UPDATE 8:55am (9/16/2015): On September 15, the Resource Management Commission unanimously recommended that City Council approve a contract for an additional 200-275 MW of utility-scale solar in West Texas, with two amendments. First, Austin Energy should only utilize the new solar resource as part of the Green Choice program if it complies with national guidelines to avoid double-counting of verified renewable energy credits. Second, the recommendation by the RMC in no way should be interpreted as limiting the City Council or Austin Energy from pursuing additional contracts for solar that could result from the recent RFP.
By Cyrus Reed
There are several actions expected this week in Austin that will shape the city’s commitment to solar power for the next several years. If you’ve read anything about upcoming solar votes, chances are it came with a bit of confusion. With potentially many decisions expected by City Council, the Electric Utility Commission (EUC), and Resource Management Commission (RMC), just what is at stake?
First, here is what is on tap:
- Tonight: Austin Energy will seek approval from the RMC to contract 200-275 megawatts (MW) of utility-scale solar.
- Sept 17: City Council could vote on a resolution to direct Austin Energy to present a plan to purchase 600 MW of utility-scale solar by 2017 at the October 1 council meeting.
- Sept 21: The EUC could vote on Austin Energy’s 200-275 MW solar contracts.
- Sept 24: The Austin Energy Oversight Committee will be briefed on the purchase of the utility-scale solar contracts and take public comment and possibly making a recommendation to the full council.
- Oct 1: City Council meeting at which Austin Energy may present plan to achieve the rest of the 600 MW of utility-scale solar (if directed to do so at the Sept 17 council meeting). Austin Energy will also seek council approval for the aforementioned 200-275 MW of solar.
Background
All of the deliberations are a result of the historic Austin Energy 2025 Generation Resource Plan, adopted by the previous City Council on December 11, 2014. That plan committed Austin Energy not only to achieving at least 55 percent renewable energy by 2025, but also at least 950 MW of solar power, including 200 MW of “local” solar, including those owned by Austin Energy customers, as well as 750 MW of utility-scale solar, either owned or contracted by Austin Energy outside the Austin Energy service area.
Austin Energy had already contracted 150 MW of utility-scale solar previous to the adoption of the 2025 Generation Plan, so as a first step, Austin Energy was directed to issue a Request for Proposals (RFP) for the remaining 600 MW of solar energy. Both the previous City Council (as laid out by the Generation Plan) and the current City Council (in April) directed the utility to do this. When the results came back in May, Austin Energy, its customers, and City Council were pleasently surprised. More than 8,000 MW of solar projects were submitted, with almost 1,300 MW at prices that were below the last solar contract Austin Energy signed – roughly $50/MWh for 150 MW with Recurrent.
So What Happens Now?
Here’s where things get a bit confusing. The Generation Plan has in reality two goals for utility-scale solar. First, Austin Energy is expected to reach an overall goal of 750 MW by 2025. Second, they are directed to contract up to 600 MW of solar by the end of 2017 if it is available and affordable.
What is affordable is, of course, subject to interpretation. The exact words in the Generation Plan are not perhaps as clear as they could be, stating: “The Plan recommends a new RFP be issued by AE for up to 600 MW of utility-scale solar in 2015. Austin Energy will contract for up to this amount by 2017, if available and affordable."
Austin Energy’s Preference
Austin Energy has told Council while there is certainly at least 600 MW available at attractive prices, they prefer to contract some amount today (200-275 MW) but leave the remainder open as they believe that prices will continue to go down over time, and they are also interested in financing and owning more solar resources themselves rather than contract just for the electricity, which would be the arrangement for the 200-275 MW would be.
Solar Advocates' Preference
Several environmental organizations, including Public Citizen, the Texas Drought Project, Solar Austin, SEED Coalition, Climate Buddies, and Clean Water Action, advocate that Austin Energy should go ahead and take advantage of the historically low prices and get all 600 MW of solar now. They point out that Austin Energy could still contract or own additional solar in the future should prices continue to go down.
The Devil is in the Details
First, the potential RMC vote on Austin Energy plan to contract 200-275 MW of solar. The utility says these contracts would cost $22,500,000-$31,000,000 per year, which works out roughly to $38-$40/MWh (based on solar capacity factors in West Texas). It is important to note that this cost would be offset, at least partially, by also selling the solar into the market and Austin Energy estimates the impact on rates will be less than 30 cents per month for average residential customers, raising bills only by 0.26% per year, over the next several years. Over time, as natural gas and electricity market prices go up, the utility expects these proposed contracts before the RMC will actually save customers money. Assuming the RMC approves the measure, the proposal would next go to the EUC, and then to Council by October 1.
The next set of decisions get a bit complicated.
As referred to above, separate from 200-275 MW on the table, City Council has been debating whether to direct Austin Energy to contract the rest of the 600 MW now. The EUC adopted a resolution on August 17 that calls on the City Manager (i.e., Austin Energy) to present a plan to contract (or own) all 600 MW of solar by the end of 2017 (Remember the original wording of the 2025 Generation Plan?). Second, City Council itself is scheduled to take up the question of contracting additional solar on this week’s agenda, calling on Austin Energy to present a plan by October 1 on how it would meet the 600 MW by 2017 goal.
The current draft resolution states:
“The City Manager is directed to bring a plan for Council approval no later than October 1, 2015, that outlines how the City will meet the 600 MW utility-scale solar goal by no later than 2017.”
Does every Council Member think more planning is needed? In previous sessions, some wanted quicker action on the 600 MW goal. A slightly more directive resolution was originally sponsored by Council Members Garza, Casar, Pool, Kitchen, and Mayor Pro Tem Tovo that not only directed Austin Energy to bring a plan, but execute it as official policy. However, that resolution was not adopted. Mayor Steve Adler proposed a slightly different resolution, which directs Austin Energy to come up with a plan, but leaves it to a future meeting of City Council whether to actually contract all 600 MW of solar by 2017. That resolution passed the Oversight Committee on an 8-3 vote, with Tovo, Garza and Pool voting against, since they wanted the stronger policy language.
Are We Splitting Hairs or Are There Serious Implications?
At issue is whether Austin Energy should take advantage of the low prices that resulted from the RFP and contract for all 600 MW now, or wait to contract or own the 325-400 MW after the 200-275 MW are approved, assuming that prices will fall further.
As part of the discussion, the Sierra Club produced a white paper that suggests both approaches are valid. Our analysis shows that assuming a price of $38/MWh, Austin Energy should be able to contract all 600 MW now, and the impact on ratepayers will generally be less than 1% of rates for a few years, and will eventually save ratepayers as market prices rise.
However, we also recognize there may be some wisdom in holding off on meeting part of the 600 MW goal to avoid a potential higher rate increase and also open up the possibility to own part of the solar resource.
What’s the advantage of the utility owning the solar asset rather than just buying the power? The advantage is being able to finance the solar build-out over time, and being able to take advantage of any revenues for purposes other than simply passing on the savings to ratepayers. By owning the solar, Austin Energy could also add energy storage capability as battery prices also decline. In a straight Power Purchase Agreement, all of the revenues and costs that result goes into the Power Supply Adjustment charge paid by customers – whether it saves or costs ratepayers – but the revenues could not, for example, be put into reserves to pay off the debt on the coal plants. It is a straight financial transaction that should benefit ratepayers over time.
Thus, our white paper – while supporting the purchase of all 600 MW as a valid option – also suggested a “middle ground” such as 300-400 MW now and 200-300 MW later through ownership, which might also be a good option for the community and Austin Energy. Potentially, all of this solar could still be in the ground by 2017 – or at least set in motion – but allowing some of it to be owned by Austin Energy could present important advantages for Austin Energy and its customers.
Risks of Waiting
Recent analysis by energy analysts suggest that solar prices will continue to fall after 2016, even as the Investment Tax Credit is scheduled to decline from 30% to 10% in 2017. According to GTM Research’s latest report, PV Balance of Systems 2015: Technology Trends and Markets in the U.S. and Abroad, average global PV system installed costs will fall from $2.16 per watt in 2014 to $1.24 per watt by 2020, a 40% decline. Costs will continue to vary by region and market segment, but the report states that a combination of balance-of-system innovations (everything but the panels) will drive cost reductions across the board and ultimately fuel the global solar market to move well past 100 gigawatts (GW) by 2020. See Global Solar PV System Pricing Set to Fall 40% by 2020
Similarly, UBS – a leading energy analyst firm – predicted in their report “What is the Future for PV Modules? More Supply” that solar prices should continue to decline even after 2016, though slightly, based on expected supplies and manufacturing commitments. This matches recent statements by First Solar, a leading solar developer, that they aim to reach the magic number of $1.00 per watt installed within a few years.
However, some rightly point out that solar prices might go up slightly in 2017 if the current 30% Investment Tax Credit rate is not continued beyond 2016. The tax credit is scheduled to decrease to 10% of total project costs. This is one of the reasons Austin Energy sees a value in owning it themselves post-2016, thinking it would be cheaper to own.
After all of the solar votes occur, another major debate will begin on the future of other Austin Energy resource decision. On October 19, Austin Energy will present the final independent review of 2025 Generation Plan by consulting firm Navigant, which will include a review of the potential of building a 500 MW natural gas plant versus alternatives.
Three days later, on October 22, there will be a presentation at the Austin Energy Utility Oversight Committee Meeting by Austin Energy and Navigant of the final natural gas vs. alternatives report.
Stay tuned for more updates!
Photo credit: albradenphoto.com
Editor's Note: A previous version of this blog had omitted Solar Austin, SEED Coalition, and Climate Buddies from the list of organizations supporting Austin Energy contracting for all 600 MW of solar now.