And the Cheapest Electricity in the U.S. Is… Solar?

, senior energy analyst, Clean Energy | July 13, 2015, 5:12 pm EDT
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A Nevada utility and a solar developer have just struck a deal for solar electricity at a price that stands out compared not just to other solar deals, but also to just about any other option for new electricity. Here’s what it and other recent deals say about the future of solar.

Bloomberg’s story on the Nevada deal opens with this (emphasis added):

Warren Buffet’s Nevada utility has lined up what may be the cheapest electricity in the U.S., and it’s from a solar farm.

“Cheapest” and “solar” aren’t words some folks might expect to see together in something coming out of a financial outfit like Bloomberg. But folks who have been paying attention to solar’s incredible recent price drops in recent years know that the times they are a-changin’.

Topaz Solar Farm (Credit: Sarah Swenty/USFWS)

Credit: Sarah Swenty/USFWS

NV Energy, part of Buffet’s Berkshire Hathaway company, is buying output from a project being developed by solar photovoltaic (PV) manufacturer First Solar at a price of 3.87 cents per kilowatt-hour (kWh). That’s probably a lower price than you’d get from just about any other source out there, except for wind or energy efficiency.

Best deal in town

No doubt about it: this power purchase agreement (PPA) is a deal. A utility analyst at Bloomberg says it’s “probably the cheapest PPA I’ve ever seen in the U.S.” Note the lack of qualifiers: no “solar”, no “renewable energy.” Just “cheapest.”

And it’s clear that this deal, for 100 megawatts (enough for more than 15,000 households’ worth of electricity), isn’t a one-off. It’s part of a suite of recent deals that testify to how far solar prices have dropped:

  • Another 100-megawatt NV Energy agreement in the same utility proposal, involving a project developed by PV manufacturer SunPower, came in at 4.6 cents/kWh.
  • Just a week earlier, Austin Energy signed a deal for solar at under 4 cents/kWh.
Credit: John Rogers

Credit: John Rogers

Some might dismiss these deals by pointing to the sunniness of the states in question or the incentives (federal or state) that are buying down the cost. Don’t let ‘em.

On the solar resource issue, you can remind the naysayers that solar is actually much more widespread than they might think.

On incentives, you can invite them to do the math on what it would cost even without the federal tax credit, for example (still under 6 cents for the lowest-cost ones). And have them look to see what solar is achieving elsewhere—5.85 cents/kWh in Dubai, for example. Or just get them to do the math on what fossil fuels like coal really cost.

Keep making it happen

And, while the sun might not be getting brighter, the future of solar certainly is. Costs for large-scale solar projects dropped by 7 percent last year, and are down by way more than half since 2009.

That price trajectory could lead some to think about waiting till prices come down even more, but that would be a mistake. Solar may keep getting better, but it’s a good deal now, and even more drops in costs aren’t guaranteed. (Neither is the future of the very successful federal tax credit.)

Even more importantly, maybe, is the fact that a big chunk of cost reductions depend not on dropping the costs of solar panels (which are way down already), but on building up local capacity to install (or approve) such systems. That build-up comes only with experience and installations.

We also need utility leaders to keep signing the contracts that keep getting us to ever-greater scales and ever-lower prices. These contracts are a driving force for the fierce competition in the solar industry.

So go forth—sign, build, thrive. And then repeat, repeat, repeat.

 

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  • riffijim

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  • Michelle Davis

    This is great news for the solar industry! Although, the 3.87 cents/kWh price is only the first year – the PPA has an escalator, and the levelized cost of the PPA is similar to the other PPAs you reference – low to mid $40s/MWh. Still, very low prices!

    • Mike Pasqualetti

      The Arizona Corporation Commission needs to consider these numbers

      • Michelle Davis

        Agreed!

      • ucsjrogers

        Me too! There are a lot of public utility commissions that might want to re-assess their perception of solar (and other renewables), given how far things have come in the last few years. Thanks, Mike. – John

    • ucsjrogers

      Fair point, Michelle.
      On that issue, NV Energy says,
      “While the First Solar contract does not include a fixed price for the term of
      the contract, it escalates at a reasonable and fixed rate.” As is always the
      case with long-term contracts, whether that escalation (3%/year, in this case)
      or the terms in general turn out to be a good deal depends in part on what
      happens in later years, in terms of electricity prices.

      In any case, having a predictable — and sufficiently low — price as part of a
      portfolio that’s diverse in terms of both technologies and terms is worth a
      lot.

      Thanks for weighing in,

      John

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