Solar, Renewable Grid Parity, or Better, in California’s Latest Renewable Power Auction

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Photo courtesy First Solar
Yes, that’s right: grid parity is here, well here being California in this instance. The weighted average highest cost of solar and other renewable power contracts accepted by California utilities in the state’s Renewable Auction Market (RAM) auction amounted to 8.9 cents per kilowatt-hour (kWh) for 20-year power purchase contracts, the Vote Solar Initiative reported March 30. Though this doesn’t include transmission costs, $0.089/kWh is well below the average residential electricity cost of 15 cents per kWh in California in 2011, and that’s the weighted average highest cost of the accepted offers to the state’s electricity distributors.

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Reaching grid parity– where the cost of electricity generated from solar power equals that from conventional, longstanding grid sources such as natural gas and fossil fuel power plants– has long been held up as a major milestone, and pivotal achievement, in the solar, renewable energy and power communities.

Achieving grid parity has come faster than many expected. The decline in the cost of solar power has been rapid, exceptionally rapid, especially in California, which has been leading the US movement away from using coal and fossil fuels to generate electricity by fostering the development and adoption of renewable energy resources.

A Solar and Renewable Energy Milestone Reached in California

It may have even come too fast. The combination of California’s market-based incentive programs, such as its RAM and Feed-in Tariff (FiT), and its Renewable Portfolio Standard (RPS), along with federal government subsidies and China’s massive manufacturing and export subsidies of crystalline silicon (c-Si) solar photovoltaic (PV) cells and panels boosted both the supply and demand for solar power systems. Sustaining costs at grid parity levels or better poses a stiff challenge to solar power industry participants, as one or more of these struts is removed.

Of course, the cost-of-electricity playing field isn’t level by any means, which actually makes California solar power reaching grid parity an even greater achievement. Coal, natural gas and nuclear power plants have benefited from government subsidies many times the size and for decades more than those that have been granted to comparatively new solar and renewable power producers.

Another significant factor that needs to be considered when comparing the cost of new solar power and other renewable power resources to established conventional power plants is production and transmission infrastructure– coal, natural gas and nuclear power plants have it; solar and other renewable power plants need to build it, or rely on others to build it.

Coal, natural gas and nuclear power plants have been in place for decades. The huge, upfront capital costs of building them has been, or is being, amortized. Transmission lines delivering the electricity they produce for distribution is in place and long-established. Being new, that’s not the case with solar power arrays and farms, whose costs are higher and margins lower as a result.

California’s Renewable Auction Mechanism

California’s RAM aims to promote and foster distributed renewable power generation. As explained by the California Public Utilities Commission (CPUC), RAM is “a simplified and market-based procurement mechanism for renewable distributed generation (DG) projects up to 20 MW on the system side of the meter.”

The CPUC has designed and established the Renewable Auction Mechanism to streamline “the procurement process for developers, utilities, and regulators. It allows bidders to set their own price, provides a simple standard contract for each utility, and allows all projects to be submitted to the CPUC through an expedited regulatory review process.” The aim, CPUC goes on is “to promote competition, elicit the lowest cost for ratepayers, encourage the development of resources that can utilize existing transmission and distribution infrastructure, and contribute to RPS goals in the near term.”

With all this in mind, let’s move on and take a look at the RAM results as known so far. California utilities had accepted a total of 145 MW of renewable power offers in the state’s RAM auction, according to Vote Solar’s April 5 update.

California’s RAM Results

Here’s a summary of what Vote Solar’s dug out and posted on their blog, along with hyperlinks to the utilities’ original advice letters asking for approval of the 20-year power purchase agreement contracts:

Southern California Edison (SCE):

  • Received 92 offers totaling more than 1200 MW, 91 were for solar PV
  • Accepted 7 offers totaling 67 MW, all solar PV
  • Winning contracts by capacity: two 20 MW; one 12 MW; one 9 MW; three 2 MW

Pacific Gas & Electric (PG&E):

  • Received 122 offers from 52 counterparties totaling 1470 MW
  • Accepted 4 contracts with a total capacity of 63 MW
  • Winning contracts by capacity: one 14 MW geothermal power plant; one 9 MW wind power project; two 20 MW solar PV projects

San Diego Gas & Electric (SDG&E):

  • Accepted two offers totaling 15 MW out of a total 32 submitted, most of which were in the 5-10 MW range
  • Silverado is the developer of both
  • Both are solar PV projects

Once approved by the CPUC, project developers have 18 months to bring their projects online.

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