California has easily defended its title as the state with the highest capacity of cumulative solar deployments in recent years.
But the latest data shows that’s changing — at least in the short-term. Analysts now forecast Florida Power & Light will lead the Sunshine State to the top spot for utility-scale solar additions over the next six years.
As Florida utilities eye 9 gigawatts of solar, much of it self-owned and driven by favorable economics, California’s market remains in flux.
All of California’s investor-owned utilities are coping with a rise in demand for emerging community-choice aggregators (CCAs), an energy procurement model driven by local government that’s taken a bite out of investor-owned utility load. One utility, Pacific Gas & Electric, is also working through bankruptcy.
On top of that dynamic, saturation in California’s solar market has dulled its economic competitiveness.
In Florida, meanwhile, solar now undercuts other resources on cost.
“California is going through a real shift in how the grid is being run and operated,” said Colin Smith, a senior solar analyst at Wood Mackenzie Power & Renewables. “With all that turmoil, it does make procurement more difficult.”
California won’t fall off the solar map entirely, though its growth will weaken. As it looks to fulfill a 50 percent renewables requirement by 2030 and its 100 percent carbon-free standard by 2045, policy drivers will be strong enough to continue pushing procurement — the renewable portfolio standard has long been the primary driver of California’s solar growth. CCAs, a relatively new development, are also gearing up for big-time buys.
Florida overtaking California's lead serves more as a testament to the economic strength and maturation of the solar market in emerging states, rather than a sign of fragility for California's market.
But the changes rising up in California may also foreshadow coming challenges for other markets.
“CCAs are the market”
California lawmakers first approved the CCA model back in 2002, and it took eight years after that for the first one to begin service. But aggregators began popping up in earnest in the last two years. Of the state’s 19 operating CCAs, 10 cropped up in 2018.
That means aggregators have quickly evolved from a nascent force to a significant player in California’s energy market. In total, CCAs are now sucking up a quarter of load in the territories of the state’s investor-owned utilities.
CCAs in Pacific Gas & Electric's territory now serve 46 percent of load. Their share of wholesale power sales in the state grew 114 percent from Q1 2018 to Q1 2019. And they’re slated to account for 10 of the 12 gigawatts of new resources, mostly solar, California plans to add by 2030. Investor-owned utilities cumulatively only expect to add 1 gigawatt.
“When you look at the market for new projects in California, the CCAs are the market,” said Jan Pepper, CEO of Peninsula Clean Energy, which launched in 2016 and has 300,000 customer accounts. “We’re the ones who are out there wanting to put new steel in the ground and increase the amount of renewables we have in our portfolio.”
Like the state’s investor-owned utilities, CCAs are required to meet California’s ambitious clean energy and renewables goals. But unlike the utilities, which Sean Gallagher, vice president of state affairs at the Solar Energy Industries Association, said “got long” on their procurements, many of the new CCAs are just digging into large-scale renewables purchases.
“One of our priorities in California is to get procurement back on track,” said Gallagher. “One positive thing about what’s happening in California is the community-choice aggregators are now starting to do some procurement on their own.”
Longer-standing programs, like Peninsula Clean Energy, are already on their way. The aggregator has signed power-purchase agreements for 340 megawatts of solar (plus more wind and hydro). Pepper said more contracts for utility-scale wind, solar and distributed energy resources are on the horizon.
According to the California Community Choice Association, a membership group that advocates for the interests of CCAs, the state’s aggregators have so far procured 1,360 megawatts of solar. More announcements have followed that tabulation, including from East Bay Community Energy, which recently added 156 megawatts of solar to the count.
California Community Choice Association also told Greentech Media “a major update on CCA procurement” should be coming soon.
WoodMac's Smith said the state is "on the precipice" of a ramp in CCA-led procurement.
When those procurements do accelerate, CCAs have set out to exceed the requirements set by the state. Peninsula Clean Energy, which was 53 percent renewable in 2017, has a 100 percent renewable target for 2025.
Eventually, CCAs see traditional utilities becoming poles-and-wires companies while they handle procurement. “We’re trying to accelerate the state’s clean energy goals,” said Pepper. “That’s what our customers want.”
Working in a new system
Though aggregators are helping to boost solar installations in California while utility procurement is lagging, CCAs are also working against some headwinds. The energy business is traditional, and changing an entrenched procurement and distribution model takes time.
Financially, for instance, CCAs don’t have the heft of traditional utilities and many don’t have credit ratings.
“CCAs are very new entities that don’t necessarily have the manpower, internal expertise and credit rating to pull off all these [solar] deals,” said Smith.
CCAs, though, say they're able to move more nimbly than utilities and that as their popularity has grown, solar developers have grown comfortable working with them. They say they are adding internal staff at a rapid clip, and some are now led by former managers at utilities.
In May, Peninsula Clean Energy became the second CCA to garner a credit rating, following Marin Clean Energy. Smith said that should also grease the wheels for negotiations.
Pepper agreed, noting a marked difference between procurements before and after Moody’s granted the aggregator an investment-grade credit rating.
“Working through all of that pricing and working through the credit arrangements was a much more protracted process at that time than what we’re seeing now,” Pepper told Greentech Media. “We’re seeing that the counterparties that we’re talking to are willing to provide a better price to us now that we have the investment-grade credit rating.”
More CCAs are currently pursuing those ratings.
At the same time, the California Community Choice Association and its members are lobbying against two state bills they say could undermine their work by restricting their independence in energy decisions: SB 155, which requires the California Public Utilities Commission to review forward-looking renewable procurement plans, and AB 56, which would allow a state-mandated authority to act as a last line decision-maker in procuring electricity to meet the state’s needs.
CCAs face other hangups in California’s regulatory framework as well. They’re confronting CPUC on a number of issues like its “procurement track” and its Resource Adequacy program (take a closer look at the issue here). Both aim to answer reliability concerns in integrated resource planning that have thus far catered to the traditional utility model.
A saturated market
The economics of California’s solar heavy grid may also impact large-scale procurement in the short run.
Solar power-purchase agreements continue to sink to new lows in terms of price. But the California solar market is already chock-full of solar. That means in the middle of the day, the large amount of solar capacity online pushes electricity prices to zero. Gas usually sets the marginal power price at night, meaning more solar on the grid won’t necessarily reduce power prices.
“This is a classic case of a market so saturated with solar that it has almost entirely killed any exposure to gas prices,” said Chad Singleton, a WoodMac power analyst, in an email.
The same isn’t true for Florida or other states where gas sets the marginal price.
WoodMac forecasts gas prices rising in much of the early 2020s, and, Singleton notes, “This boost in gas prices roughly corresponds with the timing of the ITC step-down and almost negates its impact” for solar.
California’s policy-driven renewables procurement — the state requires 50 percent renewables by 2030 — and demand for those resources from CCA customers mean energy providers in the state will continue investing in renewables. But not based on economics alone.
“Solar adds very little incremental value to the CAISO market outside of environmental benefits,” said Singleton. “Developers are likely much safer building solar in markets with far stronger fundamentals such as Florida, the rest of [the Southeastern Electric Reliability Council] and ERCOT.”
Still, analysts note that solar will continue to have a strong foothold in California even as Florida overtakes its lead in solar procurement in the next several years. Whereas Florida has just under 2 gigawatts of solar online, California is home to a whopping 13.5 gigawatts.
“Florida has a long way to catch up in terms of meeting the overall cumulative capacity that [California has] brought online,” said Smith.
“It’s very possible that we could see California have a greater cumulative capacity” over the next decade or more, he added.