Who says solar is too expensive?

Who says solar is too expensive?  In fact, in many places it is cheaper than the fossil fueled alternative.  How do we know?  Well, one place to start is to look at actual contracts for projects.

Attached here (Excel file)  is a chart of California Renewable Portfolio Standard contracts downloaded (and modified to show just solar contracts) from the CPUC website, here.

As of June 2011, California investor-owned utilities have signed and submitted for approval from the regulators 8,631 MW of contracts with solar companies. The exact contract price is kept confidential.  However, we do know whether the contract is above or below the Market Price Referent, or MPR.  The  ‘market price referent‘ is an annual calculation of the anticipated 20-year levelized cost of energy of a new combined-cycle gas turbine in California, and serves as a proxy for the cost of building new non-renewable power.

Of that 8.6 GW of signed contracts, 4,408 MW is below the MPR .   So there we have it.  Massive amounts of solar, for less than the cost of the fossil fuel alternative.

But wait!  There’s more.  This calculation does not include the utility DG PV programs or current feed-in tariffs, nor does it cover procurement from Sacramento Municipal Utility Department or the Los Angeles Department of Water and Power.  SMUD has its own success story: it is buying 100 MW of PV at a price set on its cost of fossil power—calculated out to be the equivalent of 14 cents/kWh.

And in January, Southern California Edison released the results of an auction for mid-sized renewable projects (systems up to 20 MW in size)…and the results were stunning.   250 megawatts of PV, all below the cost of a combined-cycle gas turbine.

And with recent low PV prices, there’s new market activity for even smaller installations.  California’s AB 1969 feed-in tariff law required utilities to offer standard 20 year contracts for renewable generation to systems up to 1.5 MW, priced at the MPR (note that the contracts also receive a time-of-delivery adder, which on a levelized basis modeled for PV production, using PV WATTS and assuming Sacramento as a proxy for statewide insolation, comes out as follows:  PG&E – 1.13, SDG&E – 1.24, SCE – 1.35) .  In the past, that level was too low to stimulate much, if any, market activity (generally speaking, larger installations, with greater economies of scale, have resulted in lower prices).  Now, there are over 420 MW of systems that have applied for interconnection with SCE, and PG+E has signed over 42 MW of contracts with PV generators under this program.  With the caveat that getting into the SCE interconnection queue does not require significant development security so there is no way of assessing the ultimate viability of these projects, the high degree of market activity is strong evidence that the reductions in PV module costs are resulting in previously unachievable solar rates.

And behind the meter distributed generation is also delivering.  California has an market-responsive incentive structure that declines in response to market activity.  Incentives for residential solar systems have dropped from $4.50/W to $0.35/W — yes, that’s right, 35 cents — and August set a record for the highest number of applications since the program’s inception.  With nearly 1 GW of self-generation installed and nearly 100,000 customers, grid parity — where solar can be generated for less than retail utility rates– is just around the corner.

Not all of the wholesale projects are going to come to fruition.  But many are already breaking ground, and with an increased focus on project viability requirements and development security, many of them will.  We’ve passed a major inflection point.  Solar, once viewed as too expensive to play a meaningful role in our energy future, is now scaling at prices less than the fossil fuel alternative.