In our previous post we discussed a specific solar project example. We received many comments related to the post and wanted to share some of Pace Global’s additional thoughts regarding the value of solar energy projects and the prudency of the governmental policies that support solar power.
The comments we received centered around the following themes:
- Customer access to the generation output data provided by a solar power plant;
- Solar represents a very small portion of the current installed electricity supply;
- Solar is idle the majority of the day;
- Solar is unreliable; and
- Solar is subsidized by the poor.
Certainly, we agree that output data would be useful for consumers. Many systems installed today do provide web-based access to this type of data.
It is true that solar represents a very small percentage of the installed capacity today but the industry is in an infant stage and assuming policies continue that support solar, installed capacity could reach between 5-10% of total generation by 2025. It is our view that a secure generation portfolio constitutes a blended portfolio of generation sources. So while solar is not anticipated to command a majority of generation capacity, the materiality of solar generation in the U.S. plays a very important role. The rate of solar generation will accelerate as technology continues to advance and as industry providers continue to expand their development plans for solar.
Solar is competitive when viewed in the proper context. In addition to solar energy’s environmental benefits (reduces pollution from mercury, SO2, NOx, other particulates and other hazardous air pollutants), solar offers an opportunity to replace what is known in the industry as “super peaking electricity generators”. A super peaking electricity generator is a power plant that operates about 3% of the year and only as the last resort for electricity generation. These plants are often decades old, typically inefficient and expensive to operate and often environmentally challenging. Super peaking electricity generators are only called to service during peak summer hours when electricity super-peak prices are often well over $100 per megawatt hour (MWh).
In the market where the Dover SUN Park is being constructed, power costs reach $70,000 per megawatt (MW) of available generating capacity per year just to keep plants, such as these super peaking generators, available to meet peak load conditions. Since peaking plants may operate only about 3% of the year, this works out to an availability charge over $250 per MWh. Add this to the super-peak summer prices ($100 per MWh) and this means that for each MWh generated by these peaking fossil plants we are paying more than $350 per MWh. To put this into further context, during the hottest summer days electricity prices often spike to $500 or even $1,000 per MWh. And, these cost figures do not include the potential for fossil fuel price increases.
Solar systems in the region where the Dover SUN Park is being constructed will require less than the $350 per MWh required by the fossil-fueled peaking plants discussed above. Moreover, the continuing technology improvements that we are experiencing today coupled with the acceleration of the industry’s development footprint are facilitating continued decreases in solar capital costs by more than 5% per year, while the costs for fossil-fueled power plants are increasing.
I share this view simply to provide assurance that we are not adopting some ill conceived path.
We are investing in solar because we require prudent options in advance of what new technologies may bring in ten or twenty years. We cannot and should not stay dormant for this long period in the hopes of some new breakthrough while capital flows overseas for importation of fossil fuels. In our view, we need to invest in solar power now and stimulate market forces that will drive even greater technological advances and further reduce costs as scale delivers further supply chain optimization.
We believe that solar will continue to make dramatic economic advances and grow in prominence while providing both economic and environmental improvements for all. And for each MW generated by solar, fewer dollars will go overseas and less pollution will compromise our skies. This is a good thing.