TODAY’S STUDY: UTILITY-SCALE SOLAR IN 2014
Utility Solar Market Snapshot Sustained Growth in 2014 May 2015
Miriam Makyhoun, Research Manager Ryan Edge, Research Analyst Nick Esch
Solar markets continued significant growth in 2014
-Added 5.3 gigawatts (GW) across more than 182,000 new systems; total installed solar nationwide is 16.3 GW across more than 675,500 locations.
-Annual capacity growth rates for the following market segments:
• Residential: 36%
• Nonresidential: 12%
• Utility-scale: 23%
-Solar costs are declining with an industry wide drive to lower non hardware soft costs in areas such as financing and customer acquisition.
The solar market is heavily concentrated in particular utilities and states
-Most solar-active utilities are in California, Hawaii, Arizona, New Jersey, and North Carolina.
-Aggregate solar portfolio by utility type:
• Investor-owned: 50% of capacity is made of utility-scale solar projects
• Public power: Residential and nonresidential rather than utility-scale solar drive capacity
• Cooperative: Portfolios are composed of an equal mix of utility-scale, residential and nonresidential solar
Key business issues likely to persist for the next 2 to 3 years
-Rate restructuring to account for distributed energy resources will continue to drive discussion amongst utilities, regulators and stakeholders.
-Utilities, as well as regulators, need to innovate to meet evolving customer demands for clean, affordable electricity.
-Forecasts are predicting a very sharp drop in solar build-out after the federal tax incentive steps down in 2017.
-Grid integration of distributed energy resources is emerging as an opportunity for technical adaptation and improved utility planning procedures.
-Community solar programs continue to receive strong interest from utilities of all types.
-Solar is increasingly becoming a least-cost option for utilities.
Solar Market Expansion
Solar market expansion is driven by several factors: policy support for for renewable resources, the level of retail rates, the availability of incentives, and the strength of the solar resource, among others.
-California, the leading state for solar growth, has an aggressive renewable portfolio standard (RPS) and other complementary state policies supporting solar development.
-Both California and Arizona, the second place state for annual solar growth, have significantly higher solar production compared to the rest of the nation. Greater solar insolation boosts the economics of solar, in some instances making the cost of solar energy competitive with the price of natural gas.
-North Carolina, the third place state for annual solar growth, has been climbing the charts for most competitive solar state over the past several years. Factors influencing its solar uptake include its RPS and state tax credit, and long-term power purchase agreements with fixed prices that provide competitive economics for many of the state’s developers.
-New Jersey, another state with significant solar penetration, bolsters its market with solar renewable energy credits (SRECs) that are traded for compliance purposes.
How Much Solar Was Installed
-Approximately 5.3 GW of new solar was added in 2014, bringing U.S. solar capacity to 16.3 GW. This included more than 182,000 new systems, bringing the national total to more than 675,500.
-U.S. solar capacity has increased at an average annual growth rate of 35% over the past four years. n Declining technology costs combined with federal and state incentives have made residential solar installations an attractive investment for homeowners and continue to spur sector growth.
-Utility-scale projects — those of 5 MW or more — continue to deliver the majority of new solar capacity with 3,311 MW in 2014…
Concentrating Solar Power Compared to Photovoltaics
-Concentrating solar power (CSP) performed well in 2014, with the completion of three projects totaling 781 MW — which accounted for 24% of utility-scale solar installed in 2014.
-The longer construction time and higher cost per Watt for CSP technologies appear to have hindered its growth ahead of the ITC step-down. CSP does provide ancillary grid services and a level of dispatchability that photovoltaic (PV) technologies lack, which may revive interest in CSP in the future.
-PV has remained the market leader for solar technology deployment for the past several years and is forecast to maintain its top market position through the end of the decade.
Utility Solar Hot Topics – Overview
Rate restructuring will continue to be a point of friction between utilities and distributed solar. So far, some utilities have responded by proposing increased fixed customer charges or targeted demand charges to solar customers. Others, driven largely by state policies — such as in New York and California — have decoupled revenues from volumetric energy sales.
Utilities serving certain locations with high penetrations of distributed solar — specifically in Hawaii, California and New Jersey — have turned their attention to innovative grid integration strategies. Advanced inverter functionality, energy storage, and solar energy production forecasting are the leading strategies on the supply side; while demand response and locational deployment provide some solutions on the customer side of the meter.
New Markets, Least-Cost Resource
In the past year, prices for power purchase agreements (PPAs) in several states continued to fall and approached or in some cases even beat those for natural gas-generated electricity. The improving economics are moving solar into new states. Utilities are even beginning to report that they approach solar as a least cost resource.
Utility Rooftop Solar Ownership
Several pilot utility rooftop solar ownership programs, targeted at the residential market, are being developed by the following utilities in 2015: investor-owned utilities Arizona Public Service (APS) and Tucson Electric Power (TEP), municipal utility CPS Energy in San Antonio, Texas, and electric cooperative Wright-Hennepin in Minnesota. The APS and TEP programs will target 10 MW and 3.5 MW of residential installations, respectively, and allow residents to host PV systems on their roofs while the utility finances, controls and bears the risk of the installed solar system. Both APS and TEP are considering ways to address underserved customers such as low-income consumers, as well as to identify locations on their distribution systems that would benefit from local generation. In addition, an emphasis on panel orientation is being tested with west-facing systems, which are better aligned with each utility’s afternoon peak.
The percentage of utility respondents who are offering or considering a community solar program rose 20% since last year. During this past year, 15 utilities that were not considering a program are now doing so while six utilities that were considering programs have implemented them. The percentage of utility respondents who are offering or considering a community solar program rose 20% since last year.
Rate design moves to the forefront
The debate surrounding net energy metering (NEM) continued to heat up in 2014. Utilities, state governments and industry research groups have argued that net metering is effectively a subsidy for customers with solar generators by those without. This perceived inequality challenges the utility ratemaking process as utilities struggle to meet their cost-of-service and long-term capital financing obligations with revenue projections that, up to this point, have not accurately reflected customer investments in energy efficiency and distributed generation.
-NEM accounts for 672,732 cumulative solar projects, or 99% of all systems installed and 44% on a capacity basis.
-73% of respondents are planning or considering a restructure of rates to account for better cost allocation among customer classes. The figure grows to 85% when utilities offering or considering feed-in or value of solar tariffs are included.
-55 utilities reported they are currently exploring a value of solar tariff (at present, Austin Energy in Texas was the only utility implementing one in 2014). n 32 responding utilities currently offer feed-in tariffs
New Strategies for Grid Integration
122 responding utilities are exploring new grid integration strategies, 60 of which are currently offering or planning to offer at least three of these strategies, indicating a holistic approach to grid integration.
-Locational deployment - Information systems, incentives and other strategies are used to influence where new distributed solar generators are sited in order to maximize their benefits to the grid or to minimize their integration difficulties. 10% (12) of respondents are employing locational deployment. 45% (55) of respondents are planning, researching or considering it.
-Advanced inverters - PV system inverters are used to provide ancillary services to the grid, including reactive power support, voltage and frequency ride-through support, and curtailment. 14% (17) of respondents are pursuing advanced inverter functionality in some capacity. 39% (48) of respondents are researching or considering it.
-Energy storage - Technologies (excluding pumped hydro) that store energy from intermittent renewable sources for the purpose of supplying that energy for peak load or to provide ancillary services to the grid, including ramp rate control, resource firming and dispatchability. 13% (16) of respondents have implemented energy storage solutions 42% (51) of respondents are researching or considering it.
-Solar energy forecasting - Solar production data are used in conjunction with forecasts for system load and weather for the purpose of utility resource planning and grid management. 11% (13) of respondents use solar forecasting for planning purposes. 42% (51) of respondents are researching or considering it…
Community Solar and Utility Owned Residential Solar
Community solar programs, in which utility customers “share” a larger solar installation, are rapidly increasing in popularity among utilities. At least 93 community solar programs are currently active in the U.S., 77 of which are utility-managed, while 16 are managed by a third-party.
-Nearly 79% of utility respondents are offering or considering a community solar program.
-Utilities expressed a strong preference for utility-managed programs (75%) — more than twice as high as third party-managed programs (36%).
Utility-owned solar on residential rooftops
In 2015, four utilities are beginning to offer rooftop solar leasing programs with utility-owned, customer-sited solar installations on residential rooftops: Arizona Public Service and Tucson Electric Power in Arizona, CPS Energy in San Antonio, Texas, and Wright-Hennepin Electric Cooperative in Minnesota.
These programs are designed to leverage the benefits of distributed generation for the grid, in some cases complemented by other strategies such as locational deployment, west-facing orientation and advanced inverters. Utility ownership enables a broader set of consumers to go solar including low income customers and those with sub-optimal credit scores, meeting customer demand for clean, carbon-free electricity and serving as a hedge against suboptimal utility rate hikes.