Utilities traditionally have met renewable portfolio standards with power purchases from IPPs. But new approaches are allowing utilities to build their rate bases with investments in solar...
would provide significant cost advantages for utilities that are committed to large-scale deployment of PV for their future generation portfolios.
In the short term it’s important for utilities to simplify procurement, minimize the risk of supply interruptions, and gain the flexibility to source the technology from a number of potential vendors. But in the long term, potential cost savings from investing directly in manufacturing would allow utilities to capture more of the margin and achieve lower costs for solar energy.
Fortnightly: Earlier, you said PV costs might drop by about half in the next few years. If that’s the case, shouldn’t utilities avoid tying themselves to a specific technology or manufacturing plant?
O’Brien: The question is whether the known investment represents a positive value for ratepayers, compared to other known options today. Utilities are in the business of providing reliable electric supplies. They’re not competing against advancements that might be in hand five years or 10 years from now. They have to choose technology that makes good economic sense today, with the policies that are in place today and also weighing the credible pathway toward even more cost-advantageous options in the future.
One way of look at it is this: Investing in PV is like investing in a natural gas-fired power plant with a locked-in fuel supply contract for 20 years. You’re hedging the fuel price risk for that portion of the portfolio. I’d argue there’s more predictability in the future costs of PV than there is in the future costs of natural gas.
A second point is that Oerlikon offers the option of a services agreement that ensures the customer would have access to process improvements and changes on a going-forward basis. Most of the improvements achieved through our centralized R&D and product-development process can be retrofitted to existing lines. By investing directly in the plant, the utility customer would have more direct access to technology improvements that would be achieved over time. In the case of buying modules from third-party suppliers under long-term contracts, there might be some future performance improvements built into the pricing, but access to those price improvements wouldn’t be quite as direct.
Fortnightly: Is there any precedent for utilities investing in manufacturing capacity like this? Could they put it into rate base?
O’Brien: I’m not aware of any precedent for utilities investing in plants producing conventional energy technology or even something like wind turbine blades. [Editor’s note: Sometimes utility holding companies invest in advanced technologies. For example, Alliant Energy invested in Capstone Microturbine, and DTE Energy Ventures owns part of fuel-cell developer PlugPower and flywheel storage manufacturer Pentadyne. But in each case, these are unregulated assets, not included in the utility rate base.] This is somewhat new territory for utility commissions. The door is potentially open to the approach, but it would require utilities to demonstrate a clear and significant cost advantage for the ratepayer, compared to third-party procurement approaches.
We think that with the advances we expect to demonstrate in our plants over the next couple of years, there will be a good