The Future of Utility-Scale Development in California

After a promising year in 2008, developers have been stalled by delays over permits and siting decisions by the BLM, which has created uncertainty in project timelines for developers and investors. Pressure has grown as developers try to bring power on line in time to take advantage of the December 31, 2010 deadline for production tax credits. Pressure also grew among IOUs to secure their target RPS, which led to a record number of new power purchase agreements, some of which had contract prices above the MPR, with facilities located on public lands throughout the desert. Once the policies regarding permitting of solar project development on public lands are established, it is likely that a secondary push for utility-scale development on public land will ensue if conditions are favorable and result in a lower levelized cost of energy (LCOE) compared to private land development. Key factors in determining project costs, and by extension the LCOE, include reaching economies of scale, the technology efficiency, optimization of the solar resource, availability of and access to capital, land use costs, and access to transmission.

A lower LCOE is a competitive advantage for securing a PPA since the MPR rate will be lower for the utility. Currently, some developers are choosing to avoid BLM lands in order to avoid the uncertainty and delays facing projects proposed for public lands. One panel discussion among utility-scale project developers at the Greentech Media Solar Summit on utility scale solar development strategies highlighted the differences in location and technology choices for two projects in development.¹ Developers of Mojave Sun Power’s 340 MW solar trough project in Arizona purposely avoided public land in favor of a suitable parcel that was aggregated for a residential development project deal that failed. The representative from Mojave Sun Power explained that the technology choice was secondary to other factors such as available subsidies and financing options that would lower the project cost and expedite development. Although other technologies are considered more efficient than solar trough, they are not proven in the market and, therefore, face financing barriers which limits their market entry potential. Tessera Solar’s three dish/engine projects (2,150 total MW) on public lands are facing delays and project cost uncertainties due to undefined land use and mitigation costs. The choice of dish/engine technology is based on the higher efficiency of the installed project and the economies of scale achieved for the purpose of lowering the LCOE.

Solar trough technology currently dominates CSP development in California with 4,606 MW of the total 7,647 MW of potential generation capacity.² A study conducted by the National Renewable Energy Laboratory (NREL) found that the LCOE for the first CSP plants installed in 2009 was $148 per MWh, which is competitive with the simple cycle combustion turbine LCOE of $168 per MWh, assuming that the temporary 30 percent Investment Tax Credit is extended, although still higher than the $104 per MWH for a combined cycle combustion turbine plant.³ A number of CSP technologies, including concentrating PV, dish engine and power towers, are beginning to enter the market (Appendix B).

While some technologies pose a higher risk for investors, the ability to generate more power per acre and the possibility of lower land use costs makes the project attractive. As more efficient technologies are proven in the market, LCOE and land use impacts per MW produced will be reduced for future projects. For example, concentrating PV requires two acres to produce 1 GWh per year while thin film requires 2.3 acres to produce the same amount of electricity.⁴ The land use impacts varies based on technology type used and the fact that some, less efficient technologies are more easily financed presents a dilemma to BLM staff who review permit applications on a first-come, first-served basis. At this point, the permit review process does not prioritize proposals that have a more efficient land use footprint, reduced need for water, or do not require extensive land grading. If the process can be modified to give priority to technologies that have a reduced impact on the environment, this will incentivize investment in CSP technologies that are in the early stages of market deployment.

While there are some smaller utility-scale solar facilities in development, typically economies of scale are not achieved unless facilities are located on large parcels of land and in close proximity to one another. For example, two NREL reports on the preferred plant size and siting arrangements for a parabolic trough facility found that the levelized cost of electricity decreased by about $0.02 per kWh when the plant size was increased from 88 MW to 220MW⁵ and that siting multiple plants in close proximity to one another decreased levelized electricity costs by an additional 10 to 12 percent.⁶ However, the permitting process and limited availability of large, contiguous parcels of suitable land can delay projects and create a barrier to developing utility-scale systems. As an alternative, many developers are exploring smaller, decentralized facility projects on private land. This approach incorporates medium-sized generation facilities (five to 300 MW) located near load centers to satisfy peak load demands. While optimal economies of scale might not be achieved with smaller plants, the proximity to load reduces the impact a project may have on the landscape and environment because smaller parcels of disturbed land are located nearer to loads than are remote tracts of public lands. Load centers are also locations where peak demand can cause stress on the delivery system and decentralized facilities help power providers manage and maintain electric reliability, thus adding value to the project.

1 Greentech Media Solar Summit, “The Future of Utility-Scale Solar Development,” Conference panel presentation, March 31, 2010.

2 Solar Energy Industry Association, “Major Solar Projects,” http://www.seia.org/galleries/pdf/Major%20Solar%20Projects.pdf (accessed March 6, 2010).

3 National Renewable Energy Laboratory. Economic, Energy, and Environmental Benefits of Concentrating Solar Power in California, 2006, http://www.nrel.gov/docs/fy06osti/39291.pdf

4 Mark Crowley, “Concentrator Photovoltaics: Utility Scale Solar Technology for Rapid Deployment, Scalability, Light Footprint,” Greentech Media Solar Summit presentation, March 31, 2010.

5 B. Kelly, Nexant Parabolic Trough Solar Power Plant Systems Analysis Task 1: Preferred Plant Size January 20, 2005-December 31, 2005, 2006, National Renewable Energy Lab, http://www.nrel.gov/csp/troughnet/pdfs/40162.pdf, 13.

6 B. Kelly, Nexant Parabolic Trough Solar Power Plant Systems Analysis Task 3: Preferred Plant Size January 20, 2005-December 31, 2005, 2006, National Renewable Energy Lab, http://www.nrel.gov/csp/troughnet/pdfs/40164.pdf, 25.