In a surprising move, Austin Energy has closed its negotiations with SunEdison and signed a power purchase agreement for 150 megawatts with Recurrent Energy instead.
The new PPA, signed last week, has a term of twenty years, compared to the 25-year term proposed by SunEdison. Recurrent has confirmed that it was "awarded a 150-megawatt contract by Austin Energy" for the largest single solar power plant in Texas, due to be completed in 2016.
In March, we reported that city-owned Austin Energy was about to sign a 25-year PPA with SunEdison for 150 megawatts of solar power at "just below" 5 cents per kilowatt-hour. The power was to come from two West Texas solar facilities. But that news was premature.
This was one of the lowest, if not the very lowest, reported prices for large-scale contracted solar that we had seen in what we understood to be a very competitive bidding process. The news website Austin Monitor quotes Austin Energy officials as saying that the new contract was "under better pricing terms and more favorable contract conditions than the SunEdison proposal."
“The Texas market represents one of the most exciting opportunities for the solar industry,” said Arno Harris, CEO of Recurrent Energy, in a release. “The industry’s growing scale and decreasing costs are enabling us to successfully compete against conventional energy in deregulated markets like ERCOT." Recurrent now has a contracted portfolio of more than 1 gigawatt, according to the firm, with more than 2 gigawatts of solar projects in development in North America.
GTM Solar Analyst Cory Honeyman called the 5-cent price "an unprecedented low for large-scale projects." Austin Energy's net sub-five-cent price does not include any state PTC.
Bret Kadison, COO of Austin-based Brazos Resources, an energy investment firm, said this was "a highly competitive solicitation." Although historically, "Texas hasn't been a hotbed of solar, you're starting to see that change. ERCOT needs the generation."
Kadison notes, "This is below the all-in cost of natural gas generation, even with low fuel prices and before factoring in commodity volatility and cost overruns." He also points out that the original RFP was for 50 megawatts, but the utility ended up buying 150 megawatts "in a red state where hydrocarbons dominate the political landscape."
The 5-cent price falls below Austin Energy's estimates for natural gas at 7 cents, coal at 10 cents and nuclear at 13 cents. It has also been suggested that a developer could overbuild the solar project beyond the contracted capacity and sell into the spot market if the developer gained approval from ERCOT.
Austin Energy has a 35 percent renewable energy resource goal by 2016 and a solar goal of 200 megawatts by 2020. The utility is currently at about 25 percent, much of it made up by its 850 megawatts of wind.
According to GTM Research's 2013 U.S. SMI report, Texas ranked 8th in the nation with 75 megawatts of solar installed in 2013.