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Solar PV Becoming Cheaper than Gas in California?

We hear it every day: "Solar is too expensive." Well, not according to the California utility Southern California Edison.

In a recent filing to the state's Public Utilities Commission, SCE asked for approval of 20 solar PV projects worth 250 MW – all of which are expected to generate a total of 567 GWh of electricity for less than the price of natural gas.

Although the exact details of the 20-year contracts for the projects are kept confidential for a few years, the utility reports that all winning solar developers issued bids for contracts below the Market Price Referent, which is the estimated cost of electricity from a 500-MW combined-cycle natural gas plant.

What does that mean? It means that a large number of solar PV project developers believe they can deliver solar electricity at a very competitive price. And these aren't mega-projects either. All of the installations will be between 4.7 MW and 20 MW – a sweet spot for PV projects.

Although the price of natural gas has plummeted in recent years because of excessive production and lower demand for power, the cost of solar projects and the price of solar electricity has dropped in tandem. With stong solar requirements in states like California, demand for PV has stayed strong.

"Solar energy is a natural hedge against rising energy costs – a hedge that regulators and utilities are turning to lower electricity costs for their customers," said Rhone Resch, president and CEO of the Solar Energy Industries Association.

California regulators seem to agree that mid-sized solar PV installations, which capture economies of scale but suffer fewer regulatory and transmission constraints, are an important part of the market.

These latest projects were solicited through SCE's Renewables Standard Contracts program, a reverse auction mechanism implemented by the utility in 2010. The program is a precursor to California's Reverse Auction Mechanism (RAM) that was approved last December. That 1-GW program requires California's three largest utilities to hold auctions twice a year to solicit bids from developers of mid-sized (i.e. 1-20 MW) solar PV projects.

The 250 MW of contracts sent to the CPUC for approval is in addition to a 500-MW solar program initiated by SCE in 2009.

According to SCE's filing, the utility seems to be genuinely positive about the prospects for solar PV:

“Solar PV is a mature and proven renewable energy technology that has been supplying a substantial amount of renewable energy to SCE and other California load-serving entities (“LSEs”) for several years.”

While large-scale concentrating solar power projects have been gaining ground in California and other southwestern states, PV is looking like the better option in many cases. Due to the steady declines in the cost of production and price of modules, as well as improvements in Balance of Systems technologies (i.e. power electronics, racking and wiring) that make installations more efficient, solar PV is leading the way.

“The solar industry has done a great job in bringing down costs – long a promise, now a reality,” said Adam Browning, executive director of the Vote Solar Initiative, in a response to the recent SCE announcement. “These are price-points that can really scale, and will encourage policymakers to think big.”

In a recent report from GTM Research comparing similar-sized CSP and PV projects, the authors forecast that electricity from utility-scale PV plants will be considerably lower than some CSP technologies. In the next decade, the research firm projects CSP plants will be generating electricity in the $0.10 to $0.12 per kWh range and PV will be producing electricity in the $0.07 to $0.08 kWh range. (On the flip side, CSP technologies can offer storage capabilities and hybrid natural gas components, providing value that PV can't necessarily deliver.)

With high peak demand, lots of expensive “spinning reserve” power plants and ample sunlight, California is the likely place for PV to compete. But with project costs continuing to drop and utilities promoting the technology, the steady march toward grid parity will spread to other markets as well, said Vote Solar's Browning.

“Though California does have world-class sunlight, solar is modular and adaptable, and similar results can be had throughout the country.”

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