For years, the U.S. solar-installation market has been driven mainly by independent developers and contractors who initiated most of the projects to put solar panels on rooftops and on the ground. But now, as some have predicted, it looks like utilities are starting to take the lead. Sempra Energy (s SRE) and PG&E both announced large new solar commitments this week, with Sempra planning to build up to 500MW of its own new solar-power plants in the next few years and PG&E signing contracts to buy a whopping 830MW of new solar generation from developers.
These new commitments come on top of the large distributed-solar-generation projects both companies already have under development. PG&E wants to add 500MW of ground-mounted solar-power systems and Sempra subsidiary San Diego Gas & Electric has applied for approval for 70-80MW of ground-mounted solar panels. Another California utility, Southern California Edison, has gotten approval to add 500MW of rooftop solar projects, and both SCE and PG&E have signed deals for huge solar-thermal projects, including 1.3GW and 1.31GW contracts from BrightSource, respectively.
Compared to these gigantic numbers, residential and commercial installations appear tiny in terms of capacity, although there are many more of them. In the first quarter of this year, for example, the California Solar Initiative announced that its participants installed a record total of 78MW at more than 3,600 sites.
The leap in utility solar development has been even more pronounced because it comes at a time when it’s been so difficult for other large solar-project developers to raise money. In the recession, project financing has remained scarce, and while federal cash grants are beginning to help, most of those have gone to wind projects so far.
It’s not a coincidence that utilities have begun driving the solar market at the same time that they have become eligible for the first time for federal tax credits and cash grants. Those incentives have made it feasible for them to build their own plants, instead of financing them through power-purchase-agreement providers that own and operate the plants.
Utilities’ size and their ability to finance projects through their ratepayers means they’re in an unique position to grow the market, drive down prices and help determine which solar tech companies will be winners. And that strikes fear into the hearts of some entrepreneurs, who worry that big utilities could monopolize the industry instead of encouraging competition within the market. So far, the PUC has addressed this concern by making sure that – in addition to developing projects themselves – utilities also buy solar power from developers, making them customers as well as competitors.
Regardless of whether utilities own the projects or buy the power, it’s clear that utilities’ role in the U.S. solar market will continue to increase, especially in states like California, where utilities are striving to meet renewable-electricity goals. California Gov. Arnold Schwarzenegger last month raised the state goal, requiring utilities to get 33 percent of their electricity from renewable sources by 2020. That’s an ambitious move considering that utilities are expected to fall short of the previous goal of 20 percent by 2010, and you can expect to see more announcements — like the ones from PG&E and Sempra this week — as a result.