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Solar Energy Falls to 5 Cents per Kilowatt Hour in US

Solar is reaching into the cost territory of natural gas, according to the latest “Utility-Scale Solar” report from the Lawrence Berkeley National Laboratory (LBL) funded by the Department of Energy’s SunShot Initiative. An increasing body of evidence shows that utilities are signing deals with solar project developers for an average 5 cents per kilowatt-hour. This puts solar power within the realm of parity with other electric sources—the average wholesale price of electricity across the U.S. ranged from 3 to 6 cents per kilowatt hour in 2014.

The low cost of solar isn’t just in California or the U.S. southwest, either. Texas is signing some of the lowest-cost projects in the U.S. And most recently states like Utah, Virginia and Arkansas are adding in large scale solar projects. Indeed this past week both Virginia and Arkansas have announced projects that are 80 megawatts or larger.

The low costs of solar energy are driven by lower installed costs, improved performance, and a race to build projects ahead of the reduction in the Investment Tax Credit (ITC) for large solar plants, according to LBL. The federal incentive is set to drop from 30 percent to 10 percent in 2017.

The study looks at solar projects larger than 5 megawatts. The report found that since 2009 the installed cost of utility scale solar has fallen from $6.3 per watt to $3.1 per watt for projects completed in 2014—with some coming in as low as $2 per watt. It also found that the performance of newer utility-scale solar projects have gone up to 29.4 percent efficiency in 2014. That’s up from 26.3 percent in 2012. “This improvement among more-recent project vintages is due to a combination of several trends: newer projects have been sited in better solar resource areas on average, and have increasingly oversized the solar collector field and/or employed tracking technology to increase energy capture,” LBL said.

All of this has led to a reduction in the costs of power-purchase agreements (PPAs) for large solar power plants. “Particularly in the Southwest where the solar resource is strongest, there appears to be a deep market at these low prices, as evidenced by several recent utility solicitations for solar energy that have been heavily oversubscribed, with many of the unsuccessful projects offering prices similar to the winning projects,” LBL said.

“Declining PPA prices have also made utility-scale solar increasingly competitive outside of the traditional stronghold of the Southwest, with recent contract announcements in states like Arkansas (at ~5 cents/kWh) and Alabama (at ~6 cents/kWh) that have not previously seen much solar development,” the report stated.

“Falling prices have also opened up some markets to avoided-cost contracts, where solar is cheaper than a utility’s avoided costs to generate electricity elsewhere. In states like Utah and North Carolina, avoided-cost contracts are bringing in various solar contracts,” wrote GTM Research’s Katherine Tweed. She observed that Boulder, CO, recently signed a PPA with SunPower at $46 per megawatt-hour and Austin Energy signed a recent PPA for a solar project at under $50 per megawatt-hour.

In addition to the lowered costs of installed utility-scale solar power there’s a vast pipeline of projects. “There were nearly 45,000 MW of solar capacity making their way through various interconnection queues across the country at the end of 2014 – more than five times the installed capacity base at the time,” the report noted. It observed that much of these new projects are located outside California and the Southwest, which hadn’t been strongholds for solar projects in the past. This shows a frenzy to beat the ITC reduction deadline and that more utilities are becoming comfortable with solar power.

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