Remember when solar power was expensive? You know, just a couple years ago. Things change fast, don’t they, especially in Texas?
For example, in 2009, Austin Energy agreed to pay 16.5 cents per kilowatt-hour (kWh) for electricity from a solar power plant (via a 25-year power purchase agreement, or PPA). Just 5 years later, it is going to pay a little less than 5 cents per kWh for electricity from a couple of new solar power plants (again, via a PPA).
To put that into a little perspective, Austin Energy estimates that it could have paid 7 cents per kWh for electricity from a natural gas power plant, 10 cents per kWh from a coal power plant, and 13 cents per kWh from a nuclear power plant.
From a wind power plant, the estimate was 2.8¢/kWh to 3.8¢/kWh. However, there’s something to highlight regarding solar power. Electricity markets work by the same supply and demand principles as other markets (to an extent). As supply goes up, electricity price falls. And as demand goes up, electricity price rises. Electricity demand (especially in the South) is greatest around the middle of the day, which makes electricity prices highest at that time. The fact that solar, which produces electricity at these peak demand times, is available for 5¢/kWh is pretty huge.
Now, you might be wondering how much subsidies come into play here. There are no Texas subsidies for solar that help with this project, but there is the federal investment tax credit (ITC). Without the ITC, the cost of electricity in this deal is estimated to be 8¢/kWh, just 1¢/kWh more than the estimate for natural gas. However, remember that pollution externalities are not included in the price of natural gas (but should be), and because of the price volatility of this fossil fuel, natural is a much riskier investment.
A couple final points to note: 1) the DOE projected that solar would get below 6¢/kWh by 2020, and 2) Austin Energy was initially seeking bids for solar power from a power plant or power plants totaling 50 megawatts of capacity, but after receiving over 30 proposals, including the winning proposal from SunEdison, it increased the size to 150 megawatts.
Overall, this is big news for the solar industry. It’s increasingly safe to say that solar power is now mainstream in Texas, as well as nationwide.