of not finding ways to increase the percentage renewables used.  In general, the discussions pay lip service to climate change and other externalities and then ignor the fact that those costs are not monetized and do a straight economic analysis based upon the currently rigged grid market as it exists today.  But even in a discussion that weasles out of discussing externalities there are other aspects that are not monetized that could and should be. 

Our current system has minimal provision for rewarding load shifters.  I would love to have an electricity market where I am billed for time of use and I get the benefit of curtailing my use at peak demand times.  Why should I subsidize people who are too lazy to do the same?  This is what the smart grid offers.  A method for creating a real market for electricity.  A free market for electricity.  Take the duck curve for example.  People typically run their dish washers right at the peak.  If they had to pay for the spike then there would be demand for dishwashers with timers so that they could be set to run at 3:00am when demand has dropped.  Undoubtedly, some would run their air conditioners a little less if they could derive the appropriate financial benefit for doing so.  This would be a win for everyone except the folks who want to postpone the shift away from fossil fuels. 

Fossil fuel apologists are busy spinning yarns about how time of use metering would be a terrible thing because people would be exposed to the highly variable rates.  People are already forced to pay for the variable cost of power but it is hidden from them.  Things would change very little in terms of increased costs because those spikes would still be averaged over the one month electricity bill as they currently are.  However with TOU metering people would have the transparency to see this and do something about it.  They say this is a disadantage to the poor – how does that work exactly.  It would benefit the poor because they could proactively lower their rates through modifying habits.  The average rates would also decline due to load shifting creating less demand at peak thus benefitting everyone including the poor.

The sites that would not be so happy are industrial users such as semiconductor fabs.  Since they would not be able to curtail load at the time of spiking.  As such they would have the option of purchasing their own generation such as microturbines which could act both as the backup they should have anyway and as an alternative to spiking power.  Why should residential customers pay to stabilize pricing for industrial customers that may not have the same flexibility. 

What does all this have to do with renewables, as prices drop, a free market for generation and load would likely lower costs for those willing to adjust habits.  The grid would be far more forgiving of the intermittency of renewables and we could move towards a much cleaner power infrastructure.

 

Gary Tulie's picture
Gary Tulie on March 14, 2014

Very true William, though these costs do vary with the amount of capacity installed, the energy mix, demand patterns and location. 

Let us not forget also that Solar is not in a unique position in having subsidies either direct such as tax breaks, or indirect such as writing off the cost of pollution from fossil  fuel plants or state underwrighting of nuclear plant insurance. 

A truly inclusive comparison of all costs for all energy sources would I think show that the real cost of solar in the lowest cost areas are or very soon will be attractive compared to that of fossil fuel generators, wind, hydro or nuclear power. 

Gary Tulie's picture
Gary Tulie on March 14, 2014

William, to be clear, what figures are you using for the unsubsidised cost of various sources of energy taking into account both overt subsidies, and hidden subsidies such as fossil fuel burning plants not having to pay for the costs of climate change?

Is there any energy source that taking everything into account is substantially less costly than 12c / kWh – your own figure for the unsubsidised cost of solar in the South West USA? 

Robert Emery's picture
Robert Emery on March 14, 2014

I would like to see more information.  Five cents/kwh does not say much. Utilities pay an energy rate, capacity rate and sometimes a Bonus.  Then depending on Utility there are time of day rates, peak, mid-peak and off-peak and not to mention any subsidies.

Robert Bernal's picture
Robert Bernal on March 15, 2014

After reading the pros and cons of solar, it seems it would take less material, and therefore less money (and less pumped hydro) to simply build closed cycle meltdown proof nuclear. If of the molten salt variety, would be able to actually desalinate water as a byproduct

Gary Tulie's picture
Gary Tulie on March 16, 2014

Seth

The NREL US installed costs are not reflective of the current prices for installed solar. At utility scale costs are now around $2.00 per watt – a price now being achieved even at domestic scale in Germany, The UK, and Australia. 

US costs are substantially higher than other countries because of inconsistant regulations, and expensive beurocratic processes, an unnecessary cost which is finally starting to be addressed in some US regions. 

Based on the current installed cost of $2 per watt, even on your calculation basis, electricity cost is therefore more like $0.222. 

Regarding the 15% return on investment that has attracted the likes of Warren Buffet, the returns are higher than necessary to make solar attractive. In the UK large solar above 5 MW receives 1.5 ROCs per kWh incentive valued at around $0.10 per kWh over and above a PPA or spot market sale of the electricity. This puts the gross selling price of large scale solar at around $0.18 to $0.20 /kWh. It should of course be noted that Califirnia has areas where solar yield is twice as high as the UK. Therefore, if utility scale solar could be installed in California at UK costs, it would be possible to run a profitable project based on a PPA of around $0.09 to $0.10 / kWh without any tax or other incentives.

Bas Gresnigt's picture
Bas Gresnigt on March 16, 2014

Really amazing how inefficient, once efficient USA becomes.

In Germany, solar delivers now for €9.3cent/KWh (=~$12cent) to the grid without any further subsidy.
Price for new installations going down with ~1%/month.

While solar radiation in Germany is roughly only 50% of that in Austin.

Joe Deely's picture
Joe Deely on March 18, 2014

Christopher,

Unclear where you are going with all of your California comments.

 – Do you like/not like the current electricity market in CA?

– Do you think that the move to less CO2 in electricity production is a good direction? In other words , is this important?

– Are you unhappy with the planned move toward more renewables?

– Do you have a different – perhaps better – plan?

 

Clayton Handleman's picture
Clayton Handleman on March 18, 2014

Most who oppose nuclear power are thinking about the catastropic damages subsidy in the event of an outlier accident.  After Chernoble the industry said that it was because of the backwards communist ways.  But Fukushima reopens the question.  If we have a substantial accident the taxpayer will surely subsidize the heck out of the cleanup.  I think some of the newer approaches look promising but the light water reactors with their poor efficiency and higher risk, are troublesome. 

 

http://handlemanpost.wordpress.com/2013/08/19/externalities-of-nuclear-energy/

And then there are those externalities that many attempt to whisk away with the wave of the hand like the Jedi mind trick.  But of course, if there were no externalities, we wouldn’t even be having this discussion.  As long as they remain unmonetized subsidies should be viewed as nothing more than the swag to address them until the fossil fuel guys get around to admitting they exist and then we can put some real numbers in place. 

http://handlemanpost.wordpress.com/2013/04/06/externalities/

 

 

Paul O's picture
Paul O on March 18, 2014

Clayton,

I have to believe that some of that concern is from fearmongering and emotion. Frankly, the Catastrophy that served as a precursor to the Fukushima nuclear power “catastrophe”, namely the Tsunami, surely Beggars  the Fukushima nuclear power incident itself in terms of scope, of costs and of lives lost.

Clayton, what I am trying to say is that were a Catastrophe to knock out a nuke power plant, that catastrophe itself would surely render the effect of the Nuclear plant being knocked out minimal. This is more so if  Nuclear Plants keep being built  with all the Wisdom we have gained from previous failures and previous disaters.

This is the reason why Shipping still exists 102 years after The Titanic. Ship Builders, have built better Ships, and the public has kept sailing.

Bas Gresnigt's picture
Bas Gresnigt on March 19, 2014

… renewable power adds about 25% to the baseload electricity costs for profiling the grid...”
That is wild assumption only.
Even in March in much more nordic Germany (compared to California), solar takes the peaks.
Just check sheet 86 of this Fraunhofer presentation.

Btw.
Sheets 46 and 47 show the good predictability of solar and wind production, which allow for good planning.
Together with the highly distributed generation, so no sudden brake down of 1GW capacity as with power plants, a key factor in the exceptional reliable electricity supply in Germany (8 times better than USA).

Bas Gresnigt's picture
Bas Gresnigt on March 19, 2014

So hydro companies can save their water/capacity until sunset and then get better pricing.

Why should hydro produce in the middle of the day, when prices are low as there is more than enough power?

Bas Gresnigt's picture
Bas Gresnigt on March 19, 2014

People typically run their dish washers right at the peak.
Here in NL we have a day rate and a cheaper night/weekend rate.
So we run the dish washer always in the night.
The double tariff meter cost some extra, but it pays back if you consume above average. Nowadays the difference between day and night rate becomes less, due to the solar electricity (partly from Germany).

There is an intelligent metering implementation program going on in NL (we installed a law for that), but the problems are not easy to solve so progress is slow. We had already study groups in the nineties.

Some problems:
– from the readings, consumption per 15minutes, the utility can see what you do. Whether you are at home, may have a party, or have guests or never get guests, when you are at holiday, whether you work during the day off home, etc…
In the end, even US NSA may get that spy data.

– comparing which utility to choose best becomes even more complicated when the utility adapts the tariff each hour (in NL the average consumer can choose one out of ~10 utilities).

– So some trust relationship is needed. A code of conduct of the utilities towards consumers, guarded by an authority.

– standards for such meters develop further, as electronics improve.
So now we expect that the meter has a secure WiFi connection, which allow the inhabitants to read their consumption all the time together with the price/KWh, together with history, together with inside and outside temperatures, etc.
So the house owner can analyse his consumption and (solar) production more detailed (we can now already compare our consumption by the average of similar households, but that is rather coarse).

Bas Gresnigt's picture
Bas Gresnigt on March 19, 2014

… subsidy to allow solar installs without the same inspection, and certified electrician approved installations...”
There are a million rooftop solar installations in Germany. I have not read of any installation in Germany that generated harm.
So that bureaucracy has no added value at all in Germany regarding rooftop solar.

Where is the US spirit of enterprise regarding this field?
Seems USA becomes a bureaucratic backward country here. Even monopoly utilities.
Really amazing.

Bas Gresnigt's picture
Bas Gresnigt on March 19, 2014

Your real cost figure show how far behind US is compared to Germany.
In Germany the same solar installations are installed by investors without subsidy, while they get €92/MWh (=12$cent/KWh) during 20years.

While solar radiation in Germany is only ~50% of that in Austin.
Which imply that such installation would deliver a 6-7% profit in Austin with a price of 6$cent/KWh produced without any subsidy.
If USA had same efficiency as Germany
(both countries use primarily Chinese panels whose price is raised by ~same high import tax).

Gary Tulie's picture
Gary Tulie on March 19, 2014

Willem, your figures are 4 years out of date and only relate to direct monetary subsidies.

Solar costs have dropped hugely since 2010 with US installed cost dropping around 60% in that time.

If you look at the externalities of pollution, climate change, and health impacts, the total cost of coal fired power increases dramatically – with some authorities putting the hidden subsidy in the order of $160 / MWh (2011 dollars)

http://www.skepticalscience.com/carbon-the-huge-overlooked-fossil-fuel-subsidy.html 

Joe Deely's picture
Joe Deely on March 19, 2014

Why should hydro produce in the middle of the day, when prices are low as there is more than enough power?

Exactly.

It will also be interesting to see what solar does to gas prices on West Coast – once it starts to shave a large portion of gas usage during the day. This will happen in CA, NV and AZ.

In the longer run the two biggest issues for CA wil be:

– potential uneconomic conditions for gas plants 

– too much solar production during day in spring and perhaps late fall . Will need to ship some of that out of state – unless storage comes along more quickly than people think.


Gary Tulie's picture
Gary Tulie on March 19, 2014

Solar exports from Western states could be particularly useful transmission capacity allowing as peak generation in California coincides with the afternoon / early evening peak of demand further East. 

Clayton Handleman's picture
Clayton Handleman on March 19, 2014

“We had already study groups in the nineties.

Some problems:
– from the readings, consumption per 15minutes, the utility can see what you do. Whether you are at home, may have a party, or have guests or never get guests, when you are at holiday, whether you work during the day off home, etc…
In the end, even US NSA may get that spy data.”

 

Interesting and valid comment.  But I wonder what those study groups would say today.  After all, Target mines our data and knows when our baby is due – my cell phone company has my address book, I don’t even want to think about what google knows.  So if the utility happens to know when I am having a party, it seems small in comparison.  Course if someone is growing POT in their basement they will not be so happy.  The point is, in 1990’s many said that shopping online would never go mainstream because of security concerns regarding credit cards.  Now we are accustomed to companies knowing a whole lot about us.

But your point is a good one.  Every new technology brings with it the potential for good or evil.  It is up to society to build in the safeguards that we can and then develop a healthy morality to underly it.  Any system can be corrupted.

Clayton Handleman's picture
Clayton Handleman on March 19, 2014

A variety of solutions are being developed.  From added windpower, which kicks in about when solar drops out, to transmission line upgrades to access more northwestern hydropower.  Scroll to the bottom of this post to see the excellent match between solar and wind.  In the winter the match is not as good so solutions will be required for that time.  But, given California’s vigorous efforts to add renewables and their willingness to think out of the box, I think they are on a path to beating the duck curve.

Bas Gresnigt's picture
Bas Gresnigt on March 19, 2014

“..  The only alternative is hydropower…”
If there is hydropower, it should also be possible to adapt and make pumped storage against relative low costs.