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Solar Emergence

Models are evolving for utility-scale solar development.

Fortnightly Magazine - March 2011

2013), has demonstrated that it can work with private developers and the federal government to develop utility-scale projects. In late 2010, six utility-scale projects received fast-track approval. The projects will be built by private developers on public land, for a combined output of 2.8 GW. The projects will receive stimulus funding and also qualify for investment tax credits.

Solar Business Models

So what should be the role of the government in developing the solar energy market? Certainly RPS policies with solar carve-outs and state feed-in tariffs pressure utilities to purchase solar power. Stimulus money and tax credits also make solar projects more attractive to investors. If renewable energy credits were more valuable, if gas prices were higher (for a sustained amount of time) or if gas powered plants were required to purchase carbon credits, the gap between gas and solar would close. But, on the other side of the coin, if private industry were able to produce a more efficient, less costly, mobile solar array, the cost discrepancy would decrease as well.

While solar hardware has come a long way to be more efficient, reliable and cheaper, there isn’t as much focus on the soft costs associated with solar installations. While many incentives are available, there’s a lack of standardization in the process of locating and applying for the incentives. Further, the process is slow and document-intense, often necessitating redundant data entry. Permitting is a significant challenge to any solar project. Federal, state, county and local government authorities have jurisdiction over solar projects, which can create a permitting nightmare.

Even once the solar project has secured its appropriate permits, interconnection can also be an issue depending on the proximity of the project to transmission lines. There is little standardization across utility companies. Some offer a straightforward interconnection process while others, due to size, resources or lack of demand, have a cumbersome, nontransparent process.

Finally, companies in the solar industry need to assess whether smaller, specialized operations or vertical integration provides the greatest cost savings. Vertical integration would lend itself to utility-scale projects because the developer would manufacture and own the solar array, perhaps even design and build it as well. Specialization, with companies doing what they do best, would likely have less of a focus on utility-scale projects due to their sheer size and cost. Addressing these industry-wide soft costs could result in a material decrease in the cost of solar energy.

Some countries (China is a recent example) have taken steps to demonstrate that government funding should lead the development of the solar energy market. In August 2010, 13 new utility-scale solar projects were put up for bid. Seventy percent of the winning bids went to government-controlled enterprises. The bids ranged from $0.10 to $0.15 per kWh. While these rates may be adjusted depending on many factors, the projects aren’t expected to be profitable for 17 to 18 years. With this type of ROI, it’s no wonder that the winning bids went to state-controlled enterprises. Irrespective of opinions on direct state involvement, China will have significant utility-scale solar projects in the