ORIGINAL REPORTING: SOLAR IN 2014 - IT WAS A VERY GOOD YEAR
Solar in 2014: It was a very good year; This year solar got real.
Herman K. Trabish, December 16, 2014
In 014, U.S. solar turned long-sought goals into realities. The biggest project ever went online, a larger set of financing options went mainstream, deals got huge, technologies started resolving solar’s variability, and policy got to the heart of the matter.
“The expansion of utility-scale solar in 2014 marks the year as a real tipping point,” said Solar Electric Power Association (SEPA) President/CEO Julia Hamm.
The BrightSource/NRG 392 megawatt Ivanpah concentrating solar power plant, the biggest CSP project in the world, went live. So did Abengoa’s 250 megawatt Mojave CSP plant and NextEra’s 250 megawatt Genesis CSP project. Exelon’s 250 megwatt photovoltaic (PV) project also switched on in 2014, along with NRG’s 290 megawatt Agua Caliente PV project, and MidAmerican’s 550 megawatt Topaz PV project.
“There are nearly 15 gigawatts of utility-scale, solar projects under contract,” said Solar Energy Industries Association (SEIA) President/CEO Rhone Resch.
“With prices continuing to drop,” Hamm added, “we’re seeing utility-scale solar projects compete successfully for energy contracts with natural gas and other fossil fuels."
The residential solar market is expected to grow 55% in 2014 to a cumulative 3.5 gigawatts of installed capacity, more than five times 2010’s installed residential solar, according to Resch. On the strength of that growth, leading installers turned theories about viable investment vehicles into money for solar in 2014.
SolarCity, which owns a third of the U.S. residential market, initiated three long-discussed solar finance plans with big responses from investors.
First, SolarCity followed its November 2013 $70 million securitization, which it offered at a 4.8% interest rate, with a $70 million offering of asset-backed securities in April at 4.6%, and then a $201.5 million offering in July at 4.3%. Analysts widely acknowledged the success of the offerings.
In early October, SolarCity again jumped ahead of other third party ownership (TPO) players with its MyPower. A solar loan product, it preserves the core of the solar leasing arrangement that has driven growth by freeing homeowners from upfront costs and maintenance responsibilities. But it also allows them to take advantage of solar’s growing affordability through ownership.
“It’s a safe bet that TPO providers who don’t have a loan offering are now working on one,” said Clean Power Finance Communications Director Alison Mickey.
A week after the loan product debut, SolarCity launched a website offering the public the opportunity to invest in solar bonds.
Solar corporate leaders SunEdison and NRG Energy introduced YieldCos in 2014. Long studied as a renewables industry alternative to MLPs and REITs, a YieldCo is essentially a vessel through which shares of renewable assets can be offered at investment grade interest rates.
NRG’s Yield product recently announced 2014 gross earnings of $455 million. The SunEdison-TerraForm Power YieldCo’s initial public offering in October raised $533.5 million at $25 per share.
SolarCity purchased high-efficiency solar module manufacturer Silevo in June. In September, they broke ground on a plant in Buffalo, NY, that will eventually be capable of turning out 1,000 megawatts of new Silevo modules annually, making it the biggest U.S. module manufacturing facility.
“We absolutely believe that solar power can and will become the world’s predominant source of energy within our lifetimes,” SolarCity principal Elon Musk wrote on the company's blog.
“The residential market has now grown by at least 50% in each of the past three years,” Resch noted. “Through Q3 2014, the price to install residential solar had fallen to $3.60 per watt, a third lower than 2010.”
Yet until First Solar, one of the world’s top solar developers and module manufacturers, closed a deal in December to buy into Clean Energy Collective (CEC), it had no access to the residential market.
CEC specializes in 500 kilowatt to 5 megawatt community solar arrays that offer residents with unsuitable roofs the opportunity to buy into larger, remotely sited solar installations.
Industry observers said this will allow First Solar to participate in the U.S. residential market despite the fact that its thin film modules are too inefficient to be economically practical as a rooftop product. Community solar may have even bigger growth potential than rooftop solar if estimates are accurate that less than 25% of all residential roofs are suitable for solar.
The SunEdison/TerraForm purchase of First Wind demonstrated the power of the YieldCo financial product. The complex 3-way deal raised the two developers’ combined 2015 development expectation to between 1.6 gigawatts and 2.3 gigawatts and their combined international project pipeline to 8 gigawatts. That prompted TerraForm to increase its expected 2015 per share dividend 44%, significantly facilitating SunEdison’s $2.4 billion commitment to the deal.
Corporate buys of solar were up 28% over 2013 and reached a cumulative capacity of 569 megawatts, led by Walmart, Costco, Kohl’s, Apple, IKEA, Macy’s, and Johnson & Johnson,” Resch said.
Advances in storage and advanced inverter technology, Hamm said, made 2014 “the year that discussions of solar’s intermittency began to include its potential to provide grid support and resilience.” Some issues remain unresolved, she said, but “a future in which solar becomes a more predictable, reliable power source is now on the horizon.”
Last month, Hawaiian Electric Co. (HECO) and SolarCity announced a partnership with the National Renewable Energy Lab aimed at solving solar interconnection issues on HECO's grid, which in some places has rooftop solar penetration as high as 20%. After a series of tests on solar inverters, HECO announced plans to connect more than 3,000 backlogged solar customers on Oahu. The companies say further testing will prove solar's status as a grid asset, not a liability for utilities.
Storage technology got big boosts from commitments by Southern California Edison (SCE) and Oncor Electric. SCE will buy 250 megawatts of large scale storage, including 100 megawatts of AES Corp. battery-based storage and 25.6 megawatts of Ice Energy’s behind-the-meter Ice Bear system thermal energy storage. Oncor will ask Texas regulators to authorize spending $5.2 billion on as-yet unspecified storage solutions aimed at grid integration renewables.
SolarCity added solar-plus-storage to its residential offerings and then advanced the technology further with solar-plus-energy storage installationsfor 8 schools in California’s San Joaquin Valley and ten Walmart sites.
The California Energy Commission took on the solar variability challenge with a solar incentive for its New Solar Homes Partnership (NSHP). For installing west-facing solar on new homes, which shifts solar output toward peak grid demand needs, developers can get a 15% premium—up to $500—over the NSHP incentive that has supported 12,500-plus new home solar installs since 2008.
Finally, Hamm pointed out, utilities are using smart and internet technologiesto improve customer communication and streamline interconnection processes.
“Even our debates on things like net metering and rate design, while still heated and divisive in some instances, can be seen as a point of progress in 2014,” Hamm said. “We are seeing more negotiation, collaboration and multi-party agreements.”
“It is going to come down to rate design,” said NC WARN Energy Specialist Nancy LaPlaca. “All of a sudden, climate activists are starting to wake up to the role of public utility commissions. The PUCs will no longer be able to operate in the dark. Look what just happened in Florida. A debate at the commission about long term goals provoked 7,000 letters from the public.”
That could be the biggest thing in policy in 2014, said Mickey. “Net metering is a red herring, a distraction from the larger problem of rate structures and pricing mechanisms.” Mickey pointed to the NY REV proceedings, Hawaii’s planning proceedings, and the coalitions formed through proceedings in Massachusetts, Minnesota, and South Carolina.
Things like the value of solar, time of use rates, independent management of the distribution system, and fixed costs versus a minimum bill are being openly debated, she said.
Finally, there is the EPA’s Clean Power Plan. While not crucial to solar in 2014, the importance of it to the industry's future makes the Obama administration’s release of it in June one of the most important things that happened this year.
The 30% federal investment tax credit for solar will drop to 10% on December 31, 2016.
But the earliest implementations of the Clean Power Plan will begin around June 2017, offering a new growth opportunity. “Solar can be a real game changer,” Resch said, “in helping states meet proposed new obligations under Section 111(d) of the Clean Air Act.”
Solar gets real
The common denominator among all the developments in the five categories above is that they have long been talked about but in 2014 they became real.
At the end of October, solar was 0.85% of U.S. electricity generation — but from January through October, it provided over 18% of all new installed generation capacity, according to the most recent Federal Energy Regulatory Commission (FERC) update.
Solar will have an estimated 7.4 gigawatts of cumulative capacity by the end of the year, a 42% increase over 2013. At that rate of growth, those percentages from FERC will only get bigger.