As the number of US solar installations soars, installers and developers are seeking opportunities to provide the clean power to institutional clients at rates that will attract financing, supply electricity at below retail rates, and still make a profit.
But with an array of incentives that vary from state to state, it’s not always easy for players to know how much a system needs to cost and still be financially viable.
That’s why DG Energy Partners, a New York-based research, advisory and brokerage firm for the solar sector, has come up with a new tool allowing solar industry players to calculate the cost of installing solar systems in each state.
The Solar Project Pricing Index, which DG says is the first of its kind, offers installers and developers a guide to the turnkey cost of developing photovoltaic systems across the US.
It divides the country into four regions according to their degree of solar radiation, which will affect the economic viability of systems, and then offers a matrix of dollar-per-watt installation costs based on power-purchase agreement prices and the level of incentives.
In Massachusetts, for example, the grid indicates that solar can be installed at a cost of $2.65 to $2.85 a watt if the client agrees to buy power at 11 cents a kilowatt hour – below the prevailing current retail price – and the incentive, which is SRECs in Massachusetts, at 20 cents/kwh for a three year contract.
In California, which falls into DG’s ‘very high’ solar-radiation region, a system will cost developers $2.81 to $3.04 a watt to install given a FIT rate of 15 cents/kwh, the tool indicates.
The index bases its pricing on a one-megawatt project, and uses current SREC prices at market levels for three-year contracts. It bases PPA prices on market information and assumes projects are financed entirely by equity, consisting of 60% from the sponsor and 40% from tax equity.
Local Variables
The Index, which is downloadable free from DG’s website, reflects the company’s finding that industry players, especially installers, find it hard to determine whether a proposed system will be viable given local variables, DG’s principals believe.
“We find many EPCs [those who engineer, procure and construct] coming to us not knowing what price a project needs to be if it is to be financially viable,” said Jonathan McClelland, the company’s chief of operations and strategy (McClelland is also a member of the Breaking Energy editorial advisory board). “There is a great deal of misconception of what a project can cost.”
DG is hoping the index will become a standard reference in the industry and a basis for continued expansion.
“We intend to foster growth and develop a more transparent market where people are looking at one set of assumptions,” DG’s director, Mike DellaGala, told Breaking Energy.
Katie Bush of San Francisco-based developer Tioga Energy called the index “a good starting point” in providing pricing information for solar system installers. She said installers’ prices are often “all over the board” especially in markets offering renewable energy certificates.
“I would love our EPC contractors to have these guidelines when they are submitting prices to us,” she said.
The new information may promote further growth in an industry that installed more than 61,000 PV systems in the US in 2011, more than doubling total capacity to 1,885 MW, and bringing the total number of operating systems to some 214,000, according to the Solar Energy Industries Association.
