Is utility-scale solar close to crossing a pivotal price threshold?

Utility Xcel Energy last month submitted a proposal to Colorado regulators that identifies 170 megawatts of solar and 450 megawatts of wind as the most cost-effective resources. It's the first time that Xcel Energy, which serves eight states in the West and Midwest, chose solar and wind in its planning process strictly for economic reasons, rather than to meet the state's renewable energy standard, according to the company. 

“This is the first time that we’ve seen, purely on a price basis, that the solar projects made the cut -- without considering carbon costs or the need to comply with a renewable energy standard -- strictly on an economic basis,” David Eves, CEO of an Xcel subsidiary, told the Denver Business Journal.

Xcel Energy won't be building solar or wind farms. Its plan is based on bids from project developers of solar and wind farms.

"A lot of those energy technologies have started to level the playing field and we are able to take advantage of that," said spokesperson Michelle Aguayo in an interview with Greentech Media.

In addition to the 170 megawatts of solar, the investor-owned utility called for nearly half a gigawatt of new wind, which it would also add through power-purchase agreements with third parties.

The utility would also use 317 megawatts of power from natural gas plants that already supply Xcel Energy. These plants can adjust their output to buffer variable wind and solar farms, Aguayo said. 

Although the cost to develop solar projects has dropped steadily in recent years, Xcel's plan to buy solar for purely economic reasons is an anomaly, said Shayle Kann, the vice president of research at GTM Research. Georgia's solar plan calls for adding solar outside of state renewable portfolio standards (RPSs), but otherwise, renewable energy mandates are driving utility-scale solar, notably in California and Arizona, where the bulk of new utility solar installations are located.

In the years ahead, though, the utility solar market will need to create demand with cheaper kilowatt-hours.

"This has to start becoming the norm before too long, because state RPSs won't be deciding utility solar, so there needs to be procurement on a pure economic basis," Kann said. "This should be the trend not only in Colorado, but in every other market for utility-scale solar to pick back up."

The federal Investment Tax Credit will fall from its current 30 percent to 10 percent in 2017 for business-related projects. Xcel’s proposal is based on bids for projects that would be installed by 2018.

Colorado has a renewable energy standard that requires investor-owned utilities to procure 30 percent of their energy from renewable sources by 2020. Xcel is already on pace to meet those demands, Aguayo says. As for maintaining grid stability in light of a higher penetration of renewables, she says that its current resource proposal does not include the addition of new transmission lines.

Other components of the plan include permanently closing a 109-megawatt unit at a coal-powered station and converting an existing coal plant to natural gas at the end of 2017. If all the measures were adopted, Xcel Energy says it would reduce its carbon dioxide emissions by one-third compared to 2005 levels. The state commission needs to respond to and amend the proposal by December 9.