With its stew of acronyms and jargon, the solar industry can be opaque even to those in other parts of the energy business. Sometimes, it helps to put it all together.
That’s what developers, financiers, lawyers and other market watchers aimed for at GTM's Power & Renewables Summit last week in Austin, Texas, where experts converged from across the energy world.
In addition to examining the future for technologies such as large-scale energy storage, offshore wind and gas peaking plants, speakers tackled many of the high-level themes currently affecting the solar industry, like corporate renewables procurement and the phase-down of the industry’s valued federal Investment Tax Credit.
Solar's place within the accelerating energy transition is a prime one. Below I dig into some of the major topics of discussion and lay out how they relate to the overall state of the U.S. market.
Solar prices keep dropping
Despite some policy tailwinds — seven states plus Washington, D.C. and Puerto Rico have now passed 100 percent clean energy or renewables targets — solar energy wouldn’t be enjoying its current success without the help of economics.
The industry looks to be moving toward a perpetual and “total down curve for prices,” said Laurie Mazer, a former vice president at solar developer Lightsource and now a renewable energy consultant.
Over the past 18 months, the low end of solar power-purchase agreements has dropped into the $19 to $24 per megawatt-hour range, according to Wood Mackenzie Power & Renewables.
Importantly, while the lowest prices have reached new lows, the overall range of prices has also contracted, said Ravi Manghani, WoodMac’s head of solar research.
“We are in a very short range of high teens to $30 to $40 per megawatt-hour being the standard PPA contract value,” said Manghani.
That down curve is accompanied by a growing interest in the technology from utilities, which Manghani said are becoming more amenable to signing longer-term power-purchase agreements.
Alongside growing comfort with long-term solar deals, utilities are increasingly looking to pair solar with storage.
Manghani pointed to NV Energy’s procurement of 1.2 gigawatts of solar paired with nearly 600 megawatts of storage as the “most interesting case study” on this trend. That announcement, made this summer, came just over a year after that utility's plan to add 1 gigawatt of solar and 100 megawatts of storage. Manghani said industry watchers can expect similar deals in the future from NV’s utility peers.
Wind versus solar: It’s not a competition. Or is it?
As solar has become cheaper, it's finding an opening into U.S. markets traditionally dominated by wind. Analysts expect the end of the Production Tax Credit and the more gradual decline of the solar Investment Tax Credit to exacerbate that trend.
“Solar is becoming an increasingly significant threat to wind development across the world,” said Dan Shreve, WoodMac’s head of global wind research. “The United States is no different.”
Source: Wood Mackenzie Power & Renewables
Onshore wind installations are expected to continue dipping in 2021, 2022 and 2023 before leveling out somewhat through the rest of the decade.
But “challenges for the wind industry are in some ways opportunities for the solar industry,” according to Manghani, as the levelized cost of solar is expected to overlap with the lower range of onshore wind's LCOE in the coming decades.
Source: Wood Mackenzie Power & Renewables
That shifting economic dynamic has pushed many traditional wind developers to pull solar into their portfolios. And it has solar developers eyeing new markets.
But most developers are keeping both renewable technologies in the mix, and the industries have both been adamant in contending that they don’t want to work against each other.
“I don’t view this as a competition,” said Helen Brauner, senior director of origination at utility-scale solar and storage developer 7X Energy. “We want it all. We need to reduce our carbon emissions, and we think there’s room for both technologies.”
As more utilities and policymakers join up on the case for climate action, it'll mean upside for both wind and solar.
When it comes to gas, on the other hand, solar is ready for a head-to-head challenge.
“Solar in many cases has eclipsed natural gas,” said Kent Miller, senior vice president at Shoals Technologies Group, a solar balance-of-systems equipment manufacturer.
As shown in the chart above, current solar PPA prices are already overlapping and even undercutting new builds for combined-cycle natural gas plants.
The pull of corporate demand
The flourishing corporate renewables market has already set numerous new records in 2019, according to the Renewable Energy Buyers Alliance. In the U.S., corporate purchasers have already bought 7.15 gigawatts this year, officially eclipsing the 6.39 gigawatts signed in the whole of 2018. Half of the buyers are procuring renewables for the first time, many due to voluntary sustainability and climate goals.
“I’m seeing more corporate buyers come out of the woodwork. These are companies you’ve never heard of. They’re not Facebook; they’re not Apple,” said Brauner at 7X. “I’m encouraged by that.”
Big tech procurers like Google are continuing to break records as well. The company recently announced what it called the largest corporate procurement ever: 1.6 gigawatts spread across 18 projects, which it negotiated using a reverse auction process that it hopes will set an example for other companies.
Corporate buyers have become a formidable force in renewables procurement in the last couple years. In the next half-decade, WoodMac expects them to drive one-fifth of the utility-scale solar market. And companies with enough demand, such as Google, Facebook and Apple, are increasingly influencing the utilities that serve them to build the renewables they want.
Companies such as Costco and Walmart have tried to leave behind Virginia utility Dominion Energy because they want to increase their share of electricity provided by renewables. Regulators have denied those requests thus far, meaning companies will have to continue pressuring Dominion to add more renewables.
“They do a good job of pushing their utilities. You see in the Southeast that all growth is not based on the benevolence and deep commitment to renewables,” said Mazer. “It’s literally driven by corporate customers going to their utility and saying, ‘We’re leaving.’”
It’s not all smooth sailing
Along with the tailwinds helping the solar industry grow comes one big headwind: the looming disappearance of the federal Investment Tax Credit. Though that won’t happen for another several years for projects already in motion, the Solar Energy Industries Association trade group is lobbying aggressively for its extension.
This month more than 200 mayors sent a letter to lawmakers calling for an ITC extension, and a wide-ranging coalition of 70 organizations including the National Association of Home Builders and the Utah Center for Civic Improvement signed another letter asking Congress to extend the credit for five more years.
Most solar companies are taking a more measured view. That means pledging support for the continuation of the credit but preparing for its decline.
Brauner at 7X said the developer “planned for the worst,” safe-harboring enough equipment to develop 1.5 gigawatts' worth of projects.
“We were trying to protect ourselves,” she said onstage. “If there is an extension, we’ll carry forward as we were going to, but…maybe we can move faster and move into more markets” without an extension.
Safe-harboring has won out as the primary strategy for developers to protect their pipeline. But many expect continued price declines and technological advancements to cushion the impact from the discontinuation of the credit, according to several conference speakers.
“We’re seeing bifacial modules [gain traction], and we’re seeing costs that are literally a fifth of what they were 12 years ago. That innovation, from a supplier standpoint, is going to continue to drop costs,” said Miller at Shoals. “Regardless of the ITC, there’s still a lot of money to be made on the project side.”
That said, “an ITC extension would take some of the pressure off, said Peter Toomey, vice president at wind and solar owner and operator TerraForm Power.