Stat of the Week: Ten-Cent Solar, Market Price Referents

Solar developers’ bids have to beat $0.108 per kilowatt-hour to win work with utilities in California.

Eric Wesoff July 22, 2011

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

Yesterday we reported that PG&E awarded 50 megawatts of solar PPAs to three different parties.

According to the pertinent CPUC advice letter, "Each of the three PPA prices is below the 2009 MPR for the 20-year delivery terms of the contracts beginning in 2013." And according to this CPUC document, 20-year contracts in 2013 have a market price referent of $0.109. The chart and this week's featured number of merit is below.

This suggests that solar project price bids into the grid are undercutting the price for natural gas. That's both good and bad.

It's good because it looks like solar can compete head-on with gas peaker plant power pricing. It might be bad because it's created, in the words of Glen Davis, CEO of Agile Energy, "a hyper-competitive space."

Now hyper-competitive might sound like a good thing -- the invisible hand of competition and all that. But it's the pricing of PPAs that keeps Davis of Agile Energy "up at night," in his words.

In Europe's feed-in tariff scheme, you sell into the market at a set -- admittedly fat -- price. But for Davis or any solar developer to win a PPA in the U.S., the tendency is to offer pricing that just gets lower and lower over time.

"If you're going to participate, you have to be aggressive," said Davis.

But in bidding on projects for 2012, 2013, and 2014 -- with uncertainties about the cost of money, interest rates, and equipment prices -- "the result is that margins are increasingly thin" and it becomes questionable as to whether some of these projects can be brought to market without ruining the bidders.

In a related note, Herman Trabish wrote an article yesterday that quoted pricing in the best wind markets around the country in the three cents per kilowatt-hour range.