Over the last year, U.S. electric utilities have announced ambitious plans to own and operate their own solar projects. In two high-profile examples, California’s Southern California Edison and Pacific Gas & Electric each unveiled plans to develop 250 megawatts worth of midsized projects (1 to 20 MW each) on rooftops and open land throughout their service areas. Greentech Media analyst Daniel Englander, speaking at the Intersolar conference in San Francisco on Monday, estimates U.S. utilities have about 900 MW worth of solar projects in the pipeline that they would own and operate themselves. More are expected, he said.
This marks a shift away from the traditional solar project model in which an independent developer owns and operates a solar installation and then sells the power produced to the utility under a long-term agreement, called a power purchase agreement (PPA). Damon Franz, of the California Public Utility Commission, tells us it’s difficult to determine whether the traditional approach is better than utility-owned generation for a given project, but here are at least five good reasons why a utility would want to own solar projects:
- Tax Incentives: Last year, Congress approved $18 billion worth of renewable-energy tax credits and for the first time extended the 30 percent credit for solar power to utilities. The federal tax credit is one of the most important drivers for solar power in the country today, and utilities can now take advantage of it.
- Tight Capital: Developers previously depended on easy access to credit to finance the solar projects they build for utilities. But with debt now difficult to tap, utilities can remove financing uncertainty by leveraging their own strong balance sheets to access loans.
- Cost Savings: Utilities are regulated and generally have strong balance sheets. That means they have access to cheap debt relative to project developers, translating into significant costs savings when dealing with multimillion-dollar projects.
- Lower Risk: When a utility owns and operates its solar assets it means a project developer isn’t in the mix. One less player means less chance that the partner goes bankrupt or has a major change in leadership or any of the other numerous impactful changes that can take place in a company over a 20-year period, the standard time for a PPA.
- Smart Placement of Arrays: Electric utilities know their distribution networks better than any project developer, so they can strategically place the projects in parts of their service areas, for example, where maintenance of the systems might be easier. Even when the utility works with the developer to site the individual projects, the developer’s participation still introduces a player who isn’t intimate with the utility’s service area.
Image courtesy of NREL.