Austin Energy's potential solar deal

Austin Energy close to signing ‘cheapest’ solar power deal experts have seen

By Marty Toohey - American-Statesman Staff

Austin Energy is poised to sign what could be the world’s cheapest solar-power deal.

The city-owned electric utility has agreed to terms with SunEdison to buy electricity from two solar farms in West Texas, one a 350,000-panel, 100-megawatt facility, the other a nearby 150,000-panel, 50-megawatt neighbor. The price is just below 5 cents per kilowatt-hour. That is far cheaper than solar energy had generally been going for — and less than a third of the price Austin Energy agreed to pay in 2009 for electricity from a much smaller solar array just east of the city.

“It’s the cheapest I’ve seen,” said Raj Prabhu, the CEO of Mercom Capital Group, an Austin-based energy consulting group that monitors the industry nationally. He said he isn’t familiar with the details but added, “This seems to be new territory.”

“It is certainly at the very low end of the prices I have seen,” said Jurgen Weiss, an energy economist with the Brattle Group, an international consulting firm that advises the Electric Reliability Council of Texas. “As many had predicted, we’re entering a time in which, with some caveats, solar presents quite an attractive alternative to conventional sources.”

Austin Energy would not reveal where exactly the proposed project is in West Texas, saying the location has to be kept confidential for competitive reasons until the contract is signed. The City Council is scheduled to vote March 20 on the 25-year contract, under which Austin Energy would pay up to $21 million per year, depending on the plant’s output. At peak output it will be able to power about 14,000 homes.

Austin Energy is investing in solar energy, along with wind power, as part of an overarching plan to reduce the city’s carbon emissions, which most scientists say contribute to global climate change. The wind deals have been intended mainly to reduce Austin’s use of a coal plant in Fayette County. Solar is intended to help the utility handle the increasing strain that a growing population puts on the grid during the peak-demand times of late afternoon and early evening.

The SunEdison price is almost identical to what natural gas is selling for and is cheaper when the cost of building a gas plant is taken into account. Solar is still not an energy silver bullet because other supplies are needed when the sun is not shining (at least until the invention of batteries capable of efficiently storing enough electricity to power a city).

But one of the main knocks on solar, price, appears to have been alleviated, for several reasons.

A federal tax credit turned what would have been about an 8-cent-per-kilowatt-hour price down to 5 cents, said Weiss, the energy economist.

Austin was also among the only customers, if not the only customer, looking to make a solar purchase of that scale, said Austin Energy General Manager Larry Weis. And the utility has a strong credit rating and is a safe bet for a company looking for investors.

“I think they’re willing to take a haircut on price to have that steady income coming from us,” Weis said. He said prices probably won’t fall much further in the near future, partly because federal subsidies are scheduled to become less generous in 2016.

He said the utility asked companies to submit proposals, and 30 or so came back at prices near SunEdison’s. Weis said that, although the technical limitations of solar mean there are limits to how much the utility can use, “we got a very good price, … we were very pleased.”

The project uses photovoltaic panels, according to Austin Energy, and is not based on any game-changing new technologies.

Austin Energy predicts the solar deal will lower rates slightly — an assessment that brought cheers from the environmental activists who are sometimes critical of the utility.

“At this price, it’s a game changer, not just for Austin Energy but for the future of electric generation in Texas,” said Tom “Smitty” Smith, head of the Texas chapter of Public Citizen, an environmental watchdog group. “No state has more solar potential than Texas. Some states have places of more intense sunlight, but Texas has vast areas of dry, arid desert that are perfect for solar.”

Even without the federal subsidy, the SunEdison price is lower than generally seen in Germany, where the government has made massive solar investments. Only some of the typically 13 cents-per-kilowatt-hour price in Germany can be attributed to higher labor costs and land availability, said Weiss, the economist.

Even the U.S. Energy Department had predicted that solar prices would not drop to 6 cents per kilowatt-hour until 2020. There has been a well-documented drop in solar prices in recent years, mainly because silicon prices are relatively low and Chinese panel prices dropped. Weiss said much of the drop is also due to more efficient use of the technology. Panels are roughly 30 percent of the cost, and Weiss said factors such as lack of competition and laws in need of tweaking had held the industry back.

The SunEdison deal, he said, “is probably a reflection that the industry is becoming more mature in the United States.”

By the numbers

Austin Energy projects that the 30-year, “all-in” cost of wind and solar will be cheaper even than natural gas, though the utility emphasizes projections aren’t always right. Prices below are cents per kilowatt-hour:

2.8 to 3.8 cents: Wind contract signed last month for 300-megawatt wind farm north of Lubbock*

4.5 to 5.5 cents: Proposed solar contract for 150-megawatt array*

7 cents: Natural gas

9 to 16 cents: Wood-waste plant that started operating in 2012*

10 cents: Coal

13 cents: Nuclear power

16.5 cents: Solar array approved in 2009 in Webberville

Source: Austin Energy

*Austin Energy doesn’t release the exact per-kilowatt-hour price, saying competitors could use the information against the utility when bidding for future sources of electricity.