Final countdown for solar costs in ‘next generation’ post-RPS world

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Hardly a conference, webinar or casual conversation between colleagues passes by without earnest discussion about what will happen when the Investment Tax Credit of 30% sunsets to 10% in 2016.

Even though Renewable Portfolio Standards are the main policy driver for utility-scale solar much less is said of what happens when compliance obligations have been met by 2020 (in states including California) or 2025 (in other states such as Nevada). In 2012, 1,769MW of utility PV was connected to the grid – 59% more than the cumulative total in all prior years, according to the Solar Energy Industries Association. That's a pace that won't continue. But what pace can we expect in the western United States by 2025 and how can the industry adapt?

According to a report published by the National Renewable Energy Laboratory late last month, developers and policymakers ignore the post-RPS world at their peril.

Beyond Renewable Portfolio Standards: An Assessment of Regional Supply and Demand Conditions Affecting the Future of Renewable Energy in the West is long on title but clear on its message.

David Hurlbut, an economist for NREL's market and policy impact analysis group and co-author of the report, said: “If you look past the era of RPS where demand was driven by state mandates, further growth is possible but it is predicated on being smart about where you site the solar or wind facilities.

“You want to find the locations that have the highest natural production potential – the ones that are windiest, the ones that are sunniest. But these ideal locations are not close to the large demand centres. Planning those interconnections requires many years of planning and many years of construction.

“The time to start thinking about what renewables will look like after the RPS period, the time to start thinking about those strategies, is now because it takes a long time to get the infrastructure in place if the options are to include large utility-scale development.”

The study sets out to examine the renewable energy resources likely to be undeveloped in Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming once RPS targets are fulfilled by 2025.

Cost forecasts were benchmarked against combined cycle gas turbine (plants) assuming a price for natural gas at US$7.50mmbtu to US$8.43mmbtu, a 25% increase from today's prices. The report also assumes a 5% cost reduction for solar.

“Any time you go too far out with your crystal ball, it starts to get very cloudy,” Hurlbut said. “We found that by the time we get to that 2025 timeframe, there's a reasonable likelihood that the capital costs of the technologies will not be the showstopper – costs will be reasonably competitive.”

The report focuses on utility-scale solar only – distributed generation has its own particular complexities, which made it difficult to include in the report, he said. In any case, RPS was almost exclusively designed to create a utility-scale industry. But that should not stop regulators from thinking about what this “next generation” renewable energy policy scenario will look like.

“From the regulators' perspective, what we have in this report will clarify what their long-term strategy would be,” he said. “Certainly, this study is not going to answer what that strategy should be, but it does provide more information so regulators and policymakers can have more informed discussions about what that future strategy should be.”

The western states will need up to 149TWh of renewable energy to meet RPS goals by 2025 – 60% of that demand will be from California. States like Nevada, Colorado, New Mexico and Montana will have more renewable resource potential than they could ever possibly hope to use in-state. California, Oregon, Utah and Wyoming have already developed the easier sites for renewable facilities, so prices for utility-scale development could be higher than 2012 prices.

If Nevada, Arizona and California are likely to have surplus resources, where does that leave developers? Even if they are not necessarily worried, they should certainly be planning ahead, said the NREL economist.

“Developers are always in a dialogue with regulators and policy makers about what those future directions should be and it's a very dynamic discussion. What I'm hoping this report will do is to eliminate some of the guesswork that goes into those discussions.

“Developers should focus on the target markets with the most likelihood of success and payback. We found some very interesting results for solar. There have been many discussions in the western part of the US about entry into the California market; solar developers in Nevada and Arizona have for quite a while been looking at the California market as a large opportunity.”

Arizona's population is on the rise, however. The US Census Bureau projects a 33% increase in Arizona's population to 9.5 million by 2025, making the state the second most populous after California. That's even more significant when you consider that Arizonans tend to need more electricity than their neighbours to keep their homes cool and their beer chilled [see graph].

California is about on track to meet its own needs for renewable electricity by 2025 in a low demand scenario, the report found. After 2025, developing renewables in the state could become more expensive and more widely dispersed, perhaps handing a golden opportunity to states such as Nevada, which have small populations and big renewable resources.

The report found the most pronounced cost sensitivity was for utility-scale solar from Nevada and Arizona delivered to California.

“It's going to be a very interesting dynamic because any technology cost improvement that would help solar developers in Nevada and Arizona would equally help solar developers in California. It's going to be a really tough market.

“The takeaway would be if those cost reductions don't happen; if current trends slow down, that is going to have an impact on the competitiveness of solar by the time we get to the other side in a current state RPS.”

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