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Buying Into Solar

Rewards, challenges and options for rate-based investments.

Fortnightly Magazine - December 2009

doesn’t require new transmission. To the extent utility investment facilitates growth in distributed solar generation, the amount of transmission that must otherwise be built can be reduced, lowering costs for ratepayers and speeding the proliferation of solar generation.

Successful Examples

A growing number of projects are establishing a track record for utilities investing in solar generating facilities ( see Figure 1 ).

A few utilities are augmenting existing fossil-fueled plants with CSP. One of the largest of these projects is Florida Power and Light’s Martin Next Generation Solar Energy Center, which pairs CSP with a gas-fired combined-cycle plant. Xcel Energy is investing in a similar project in Colorado with a coal-fired plant.

Dedicated central plants might be responsible for the greatest regulated utility investments in solar in the next few years. While such PV systems as FPL’s 25-MW plant have been the norm for regulated utility investment, CSP plants are poised to gain ground quickly. While none of the central CSP plants proposed or under construction will be built with regulated investments, this situation likely will change. CSP with thermal storage offers higher capacity factors, a better match between production and utility demand curves, and a lower price per kilowatt hour than PV solar.

Most regulated utilities argue that their solar investments are part of a plan to meet their respective states’ renewable energy standards. But FPL’s approach to regulatory approval of its solar generation investments was unique, as Florida hasn’t yet passed renewable energy standard legislation. In 2006, the Florida legislature passed, and Governor Crist signed, the Florida Renewable Energy Technologies and Energy Efficiency Act . Among other things, the law as subsequently amended encouraged utilities to invest in renewable generation by providing a tax credit equal to 0.5 cents for every kilowatt hour delivered plus 50 percent of the difference between the cost of renewable energy and the cost of benchmark energy.

In addition to progress on central solar plants, regulated utility investments in distributed PV solar are gaining public attention because those systems are highly visible and, some would argue, inspirational. Five utilities—Duke Energy, Pacific Gas & Electric, Public Service Electric & Gas (PSE&G), San Diego Gas & Electric, and Southern California Edison(SCE)—are making or proposing to make regulated investments in large distributed PV solar programs. The programs employ a variety of sites and cost-recovery mechanisms, and the public relations benefits are substantial. Utility investment also offers system-specific research benefits.

“We can’t track what we need to know about PV solar systems when they’re on the customer’s side of the meter,” says Mark Nelson, director, generation planning and strategy, with Southern California Edison. “Utility ownership permits SCE to evaluate the efficiency and economics of PV solar systems with a degree of precision not currently available to us.”

Most utility-owned distributed PV solar systems are large—500 kW and up—and located on large flat spaces such as brownfield development sites, warehouse rooftops, and vacant utility or public property. Duke Energy’s program is unique in that it envisions a large number of smaller sites on commercial as well as public properties. “In