Utility Scale Solar and the Probable Rise of Virtual Rooftop Solar

Often when people think of solar energy they immediately think of panels installed on rooftops. Our research team at Sustainable Williamson found some interesting trends that may re-situate the way we think about solar development and the necessity of installing it on rooftops. Our team has found that the paradigm of rooftop installations may be decreasingly relevant due to the various cost efficiencies resulting from an aggregated solar or a virtual rooftop approach. These include but are not limited to: lower transaction cost, economies of scale, and lower labor cost due to mechanization. There is a very simple and obvious trend within the solar market, as summarized by the Interstate Renewable Energy Council: “PV installations are getting larger.” From 2010 to 2011 the average size of a distributed PV installation, i.e. residential and commercial-scale PV systems, grew by 46 percent to 18 kW, and the average size of a utility-scale PV installation increased by 250 percent to 4.62 MW.

Average size of distributed generation PV installations

 

The industry is moving away from the typical residential rooftop system towards the larger utility-scale PV array. The rise of utility-scale solar projects — defined here as systems 1 MW+ in capacity — began with an increase from almost 0 percent to 15 percent of all grid installed PV capacity in 2009, then to 32 percent in 2010, and then to 38 percent in 2011. In 2012 utility-scale solar made up 46 percent of all solar capacity in the United States, and it is the fastest-growing application of solar power plants in the PV industry.

Between 2010 and 2011, the total installed capacity of utility-scale solar grew 145 percent while residential installations only grew by 24 percent on a capacity basis. According to the Interstate Renewable Energy Council, “In contrast to the explosive growth in non-residential PV installations, the number of residential installations increased by 21 percent, accounting for only 16 percent of all PV capacity in 2011 [see below]…this growth rate is the lowest for any of the PV market segments.” Our team believes that large-scale solar projects will continue to expand as more states enact higher renewable standards portfolio requirements, create larger solar-carve outs, develop their solar renewable energy credit markets, and continue tax rebate programs that augment the federal incentives.

Makeup of all grid-tied PV solar capacity in US, 2011 

   

The advantages of utility-scale solar stem primarily from the principles of economies of scale. As in other high-tech industries, the cost of solar technology is a function of the scale of its deployment. The solar industry has experienced and will continue to experience a steady decline in PV prices due to the increased benefits of economies of scale. While rooftop solar remains popular within the most advanced solar markets, there are large differences in hard and soft costs between traditional rooftop and utility-scale solar.

Inefficiencies associated with rooftop solar include higher installation costs, higher O&M expenses, shorter inverter lifespan, and permit fees. For example, the DOE Sunshot Vision Study maintains that a residential solar system requires $32.8/kW/yr in O&M costs whereas a utility-scale system only requires $19.93/kW/yr. 

“It is typically cheaper to install a 1-MW ground mounted over one-hundred 10-kW rooftop systems because of soft costs and labor costs. Rather than interconnecting one hundred systems, which takes additional time, money and permits, a 1-MW system would be a better value proposition,” said Bart Krishnamoorthy, senior research associate at SEPA. “The price of modules also typically goes down through large purchase orders as well. This also includes other components such as inverters and racking supplies.”

These economies of scale are well-represented by the discrepancies between residential and utility-scale solar prices — $4.93/Watt and $2.27/Watt, respectively.

Electricity prices over time, by sector.

Another huge shortfall of rooftop solar: not all rooftops are suitable for solar installation. Many rooftops do not face true south, the direction relevant to allsolar applications in the Northern Hemisphere. Furthermore, certain rooftops are at an improper angle with the sun to accommodate efficient solar panel installations. A 2008 study by the NREL found that only 22 percent to 27 percent of residential rooftop area is suitable for hosting an on-site PV system.

Perhaps more importantly, the solar installer-financer market leader, SolarCity, launched a successful IPO at the end of 2012. Since 2008, the company has been increasingly integrating commercial and utility-scale projects with large power agreements to supply corporations such as Wal-Mart, Toyota, SpaceX, and eBay with solar energy. SolarCity is also beginning to incorporate ground-mounted PV systems, as in the case of the 947 kW King Estate Winery project. In November 2011, SolarCity announced that it had secured $1 billion in private financing for “SolarStrong,” a partnership with leading privatized military housing developers to install 300 megawatts of solar capacity to accommodate over 120,000 new military homes. SolarStrong’s largest completed project to date is a 6-MW ground-mount and rooftop system for the Davis-Monthan Air Force base in Tucson, AZ .

Be it small 2-kW residential rooftop solar or multi-megawatt systems, SolarCity views itself as a utility company. “We sell energy, not equipment,” says SolarCity CEO Lyndon Rive. Terry Grant, managing director at investment bank Marathon Capital states, “SolarCity said to the investment world: people always pay their utility bill…If they can act like a utility that happens to be solar, that’s a really good thing.” Thus, even the non-utility-based American solar market is showing signs of integrating both rooftop systems and utility-scale solar and given the trends towards economies of scale we may see more ground mounted verses roof top installed systems in the coming years in the form of virtual rooftop scenerios.

A virtual rooftop system, i.e. a local offsite utility-scale solar array that distributes energy to individual residences, avoids the inefficiencies of rooftop solar (higher installation costs, higher O&M expenses, shorter inverter lifespan, etc.). This model could make use of “virtual” meter aggregation, or virtual net metering, a practice currently in place in a number of states. Within a virtual net metering system multiple electric meters are collected into one inflow-outflow mechanism so that more than one consumer may benefit from a single solar array.  A virtual rooftop system is one in which many residents will acquire energy from the centralized generation array as well as supplemental energy from conventional utility generation when load cannot be met by solar. This system must be net-metered: the offsite solar array will be monitored for both the energy it feeds into the grid (outflow) and the energy required on the opposite side of the system when solar does not satisfy demand (inflow). Net generation credits will be passed on to the virtual rooftop participants, further incentivizing investment through low energy prices. 

A virtual rooftop system, similar to a solar garden, is very much akin to a type of community shared solar model. For example, the Clean Energy Collective, LLC (CEC) located in Carbondale, CO, provides a member-owned model that enables individuals to directly own panels in a commercial-scale community shared solar farm through power purchase agreements with the local electric utilities. Moreover, given that a dominant trend in any given market is a tendency to migrate towards economies of scale, these recent trends in utility-scale solar development and integration should be considered when assessing the almost ideological nature of “rooftop” solar for the sake of Virtual Power Plant deployment.

(Note: This article was coauthored by Frank Fineis and Eric Mathis)

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First and foremost a philosopher, J. Eric Mathis has been at the forefront of initiatives to bridge the gap between the fossil fuel and renewable energy industries through the development and implementation of innovative finance and business models. These models are designed to be beneficial to both industries, creating mutually productive economic linkages between the fossil fuel and renewable industries and most importantly, the surrounding communities. As an active member of the community, he is helping to develop a comprehensive project entitled Sustainable Williamson which emphasizes health and wellness as a key component for economic revitalization. Using Sustainable Williamson as a template, his most recent endeavor is participating in the creation and implementation of the Central Appalachian Sustainable Economies (CASE) network which is a peer-to-peer regional network of innovators cultivating new ideas and resources in central Appalachia to grow healthy communities. Eric is a proud Green for All Fellow, a 2010 recipient of Interstate Renewable Energy Council’s Innovation Award for community renewables and a 2012 White House Champion of Change for Greening our Cities and Towns. As self described "evolutionary" and a nationally recognized practitioner of applied sustainability, he helped spearhead one of the America's first student lead Renewable Energy Initiatives, has lectured at MIT as part of the 2013-2014 Sloan Sustainability Speaker Series, has been both a speaker and a moderator of panels at many economic/sustainability conferences and is a frequent contributor/blogger for the world's #1 renewable energy network. His collaborative work has been covered by or featured in Biodiesel Magazine, BBC World News, Eye Opener TV, Bloomberg, Photon Magazine, Daily Yonder, West Virginia Executive Magazine, Fast Company, Home Power Magazine, PBS News Hour and Fortune Magazine. He is presently developing an "augmented" practitioners guide to sustainability that is set to be released 2015.

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