For the past few years, we’ve been reporting on lower and lower solar bid prices that companies have put forward in power auctions. We’ve seen record low after record low after record low in the Dubai (UAE), Saudi Arabia, Texas (USA), India, Nevada (USA), Brazil, etc.
Every step of the way, competing companies have claimed that the winning bidders can’t build profitable solar projects for the low prices they put forward. The winners claim that they’ve run the numbers and they can. Then the bids get lower.
SunEdison’s head of the Asia-Pacific and Sub-Sahara regions, speaking at an investment conference where I was also speaking in January, seemed to be quite honest about the low bids — they’re based on a number of aggressive assumptions regarding the drop in solar panel costs, financing, etc., but SunEdison did genuinely think these assumptions were possible. Alas, SunEdison ran into big troubles long before it could carry through with some of these big projects, but the point that the projects could be implemented in a financially viable way is the same point that several other companies making low bids have put forward.
However, it seems the optimism has been reaching a certain limit, and that even some of these winning bidders are avoiding high-profile power auctions because they think others will put forward lower bids that are not financially viable or sensible.
It was recently reported that leading solar companies were sitting out a power auction for Abu Dhabi’s 350 MW Sweihan solar project. That includes ACWA Power, Abdul Latif Jameel, Enel, and TSK. If you look at that chart of low-price records above, you can see that ACWA Power, Abdul Latif Jameel, and Enel won several of them. If these companies are sitting out for fear of obsessively low prices, it seems pretty clear that we’re running into a limit of how low prices can go (for a while, at least).
It may take a year or more before someone breaks the 2.99¢/kWh record a Masdar consortium (that includes Fotowatio Renewable Ventures and Gransolar Group) recently set for an 800 MW solar power plant. But if solar equipment costs continue to fall as projected and financing continues to improve (or at least not get worse), 3¢/kWh solar may be more typical than shocking in a few years.
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