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Stunning new lows in solar and battery storage costs

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A new contract signed by a utility in Arizona has set a new low price for large-scale solar power in that country, but more importantly has also smashed expectations of the combined cost of large-scale solar and battery storage.

Tucson Electric Power (TEP) this week announced it would buy solar energy from a new 100MW solar plant at the historically low price of less than US3c/kWh – less than half of what it had agreed to pay in similar contracts over the last few years.

The project will also include 30MW/120MWh of battery storage, and the company says that the power purchase agreement for the combined output is “significantly less” than US4.5c/kWh – nearly two-thirds cheaper than the previous such contract struck in Hawaii, and well below the cost of a gas-fired peaking plant.

wind + solar

“This new local system combines cost-effective energy production with cutting edge energy storage, helping us provide sustainable, reliable and affordable service to all of our customers for decades to come,” said Carmine Tilghman, senior director of Energy Supply and Renewable Energy for TEP.

According to Utility Dive in the US, the solar and storage array – to be built by NextEra – represents a major cost reduction for combined solar and storage facilities since the signing of the last significant PPA — which was a $US0.11/kWh Hawaii contract signed only in January this year.

The development is significant because it is confirmation that dispatchable renewable energy can compete with peaking gas-fired generators on price.

This is believed to be already the case in Australia, although it is yet to be tested because no large-scale storage arrays have yet been built. Two auctions are currently underway in Victoria and South Australia.

Still, Tony Concannon, the head of Reach Solar, which is building a 220MW solar farm in South Australia, and the former head of the Hazelwood brown coal generator, says solar and storage is already cheaper than gas-fired generation and the combined cost would soon be “well below” $A100/MWh.

AGL has also agreed that renewables plus storage are cheaper than gas, meaning that gas will no longer serve as the “tradition fuel” because it is not cheap enough. A report from Reputex also said that solar and storage is now cheaper than peaking gas plants in Australia. The Victorian government also agrees, saying renewables and storage are cheaper than gas.

ITK analyst and RenewEconomy contributor David Leitch says while the exact prices for the storage component in the TEP deal in Arizona have not been provided, it appears that the underlying price for the combined solar and storage is less than $A100/MWh unsubsidised.

“It’s nice to see some transactions that confirm our underlying expectations,” Leitch says. “It also shows the advantages of a low cost of capital and the fact that the ITC is available in the USA for storage as well as the underlying energy production.”

It is the first time in the US that a solar contract has fallen below US3c/kWh, although it has already occurred in Dubai (which holds the record low of 2.54c/kWh), Chile and Mexico. The prices in those countries are unsubsidised, and the US price includes the benefit of a 30 per cent tax credit, which pushes the unsubsidised price back up to near US4c/kWh.

TEP has already added three battery storage systems to its local energy grid this year, including a 10MW NextEra facility, also owned and operated by an affiliate of NextEra Energy Resources.

It says these batteries can boost power output levels more quickly than conventional generating resources to maintain the required balance between energy demand and supply on our grid. But it says it cannot replicate all the abilities of peaking gas plants.

TEP says that the new solar and storage array, along with a planned 100MW wind farm, will provide enough power to serve the annual electricity needs of nearly one out of every three Tuscon homes.

However, TEP is likely to further raise the ire of rooftop solar advocates because it is arguing that the falling cost of utility-scale solar is a reason to slow down the uptake of rooftop solar.

It, and other utilities in Arizona have already won approval to replace “net metering” – where solar homeowners got the prevailing retail cost of electricity for any exports of excess solar power into the grid – to a new formula based around the cost of wholesale electricity and unavoidable costs.

TEP this week used the record low price of large-scale solar to justify the reduction in feed-in tariffs, and to argue that rooftop solar should only be allowed in a “responsible and equitable” manner.

“TEP’s customers currently pay nearly four times as much for most excess energy from rooftop solar power systems,” the company says. “While the cost of power from large-scale solar arrays has fallen nearly 75 percent over the last five years, the rate at which TEP compensates rooftop solar customers for excess solar energy has risen to historically high levels.”

“Focusing our resources on the development of cost-effective community scale systems allows us to provide more solar energy to more customers for less money,” Tilghman said. “The best way to help solar grow in our community is by planning and siting systems in an organized, responsible and equitable manner.”

In a recent filing, TEP proposed a solar export rate of US9.7c/kWh, compared to current rates of US11.5c, and proposed new  grid-access and demand charges and a $4 meter-reading charge for solar customers.

  

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  • DJR96

    Coal is dead. Even many planned projects won’t eventuate now.

    • john

      Its dead from now on granted however a lot of RE has to be put in place together with back up which may be battery for peak demand but overnight the peak demand has to be found.
      The solution for those who have very high solar resources is to use it and store that energy with zero cost energy input.
      Which ever way you look at it the simple fact if it rains it produces water which can be stored and used, when it shines it is power which you can store which ever way you like, the end story is use the free energy store it and use it a much cheaper outcome in the long run.
      Cost to do this is going to be high, however it is a once off cost and over time I feel is way we will eventually move.

      • Mike Shurtleff

        “… but overnight the peak demand has to be found.”
        Nope, it’s batteries. Cost is still falling.
        Seasonal storage is the only remaining problem. Pumped hydro, seasonal use of NG or synfuels, can do that job.

        “Cost to do this is going to be high, however it is a once off cost and over time I feel is way we will eventually move.”
        Cost is much lower than fossil fuel or nuclear solution. We’re just at the beginning of cost reductions still.

    • heinbloed
  • Hettie

    The conundrum for low income, low usage consumers like me is that the daily poles and wires charge, already significantly higher than I could cover by generating three times my average power usage, will continue to rise exponentially as more and more people take up the battery option and go off grid.
    I could just about manage the solar system, even enough extra panels to cover the “supply” charge *at today’s price* but a battery is still way out of reach. And for the periods of no pv power, the unit price will also escalate.
    Between a rock and a hard place.
    If power charges were to be net, what is exported credited against what is used, there would be no problem.
    But the situation is obscene. You buy power at 27 odd cents per kwh, but if you sell it *during the hours of peak demand* you get about 8 cents tops, when the gas generators are charging $16.00. Or thereabouts.
    Yet nobody seems to be talking about this gross abuse of power.

    • Andy Simpson

      Batteries for residential use are still pretty expensive, but if they fall in line with expectations then I think you can expect them to become part of projects that will buy and install then let you buy it off them over (say) 10 years.

      Incidentally, if you are really low use then you might want to switch to a retailer with no daily poles/wires charge but higher unit prices.

      • Hettie

        Thanks Andy. 10 years is a big chunk of my remainig life expectancy. I am considering a battery ready pv syatem that would produce the 10 kwh per day that is my average usage, plus whatever is required to cover the poles and wires and evening use.
        The fly in the ointment is the inexorable rise in the cost of the poles and the power.
        Perhaps my best plan is to win a lottery!

    • Greg Hudson

      Sorry, I have to disagree, after installing a small 2kw ($7000) solar PV system 5 years ago, my power bills dropped from $1800/year to $160/year (PFIT). Virtually eliminated the network service fee. Figures on systems today are likely to be better. Cheaper arrays, free batteries, cheaper grid power (due to wind/solar). Live in Victoria, and you get 11c feed in tariff, but what you save in not paying for usage more than offsets this small inconvenience. My daily connection fee is $1.03. At 11c/kWh, I only need to export 10kWh/day on average. In Melbourne we get an average of 4 hours of sun/day. A 5kw array will therefore give you 20kWh/day. 10 for you, 10 to export. Play with the numbers until you find an array size that covers all your use, and the connection fee. It is not a difficult calculation.
      Not convinced? See:
      http://www.hellosolar.com.au/
      Regards, Greg. (not affiliated with anyone).

      • Hettie

        Greg, that may all be so in Victoria, but I’m in NSW.
        Poles and wires charge is $1.64 per day. Purchase price of power is 26.3 cents per kwh, but feed in tarrif is only around 8 cents. No free batteries.
        To pay for the poles takes 20 kwh.
        To pay for overnight use ( say 5 kwh) takes about another 18.
        To break even requires generating on average 45kwh per day.
        Then there are the times, typically June, when it is overcast and raining for a month at a time.
        Tell me about your free batteries?

        • Greg Hudson

          Free batteries are here:
          http://www.hellosolar.com.au (I’m not afilliated with them, just saw their advert).
          Attempting to cover usage in winter is pointless. The idea is to generate excess in summer to pay for winter.
          $1.64 seems like you are being ripped off (and probably no way to avoid it either, without going off-grid).
          Re the overnight use, that’s where the batteries come in…
          Fill ’em up during the day, use them at night, and stop paying the 26.3c is virtually assured (depending on PV array size, battery, and usage.
          It *IS* do-able though. I have ‘nearly’ succeeded even without a battery. No more for me though, I recently sold my home with solar 🙁

          • Hettie

            Greg! Thankyou!!!!
            I followed the link you gave, and , deeply sceptical, called the 1300 number provided.
            After an hour long conversation with the very well informed and delightful young woman who answered, I have ordered a 5kw system with free battery and monitoring system.
            Total cost $7,000, very affordable interest free 50 month payment plan for little more than I am currently paying for power and should give an overall profit.
            Without your perseverance and taking the trouble to try to convince a sceptical old woman that it could be done, I would still be gnashing my teeth with frustration.
            I owe you. Bigly.
            Have a wonderful life.
            Thanks again

          • Are Hansen

            Wonderful

  • wade_s

    The US4.5c/kWh value is not reflective of the cost of “full backup”. The ~$15/MWh storage adder (on top of $30/MWh for the solar piece) only “firms” 30% (30 MW of 100 MW) for 4 hours. So, to firm 100% of the solar for 4 hours would be more like $50/MWh. That puts the LCOE of “Firm Solar” at about $80/MWh (if you assume that 4 hours is enough storage to consider a resource “firm”). This is definitely an improvement over the Hawaii contract, but nowhere near $45/MWh LCOE. Also remember that the project is getting a 30% tax credit in the US. Without that the LCOE would be more like $114/MWh

    • Mike Shurtleff

      $114/MWh = 11.4c/kWh is much less than half the cost of end-of-grid (retail) electricity in Hawaii and in Australia. You will see a lot being installed in both places. Cost of Solar PV and Battery Storage is still falling.

      • wade_s

        This is utility-scale. Rooftop/DG solar + storage to go “off-grid” (retail) would cost much more. Also, 4 hours of storage is not enough to replace retail electricity. You would need 12+ hours in sunny climates with almost no rainfall, and you’d still potentially have days without electricity unless you had a backup generator running on oil/gas.

    • Bob_Wallace

      Assuming storage is emptied during a 24 hour cycle…

      30% of the facility’s is stored electricity and 70% is directly consumed by the grid.

      The cost of unstored electricity is ” less than US3c/kWh”. Since we don’t know how much less, let’s be conservative and call it 3 cents.

      The ‘whole package’ price is $0.045/kWh.

      0.7 * 3c = 2.1c
      0.3 * 8c = 2.4c
      Package price = 4.5c
      Storage cost = 5c

      I suspect a 30% increase is a bit of overreach. There will be parts of the PPA (owner profits and operating costs, for example) which will not receive a tax credit. But in the spirit of being conservative with our numbers, let’s run with it.

      If the project had gone with a Production Tax Credit instead of Investment Tax Credit and the PPA is 20 years long the amount of subsidy for the solar part would be 1.15 cents per kWh over the life of the project. (2.3c/kWh for each kWh produced in the first ten years of operation.)

      Adding back in 30% takes the cost of solar (direct) from 3c to 3.9c.

      Adding back in 30% takes the cost of storage from 5c to 6.5c.

      $0.065/kWh – unsubsidized – is some record breaking storage costs.

      4c for electricity and 6.5c to store it comes out (by my math) at 10.5c/kWh. Just a bit less than your 11.4. The difference is unimportant at this level of discussion, we aren’t signing contracts.

      What is important is that we’re now seeing dispatchable solar at less than 12c/kWh. Onshore wind is cheaper than PV solar at this time so dispatchable wind closer to 10c/kWh.

      • Bob_Wallace

        BTW, 10.5c to 11.4c brackets the 11c for Tesla’s Hawaiian project.

        And the way I read the news all of Tesla’s output is stored. Tesla is selling dispatchable solar into a market that already has ample (?) direct solar.

        https://electrek.co/2017/06/21/tesla-solar-powerpack-kauai-drone-video/

      • wade_s

        Wind is harder to store (less predictable). Grid interconnection queues show vastly more solar+storage proposed than wind+storage.

        • Bob_Wallace

          Wind, solar, coal, nuclear – they all produce electricity equally easy/hard to store. It’s just electricity.

          I suspect more storage may be going into solar farms at the moment because they can charge up during the sunny part of the day and sell into the late afternoon/evening demand peak which is becoming the highest priced market.

          Once there’s enough stored solar to pull down price then look for more late night wind being stored for the morning, pre-solar demand peak.

          Of course there’s no reason why storage at either solar or wind farms can’t run two cycles many days. Regardless of their associated generators they can purchase lower priced power from the grid and sell it back into higher demand. Everyone stores late night wind and everyone stores mid-day solar.

  • Earl D.

    However, TEP is likely to further raise the ire of rooftop solar
    advocates because it is arguing that the falling cost of utility-scale
    solar is a reason to slow down the uptake of rooftop solar.

    This is true to some extent. But on a macro level, over the next ten years, there will be considerable pressure to allow utilities to pass through the considerable sunk costs of stranded assets.

    One of the drawbacks of LCOE is that it assumes that the lifetime of electricity producing assets is determined by their physical durability, and therefore their costs can be distributed over their lifetime with close to 100% certainty. However, if the per-unit price of energy falls below the level that makes it economical to produce electricity using the fuel source of those assets, their remaining life must be written off. The advantage of solar, that has never been properly quantified, is that those assets will always be able to produce electricity no matter how low electrical prices go, therefore they never become stranded, though of course expected return on the investment might be lower than predicted.

    Back to rooftop solar, we still haven’t reached a point where solar pv starts to cannibalize existing capacity in a major way. When it does, expect voluble yowling from utilities as they try to use their considerable political clout to protect their shareholders. At that point we’ll have the real test of rooftop’s economic viability.