by Julia Pyper
October 03, 2016

Oklahoma isn’t known for having the most robust solar market. In fact, it doesn’t have much of a solar market at all.

The state is home to the eighth best solar resource in the nation, according to the Oklahoma Renewable Energy Council. But lower-than-average electricity rates and a lack of policy support have made it difficult for solar to thrive.

There were 5.2 megawatts of solar energy installed in Oklahoma at the end of 2015, which is enough to power roughly 570 homes. The state currently ranks 45th in the country for installed solar capacity, according to the Solar Energy Industries Association.

Wind energy, meanwhile, has boomed in Oklahoma in recent years thanks to strong resources, plummeting costs and an attractive wind energy tax credit (although wind incentives are now coming under scrutiny). Oklahoma currently ranks fourth in the country for installed wind capacity, with more than 5,000 megawatts of wind generation and more than 7,000 employees in the wind sector.

Now the state is leveraging its experience with wind to make a more meaningful move into solar, said Kylah McNabb, energy policy advisor at the Oklahoma Office of the Secretary of Energy & Environment.

“We’re leveraging the experience…we have in wind and applying those elements to taking a look at solar,” said McNabb. “I think the main thing that a lot of folks don't realize is that the solar resource that we have in Oklahoma is on par with our wind resource from a scientific standpoint.”

“Solar is very much in its infancy in Oklahoma, but that's what we see being the next tipping point; this is the next big market for Oklahoma,” she added.

Two years ago, Oklahoma's solar market was virtually nonexistent. But the conversation is shifting in oil and gas country. The build-out of more than 20 megawatts of solar is currently underway, and there are plans for an additional 200 megawatts or more over the next eight years. Power companies say they see strong potential for solar in the state and are now deploying projects to test the market.

"Excited to see where this goes"

In May, Oklahoma Gas & Electric (OG&E) completed construction of two solar projects totaling 2.5 megawatts -- the utility's very first solar projects. At the project launch, Republican Governor Mary Fallin championed solar as the latest advancement in the state’s long history of energy production.

“We’ve been an innovative leader in new technology, certainly in the oil and gas industry, but we’ve also been very progressive in looking at other technology, whether it’s becoming one of the leading states in the nation in wind power, which OG&E has incorporated along with natural gas,” she said, in a statement.

“Now to add solar power into our energy mix in our state is truly a great accomplishment,” Fallin added. “I’m very excited to see where this goes in the state of Oklahoma.”

Starting this week, Oklahoma customers will be able to sign up for portions of the array through OG&E’s new online enrollment platform. The program allows commercial and residential customers to buy solar for up to 50 percent of their load. Buyers pay a set rate of 10.7 cents per kilowatt-hour for the solar amount they purchase for 23 years, which serves as a hedge against higher rates. The online platform evaluates a customer’s rate and usage data to come up with an estimated solar value proposition.

Chris Greenwell, senior product innovation manager at OG&E, said the utility was already interested in building out a solar project to understand how it would fit in with the utility's existing energy mix, and whether or not there are any grid benefits to deploying solar. By opening up the project to customers, OG&E will also be able to accurately assess solar demand.

“We did market demand research, and we were surprised there seemed to be a lot of demand for a utility-scale project,” said Greenwell.

During a one-day beta launch of the enrollment platform, the utility had 640 pageviews and 21 customers sign up. The website is expected to formally launch again this week.

“We had the solar project that we decided to build for operational reasons, but it seemed like a good idea to try to create a product where customers could buy that solar so we could test…to see what the research said customers would do -- to test if they would they buy it," Greenwell said.

“To the extent we see customers want more, we’ll build more solar,” he added.

To further evaluate the market, OG&E put out a request for information last year on 50 megawatts of solar generation. Greenwell said the utility has identified the potential to build an additional 25 megawatts of solar, but has yet to put a plan into action.

Public Service Co. of Oklahoma is also planning to deploy significant amounts of utility-scale solar, but not for another few years. The utility’s latest resource plan includes adding 50 megawatts of utility-scale solar each year from 2021 to 2024.

Getting ahead of the game

The Western Farmers Electric Cooperative (WFEC), meanwhile, has already started to build out nearly 22 megawatts of solar across Oklahoma. WFEC supplies wholesale power to 17 electric co-ops in Oklahoma and four in New Mexico. The company signed its first wind energy agreement in 2003, one of the first in the state, and has been steadily buying more wind power since then. Only recently did solar start to make economic sense, said Brian Hobbs, vice president of legal and corporate services at WFEC.

“Pretty much every time we went out for an RFP looking for renewable energy, we asked for solar to respond as well, but economically we could just never make it work,” he said.

But that’s changed. When the company issued another RFP 14 months ago, solar pricing was much more attractive, said Hobbs. At the same time, WFEC saw strong demand for solar among its co-op members, which are located in rural areas and typically pay higher electricity prices than their investor-owned utility counterparts. Furthermore, WFEC’s portfolio is now saturated with wind, which Hobbs said doesn’t fit the region’s load shape very effectively.

“We wanted to start better understanding how solar and wind would integrate together and whether we could gain some synergy or advantages by adding solar to our resource mix to help better shape renewable energy to load demand,” he said.

“We also want to understand the long-term lifecycle costs of solar,” Hobbs added. “We saw an opportunity to own solar and maintain it ourselves, and believe we can do that and drive prices even lower versus purchasing from a third party like we’ve done with wind.”

The roughly 22 megawatts of WFEC-owned solar will be broken down into 18 megawatts of utility-scale projects built on five sites that are 3 megawatts to 5 megawatts in size. WFEC will use all the electricity locally.

In addition, WFEC is building 13 small community solar projects totaling 3.55 megawatts. The projects will become commercial in the next six weeks, said Hobbs, at which point homes and businesses will be able to directly purchase output from the arrays.

Hobbs said his company isn’t charging a premium for the solar, rather it's charging the actual cost for solar less the value of system benefits solar offers, such as peak load reduction. “Those benefits flow back through to lower the price difference between solar and other energy sources,” he said.

WFEC will own and operate all 22 megawatts of solar in Oklahoma. At the same time, the company is testing the third-party ownership model with the purchase of 25 megawatts of solar from a facility under construction in New Mexico that will serve the Southwest Power Pool. Pursuing both project types will allow WFEC to better understand the relative costs and benefits of ownership versus third-party purchases, and assess how solar performs in each model.

Hobbs said that solar is still twice the price of natural-gas power generation in Oklahoma, but there are other reasons why pursuing solar makes sense. For one thing, it’s a hedge against volatile and increasing fuel costs, because the company can lock in the price of energy for decades. Hobbs said he also sees stronger regulations on fossil fuels coming down the pike that will lead to the integration of more renewables.

“Rather than delaying until you’re forced to make some of those [purchasing] decisions, we try to make those decisions when they make sense and gain understanding about how to make renewable energy as effective as we can in our generation portfolio,” Hobbs said. “The wind industry has grown unbelievably in the last 10 years, and I think solar could be poised to do the same thing.”

"We are an energy state"

Solar development in Oklahoma to date is largely the result of market forces, with no renewable portfolio standard, no solar rebates and limited state-level tax incentives.

“One of the things that Oklahoma prides itself on is operating in a good market economy,” said McNabb. “We are an energy state, we recognize what energy means for economic development purposes, as well as providing energy security for the nation.”

In Oklahoma, one of the biggest market drivers for solar is the opportunity to sell that electricity out of state. Load growth in the region has been flat in recent years, but is starting to pick up again, according to McNabb. And as old, coal-fired power plants are taken offline in the coming years, demand for cleaner energy options is likely to increase.

Oklahoma is one of several states suing the Environmental Protection Agency over the Clean Power Plan -- the Obama administration’s plan to reduce carbon emissions 32 percent by 2030. Governor Fallin issued an executive order preventing the state from working on a state-level plan. OG&E and WFEC’s foray into solar indicates the shift cleaner energy is already underway despite challenges to the national climate plan.

“You look at the wind generation that we have already set in place, the efforts done for energy efficiency improvement for our utilities, and then of course this next market and the solar potential -- the state is well poised to meet whatever comes down the path from the Clean Power Plan,” said McNabb.

A tough market for residential solar

While Oklahoma’s installed solar capacity is on track to increase fivefold, very little growth is expected to come in the residential sector, beyond the new utility-owned community solar programs.

OG&E currently has around 300 net-metered solar customers in its service territory of roughly 800,000 customers. There are roughly 500 net-metered solar customers across the state. Only 456 kilowatts of residential solar were installed in Oklahoma in 2015, while the state added 3.2 megawatts of utility-scale capacity. A recent analysis by GTM Research found that Oklahoma is one of the least attractive states in the nation for residential solar, ranking ahead of only North Dakota.

Oklahoma offers net metering for distributed energy systems up to 100 kilowatts in size, but utilities are not required to purchase excess generation. If a utility agrees to purchase excess generation, it’s typically at the avoided cost rate. In OG&E territory, net-metered customers are required to take a time-of-use rate and are credited for net excess energy against the time-differentiated energy portion of the customer’s bill at the applicable time-of-use rate.

In 2014, the legislature passed a law (SB 1456) that allowed utilities to apply for permission to impose a fixed charge on net-metered customers. Utilities were previously barred from imposing extra charges on customer-generators. An accompanying executive order clarified that the bill does not mandate increased charges for distributed generation customer-generators, and directed the Oklahoma Corporation Commission (OCC) to consider alternative rate reforms such as time-of-use, minimum bills, and demand charges before approving the implementation of a fixed fee for net-metered systems.

Last year, OG&E sought regulatory approval for a demand charge that would raise monthly rates for residential and small commercial distributed generation (DG) customers by $16 to $21 per month.

“As the price of DG units continue to decline, it is likely more and more DG units will be installed,” reads OG&E’s testimony. “Therefore, OG&E believes now is the time to address the issue before the number of DG customers becomes significant. If OG&E were to wait to address the issue when the DG customer count is significant, the impact would be economically disruptive to DG customers.”

In April, the change was rejected by regulators and deferred to OG&E’s next rate case. The OCC determined there wasn’t sufficient evidence of a cost-shift in this case. OG&E has proposed implementing a demand charge for all residential customers in its general rate case, which is currently awaiting further action.

The Secretary of Energy and Environment's office is now leading stakeholder discussions on the best policy approach for distributed generation in Oklahoma going forward. According to McNabb, there’s a broad sense that the OG&E proposal was premature given the low levels of distributed solar penetration.

“I think it's recognized that the legislation as it was passed was not necessarily the best-crafted,” she said. “We are currently addressing that and looking to see if adjustments need to be made, and what we need to do to make sure that the [solar] market can reach the maximum potential within the state.”