New numbers show the "beautiful friendship" between utilities and solar is growing and bringing the U.S. power system's transition to higher renewables penetrations along.
"Utilities of all kinds and in many places are accelerating from zero to 100 on solar in response to record-low prices," Smart Electric Power Alliance (SEPA) research manager and paper lead author Daisy Chung told Utility Dive.
Contrary to the word from Washington, D.C., utility-scale renewables are not "badly behaved coal plants" that threaten grid reliability and national security, Seb Henbest, lead author of the Bloomberg New Energy Finance New Energy Outlook, wrote July 25. "By 2050, we're painting a picture of an electricity system utterly reshaped around cheap wind, solar and batteries."
Wind and solar were 8.2% of U.S. generation in 2017, with wind at 6.3% and solar at 1.9%, and U.S. grids are integrating record levels of renewables without disruption. Wind was 54% of Texas generation on October 27, 2017, and wind and solar together provided 64.6% of California's power on May 26, 2018.
Investors say "phenomenally abundant" renewables could support a trillion-dollar U.S. market by 2030 and solar will play a key part, according to an April American Council on Renewable Energy survey.
Utilities are seeing the opportunity and responding, according to the 2018 Utility Solar Market Snapshot released in July by the SEPA.
Utilities step up to the sun
Utilities have long played a central role in U.S. wind growth, which has tripled since 2007 to reach almost 89 GW of cumulative installed capacity. In the same time period, utilities added 42 GW of solar to the grid, including 7.4 GW in 2017, SEPA reports.
"Utilities of all kinds and in many places are accelerating from zero to 100 on solar in response to record low prices."
Research Manager, SEPA
Solar prices have been slower to reach competitive levels than wind prices, but the SEPA report shows utilities responding to the new low prices quickly, Chung said.
Out of the 7.4 GW total, investor-owned utilities added 5,825 MW of new solar capacity in 2017 and "remain the driving force of new solar installations across the country," SEPA reports. In the Southeast, where solar growth has historically been slowest, "several large utilities have propelled rapid solar deployment."
Southern Company and its four subsidiaries are "bullish on solar," VP for Energy Policy Bruce Edelston told Utility Dive. They added a cumulative 375 MW for four Southeastern states in 2017 and have a pipeline that will likely deliver around 200 MW annually for the foreseeable future, he said.
"The price has come down substantially in the past couple of years and is now competitive with coal and gas," he said. "We would not be buying so much now if it was not the cheapest option."
One of the country's strongest advocates for distributed solar agreed. "Recent bids in utility solicitations show how cost-effective utility-scale solar is," John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self Reliance (ILSR), told Utility Dive.
Public power utilities, which added 1,210 MW of solar last year, are also "gaining industry recognition," SEPA reports. In small jurisdictions, low prices are making solar a factor, Chung said. The Navajo Tribal Utility Authority added 27.3 MW of solar in 2017, a 913 watts of solar per customer rate that made it seventh in SEPA's watts per customer ranking, which was created to highlight smaller utilities' efforts.
The development was done with Arizona public power utility Salt River Project, Chung added. They also signed an agreement targeting 500 MW more on Navajo land.
Early in 2018, Guam approved a contract for 120 MW of new solar, SEPA reports. The contract's size and its option to add energy storage are noteworthy for such a small territory. But what made it remarkable was that Guam only added 26 MW in 2017 and only had 42 MW total at the end of the year. "Few utilities have grown so fast," Chung said.
Electric cooperatives, which added 240 MW of solar in 2017, are also pioneering two of the solar world's fastest growing innovations:community solar and using solar-plus-storage to meet peak demand.
Pickwick Electric Cooperative added 24 MW for its generation and transmission (G&T) provider, the Tennessee Valley Authority, and G&T East Kentucky Power Cooperative added 8.5 MW for its member cooperatives. Both additions serve community solar programs and helped community solar double its installed capacity in 2017 to become the fastest growing solar sector.
Kauai Island Utility Cooperative (KIUC) deployed its first solar-plus-storage system in 2017. The combined 13 MW solar array and 13 MW-52 MWh battery storage system have allowed KIUC to reduce fossil generation use at peak from over 65 MW to below 60 MW, KIUC data provided to Utility Dive shows. And the project's $0.145/kWh PPA is significantly below KIUC's cost for fossil generation.
The project was the first to demonstrate that solar-plus-storage can compete with natural gas peaker plants, Navigant Director Lon Huber told Utility Dive.
Colorado's United Power Cooperative has gone a step farther. It will combine its 24 MW of utility-supply solar with a 4 MW-16 MWh battery to provide community battery energy storage, SEPA reports.
Resilience to changing policy
There were 148 state policy actions related to solar between April 1 and June 30, according to the Q2 2018 solar policy update from the North Carolina Clean Energy Technology Center. One state-level policy and two federal policies overshadow all these debates.
As many as 116 of the 148 state-level policy actions are directly or indirectly related to the question of net energy metering (NEM). At least 59 address the question of using an alternative to the NEM retail electricity rate compensation for solar owners' generation exported to the grid.
SEPA asked over 170 utilities about their compensation offerings. The retail rate is used by 57% and a below-retail fixed compensation is used by 13%. Only 7% compensate based on variables like where the generation is delivered to the grid or what time of day it is delivered. A combination of compensations is used by 4%.
Of the 18% of surveyed utilities that use "other" compensation approaches, about 60% value customer-exported generation "based on avoided cost, wholesale price, or marginal costs," SEPA reports. NEM is "no longer a super-majority strategy," the report concludes.
Of the two federal policies, the paper resolves a misconception about which is most significant, SEPA's Chung said.
The solar market expanded year-over-year continuously from 2007 until 2016, but after adding 6.1 GW in 2015 and 9.4 GW in 2016, it dropped to 7.4 GW in 2017. However, the 2016 spike was an "outlier," SEPA reports. That makes 2017 "less like a downturn and more like a continuation of steady growth, as well as evidence of market resilience."
The atypical 2016 spike was caused by uncertainty associated with an anticipated "sunsetting of the 30% federal investment tax credit (ITC)" which did not happen, SEPA reports. Further uncertainty was created in 2017 by the anticipated and then imposed federal import tariffs on solar cells and panels.
But the import tariffs have only added about 10% to the installed cost of utility-scale solar, SEPA reports. It was offset by falling installed costs of solar and by the 2017 federal corporate tax reduction, Regulatory Assistance Project (RAP) senior advisor and economist Jim Lazar told Utility Dive.
"The ITC affects 30% of project cost," Chung said. "From our financial model, we cannot generate a situation where the new imported panel pricing caused by the tariffs goes above that." Because the ITC is the more important policy, "the overall trend of growth in solar has not stopped."
The tariffs and federal tax policies "produce headwinds for solar," Vlahoplus emailed Utility Dive. But "the overall outlook remains positive."
Solar continues to face a range of other policy debates. But they tend to be local issues, like demand charges in Massachusetts and legalizing leasing in Florida, which are not hampering broad national growth. Community solar advocates continue to add markets, but that is happening one or two states at a time.
Two new markets
The Pacific and Mountain regions accounted for 41.7% of new U.S. solar capacity in 2017, SEPA reports. But utilities in the Southeast accounted for 21.4% of 2017's total. The Southeast is just opening up, now that prices have become appealing," Chung said.
Duke Energy Progress in North Carolina deployed 355 MW of solar in 2017 and moved to third place among all utilities for total new capacity. Southern Company's 375 MW of new solar capacity were spread across its four subsidiaries — Alabama Power, Gulf Power in Florida, Georgia Power and Mississippi Power.
"It is a win for the transition to clean energy if utilities are investing in clean, cost effective, large solar systems, as long as it does not undermine their customers’ ownership of solar."
Director of Energy Democracy Initiative, Institute for Local Self Reliance
Southern Company subsidiaries will continue to grow solar "fairly rapidly," Edelston said. "Other than the Vogtle nuclear plant being built by Georgia Power, we are adding no new generation except solar, at least until we need new capacity, which is not likely for another decade or so."
The other new market opportunity is in small and medium-sized commercial-industrial businesses (SMBs), Chung said. SMBs are "a sliver" of the non-manufacturing commercial sector, but have many of the same ambitions as the larger corporate buyers who procured about 2.78 GW of renewables in 2017, SEPA reports. "Utilities have yet to fully address this market," It adds.
A recent survey of SMBs found "about two-thirds, or 65%, indicated interest in renewable energy," SEPA reports. For 56%, on-site solar was the strongest preference, and among their planned "next steps" was "reaching out to utilities."
There are not a lot of offerings to meet that demand and SMBs "seem inclined to take whatever their utilities offer," Chung said.
Urban utilities will continue to build utility-scale solar "to serve the part of their load that will not be able to serve itself with solar," RAP's Lazar said. "That is probably one-third to one-half of an urban utility's total load," he said. But SMBs could offer utilities a major new opportunity.
For those waiting for a utility offering, the utility could lease their rooftops, Lazar said. Instead of building utility-scale solar where there is available land, the utility could build and own solar where there is no cost of transmission, he said. The power and all its system benefits go to the utility and the roof owners earn the rent."
The future of utilities and solar
The SEPA report reviews a range of future innovations that utilities and solar can share, including solar-plus-storage, advanced inverters and microgrids.
SEPA does not make predictions, Chung said. But it is becoming clear that 2017 trends are continuing into this year. "They include policy and market uncertainty, growth in smaller markets with slowed growth in mature markets, and announcements of record low prices."
ScottMadden's Vlahoplus said the cost declines will continue to expand the utility-solar partnership. Solar eventually will become "part of a 'normal' generation portfolio" and an "accepted option for utilities," he said.
NRECA's Roepke said solar is "the first wave" of customer choice in a future where utilities coordinate and optimize a "range" of services and resources. The utility will continue to deliver "reliable, safe and affordable electricity" from both large-scale and distributed generation, she said.
ILSR's Farrell agreed. Despite his strong advocacy for distributed solar, he said, "it is a win for the transition to clean energy if utilities are investing in clean, cost effective, large solar systems, as long as it does not undermine their customers' ownership of solar."
But utilities should be concerned about one thing, he said. "Buyers of distributed solar are making individual decisions that are adding a lot of power to the grid. It is not the result of utility planning, but of millions of individual market-driven decisions. It can have awesome system benefits, but utilities need to think about how to make it work for their bottom lines."