Utah Utility Cuts Deal For 20 Years Of Solar Power Because It’s The Cheapest Option

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Boston-based renewable energy company First Wind just finalized agreements to provide a Utah utility with 320 megawatts of solar capacity for the next two decades. And the circumstances of the contracts are yet another example of how falling solar prices are reshaping the market.

The agreement in this case is what’s called a power purchase agreement (PPA), in which an energy provider (First Wind in this case) agrees to sell energy to a buyer (such as Utah utility Rocky Mountain) at a fixed payment rate for an agreed-upon amount of time. In other words, a PPA only makes market sense when an energy provider is confident they will be able to reliably generate the energy at a low cost for an extended period of time. In this case, the PPAs are a 20-year deal between First Wind and Rocky Mountain, for energy produced by four solar projects First Wind will build of 80 megawatts each.

That’s a grand total of 320 megawatts of capacity, which should be able to produce over 800,000 megawatt-hours of energy annually — enough to power about 90,000 Utah homes. Construction is planned to begin in 2015, and end the next year.

“These additional long-term contracts with Rocky Mountain Power will enable us to move forward quickly with what will be the largest solar development in Utah, and our largest solar project to date,” said First Wind CEO Paul Gaynor.

The latest projects are also on top of a 306 megawatt wind project First Wind already runs in Utah, as well as seven smaller solar PPAs — totaling 20 megawatts — the company agreed to build in the state earlier this month.

“When combined with our nearby Milford Wind project and Seven Sisters projects, we will have a capacity to generate nearly 650MW of clean electricity while serving as a source of major economic activity for southern Utah through good construction jobs and significant local tax revenues,” Gaynor continued.

The other significant aspect is that the latest PPA was driven by requirements under the Public Utility Regulatory Policy Act (PURPA) of 1978. The law says that if utilities can buy power from an independent provider for a lower price than it would cost them to generate the power themselves, they must. It was written during the energy crisis of the 1970s, and was intended to drive the country’s energy supply toward more diversity and away from dependence on foreign sources. And while natural gas generators have been the biggest beneficiaries of PURPA’s effects thus far, the law has driven a good deal of renewable capacity as well.

The connecting thread here is that neither the PPAs nor the requirements of PURPA would’ve come into play in this case if the price of solar were not dropping like a rock.

If solar was not competitive, the PPA would not have been a good cost-benefit calculation for First Wind, nor would it have met PURPA’s “avoided cost” requirement. Installation costs for both residential and commercial solar have kept falling for the last decade, which is why quarterly installations of solar around the country just keep climbing. Solar generation is already undercutting coal and natural gas in some parts of the country (and wind has been undercutting them virtually everywhere for some time) leading to the spread of solar PPAs that can out-bid competing fossil fuel projects.

It’s also worth noting that all this has occurred in a market that continues to ignore the costs of both climate change and the health effects of coal pollution.

Traditional fossil fuels, and coal especially, are imposing costs on people’s bodies in the here and now, while threatening massive costs to society through future climate change, and paying for none of it. Yet even while competing on a playing field tilted in their favor, fossil fuels are more and more unable to undercut solar in deals like the one between First Wind and Rocky Mountain.

Imagine how much faster solar and other renewables would spread if that tilt in the market were fixed.