Solar prices keep dropping, says Austin Energy

Although Austin Energy’s recent call for solar power contract solicitations yielded record low prices, the utility advised City Council on Thursday to take a “measured” approach to buying more solar in the next few years.

Khalil Shalabi, the utility’s vice president of energy market operations and resource planning, made the statement in a presentation to the Austin Energy Utility Oversight Committee, which consists of the full Council.

“I don’t think anybody, really, in the market … envisioned what’s going on here,” said Shalabi. “This is new to a lot of us, that the technology is actually declining at such a rate. I think we’re all very happy about that, especially since our goals are so aggressive for solar.”

Shalabi was referring to the response that the utility received to a recent request for proposal, or RFP, for up to 600 megawatts’ worth of competitive solar contracts. Releasing the request is part of the Austin Energy Resource, Generation and Climate Protection Plan to 2025, which sets a goal for a 55 percent renewable energy portfolio by the end of its term.

“I think this is good news – we have a firm bid under $40 (per megawatt hour),” Shalabi said. “The bad news is, 18 months after our last contract, we’re seeing prices 20 percent lower. So there’s a little bit of buyer’s regret going on here with the Recurrent (Energy) deal that we did. That’s part of the risk of being a bit of an early mover in technology.”

To illustrate the decline, Shalabi compared the most recent offers to the approximately $160-per-megawatt-hour deal that the city signed in 2008 for the 30-megawatt Webberville Solar Project, and the more than $40-per-megawatt-hour deal it signed in 2014 for the 150-megawatt Recurrent Energy solar project that is scheduled to come online this year.

Austin Energy spokesperson Robert Cullick told the Austin Monitor that, once the city enters into a contract with a solar developer, it is locked into the agreed-upon rates for the length of the contract, which usually roughly mirrors the expected life of the solar panels. In these cases, the city doesn’t benefit from the dropping costs of solar after signing a contract.

Shalabi recommended moving forward with a 200-megawatt contract and waiting on the remaining 400 megawatts, leaving open the option for Austin Energy to develop its own solar projects rather than contracting with developers. “It’s not going to be affordable if we buy 600 megawatts all right now – it’ll be above market,” he said.

Austin Energy operates under the authority of the Electric Reliability Council of Texas, also known as ERCOT, which represents 90 percent of the state’s electric grid. The utility must sell the energy that it produces into the market at competitive prices and purchase it the same way.

Council Member Leslie Pool asked why the city would not purchase all 600 megawatts of solar contracts in time for the panels to be online by the end of 2016, when the 30 percent federal solar Investment Tax Credit, or ITC, that is lowering prices for commercial solar will drop to 10 percent. “The deal in front of us would only be available (again) five years from now,” she said.

Pool was referring to a bar chart created by Austin Energy staff showing possible future solar prices. Shalabi’s presentation also states that “prices for 2017-2020 are lower still if the ITC is extended at 30 percent and only moderately higher if not.”

Shalabi elaborated on this idea. “It’s really a matter of how long you want to wait to wipe out the advantage of the ITC. Most people, including the solar developers, are saying that that’s a year and a half (after expiration) that we will wipe that out – and then, conceivably, we would see even lower prices if we were to issue an RFP, for example, in 2017 for additional solar.”

Austin Energy General Manager Larry Weis also stepped in to the conversation. “Our expectation all along is that solar prices are going to go down,” he said. “If they’re that good a deal, why is somebody not building a solar plant and simply selling it into the ERCOT market? And that’s going to start happening when the prices get low enough.”

Shalabi added an additional assurance. “We’re going to buy 600 megawatts; we’re going to build 600 megawatts. All we’re saying is, let’s stick to a schedule that we think kind of makes sense, where we’re willing to pay a little bit of a premium up front, right? But we also want to manage cost expectations going forward,” he said.

The generation plan sets goals for retiring the gas-powered Decker Creek Power Station and Austin Energy’s stake in the coal-fired Fayette Power Project as well as constructing a 500-megawatt combined-cycle natural gas plant.

The plan also requires that the utility contract with a consultant to conduct an independent review of the proposed gas plant and compare it to renewable alternatives before moving forward. The review is expected to settle a disagreement between the utility and solar advocates about whether natural gas or solar is more affordable.

Pool, for example, appears to fall into the latter camp. “The point that I was just driving to was that it looked like, overall, that building a new gas plant and the cost of gas (will end) up costing the city more than if we simply invest in additional solar,” she said.

Council selected Navigant Consulting to conduct the review on Thursday. Shalabi said the utility expects to have the results of the review in September or October, and hopes that Council will make a portfolio decision in October.

Shalabi has argued in favor of Austin Energy’s conclusion that the natural gas plant would be an affordable and reliable way to balance out the plan’s renewable goals. In response to Pool’s comment, he said, “We’ll leave it to Navigant.”

Image of bar chart showing potential future solar prices courtesy of Austin Energy.