Nationwide, utilities face increasingly stringent renewable portfolio standard (RPS) requirements. California, for example, requires utilities to derive 33 percent of their electricity from renewable sources by 2020. As utilities examine options for renewable energy generation, solar continually emerges as an ideal solution for utilities looking to boost renewable generation using proven and cost-effective technologies.
Traditionally, utilities procured two basic forms of solar: small customer-sited projects, which offset the customer’s own electricity use (sometimes referred to as retail distributed generation) and large central-station facilities, to which the ‘bigger is better’ maxim has often been applied. To reduce the cost of these facilities to the absolute lowest possible price-point – on either a dollar-per-watt or cents-per-kilowatt basis – they have grown to enormous sizes, sometimes to hundreds of megawatts (MW). This has also been a function of utility procurement processes, which often use the delivered price of electricity as a sole awarding factor, thus favoring very large projects over small or mid-sized ones.
However, over the course of the past year, a new trend has emerged towards ‘wholesale’ distributed generation. This refers to solar projects that are sited close to load and may be interconnected to the distribution network, but are pumping clean, powerful solar energy into the grid for use by all of the utility’s customers in the area. These smaller-scale utility projects hit the sweet spot. They are faster to build, easier to interconnect, have fewer land-use and permitting pressures, while still benefiting hugely from economies of scale associated with larger projects, making them both competitive in the energy marketplace and more readily financed.
Here’s an example. California regulators use what’s called the ‘market price referent’ to compare the cost of renewable energy to conventionally produced energy. This is basically the cost of electricity produced by a hypothetical 500 MW natural gas-fired combined-cycle plant. In 2010, for the first time, we saw bids for solar projects below the market price referent. These weren’t mega-projects, either. In fact, all of these bids were for projects right in the sweet spot of ‘wholesale’ distributed generation, between 5 MW and 20 MW in size. I’ll note again that these bids were submitted in 2010. Global market shifts have reduced solar module prices even further than initially forecasted in 2011, down 30 percent or more year-over-year. While I can’t divulge specifics regarding our recent bids for mid-sized utility-scale solar projects, they have obviously benefited from this considerable reduction in module costs.
The lower costs and shorter development lead times associated with wholesale distributed generation enables utilities to begin adopting solar power and meeting regulatory compliance goals affordably and quickly. Distributed projects allow utilities of any size – and in any location – to incorporate renewable energy into their generation portfolio, starting at just a few megawatts.
Case in point: a couple years ago, Hawaiian utility Kaua’i Island Utility Cooperative (KIUC) began exploring its options for renewable energy sources to bolster its RPS. Although originally interested in a 10 MW combustion turbine generator fueled by biodiesel, the utility decided this year to allocate its funds for a 12 MW PV project instead. Cleaner, bankable, more cost-effective and more reliable, solar energy won out over another, less established technology. Moreover, the utility opted for a wholesale distributed generation installation, right in the middle of the 5 MW to 20 MW size sweet spot. With a project that was easier and faster to build, permit and interconnect while still benefiting from economies of scale, KIUC is just one of many utilities moving towards a third way – wholesale distributed generation.
This trend towards smaller, faster, easy-to-deploy utility-scale solar hasn’t escaped the attention of policymakers, either. California Governor Jerry Brown recently committed to installing 12 GW of distributed generation, a bold move that clearly expresses preference on the part of his administration for small and mid-sized renewable projects.
Likewise, utilities and regulators nationwide are developing and implementing programs and procurement processes for sweet spot wholesale distributed generation projects, spanning from utility-owned systems on rooftops to multi-MW third-party-owned projects interconnected to the transmission grid. Like dinosaurs and birds, squint your eyes and these projects resemble their large, hulking predecessors, but are evolved to be smaller, nimbler and better-suited for a modern landscape.
Ben Higgins serves as the Director of Government Affairs for Mainstream Energy Corp., where he works closely with company and industry leadership, as well as state and federal policymakers to craft policies that make for a more stable, sustainable business environment for solar electricity generation.