TODAY’S STUDY: UTILITY SUN THRU 2015

The U.S. Utility PV Market: Demand, Players, Strategy and Project Economics through 2015
Shayle Kann, November 2010 (GTM Research)

Two years ago, it looked like thin film (TF) was going to dominate the photovoltaic (PV) sector and it looked like the PV sector might have to step aside to make room for the concentrating solar power (CSP) sector. Now it is all shifting the other way.

Though TF remains in the game, traditional silicon-based panels have fallen dramatically in price and turned the entire PV market around. And though CSP plants remain in the works, PV installations are popping up everywhere and more are in planning stages than ever before. Moreover, utilities are investing aggressively because of the advantage of PV's size, application versatility and siting convenience.

PV installations can be as small as a residential rooftop, as Main Street as the rooftop of a big box store, or as large as a solar power plant. This versatility is attracting utilities that aren't entirely certain which way the future will unfold but see PV as capable of unfolding with it.

The utility PV market in the U.S. is emerging as a central focus for global players. The current market, valued at roughly $1 billion per year, is scaling rapidly as feed-in tariff markets such as Spain and Germany reach saturation.

This points to greater focus on the U.S. utility market as a global industry driver over the next five years, with market potential approaching an estimated $8 billion per year by 2015.

Along the value chain, utility a" liates, IPPs and integrated PV manufacturers such as First Solar and SunPower are driving development and leading in PPA contract capacity nationwide. Major incumbents from Europe and Japan are also entering the U.S.
A number of these entrants are PV manufacturers following in First Solar’s and SunPower’s footsteps by pursuing a downstream integration strategy in order to ensure a sales channel for their products.

This report examines in detail the current state of the U.S. utility PV market with an eye toward the future, considering the perspectives of developers, suppliers, utilities and regulators. We consider trends in project development, utility procurement, project economics, and regulatory structures in order to provide a comprehensive assessment of what is turning out to be a complex, dynamic market.

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The global PV industry is increasingly turning its attention toward the U.S. utility PV market as a driver of global demand over the next five years. Indeed, conditions appear right to support massive growth. Module prices fell ~50% over the course of 2009, driving large-scale PV generation costs down to nearly competitive levels with traditional peaking generators. Many states have introduced renewable portfolio standards with specifi c requirements for solar or for PV. What’s more, 2010 marks the first year in which more than two 10 MW+ projects will be connected to the grid. In fact, there are currently 5.4 GW of projects under contract for completion between now and 2014.

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A large RPS target in a small state can still result in less overall procurement than a small RPS target in a large state. This fi gure accounts for state market size in order to project total PV capacity required in each state through 2015 to meet RPS targets. We assume 2% load growth per year in each state, and we assume that DG targets are met entirely by PV. While much of this demand in each state will be comprised of retail PV, total procurement requirements are a good indicator of where utility demand will emerge. States with large targets will ultimately have to seek PPAs or utility owned PV in order to ensure compliance.

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This figure displays the current contracted project pipeline by utility, including all signed PPAs and planned UOG projects. It should be noted, however, that ongoing programs for which individual projects have yet to be named are not included. The three California IOUs have contracted for a combined total of 4,158 MW, 78% of the national pipeline. All indications suggest that their market share of contracted capacity may even increase over the near term as they ramp up their individual PV programs and the reverse auction feed-in tariff takes effect.

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Outside California, we see a class of secondary utilities that are likely to drive the U.S. market forward. These include PSE&G (New Jersey), APS (Arizona), Xcel Energy (Colorado), and ComEd (Illinois), each of which will be required to procure over 200 MW to begin generation by 2015. Third-tier utilities with required procurement between 100 MW and 200 MW include PNM (New Mexico) and the two larger Massachusetts utilities (NSTAR and National Grid).

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Over the past two years the field of pure-play utility PV project developers has both grown in overall number and shrunk in terms of established players. A number of upstream players have acquired developers, and more acquisitions are likely to take place as the market expands.

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From the perspective of the U.S. utility PV market, the importance of being within competitive range of a natural gas project is nearly as valuable as becoming cheaper. In order for the U.S. utility market to take off, the key argument to be made by developers to utilities, and by utilities to their regulators, is that PV can deliver power at a competitive rate with other peaking facilities. This, in combination with PV’s other advantages will be sufficient to drive substantial market growth above and beyond RPS standards.

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We estimate that total tax equity availability for all renewable projects will range between $3 billion and $4 billion in 2011, and $3.5 billion and $4.5 billion in 2012. Given that wind generally takes the bulk of tax equity investment, the PV industry is likely to face a tax equity shortfall through 2012.

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By 2015, PV will become both increasingly economically competitive and familiar to utilities in other states, and procurement will begin in earnest even in the absence of RPS standards. There may even be new state RPS standards and/or a national RPS with a solar requirement, each of which would enable new demand in additional states. Ultimately, the promise of the U.S. PV market lies in a true 50-state demand center and we anticipate the market heading in that direction over the next five years.