Stunning new lows in solar and battery storage costs

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.

“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.”