Texas city discovers that solar power is too cheap to ignore

Austin continues to make headlines because of its work to move rapidly to renewable energy at record low costs. After approving a landmark plan to transition the city’s municipal utility to renewable generation, Austin Energy received some of the cheapest bids for solar power ever recorded in its solar auction. This auction was over-subscribed with projects at under US$0.05 per kWh.

Today the Austin City Council, which has authority over municipal utility Austin Energy, will meet for approval of two sets of contracts from the auction. The first contains 200-300 MW of the lowest bids, down to around $0.04/kWh, from two companies for sites in West Texas.

The council will also consider approving a second set of up to 350 MW of contracts at a slightly higher price, but still below $0.05/kWh. Together, the two sets would make up around 600 MW of solar generation.

However, the decision over these contracts may have already been made. While Austin’s Sierra Club describes approval of the first 200-300 MW as uncontroversial, yesterday the City announced meetings of two regulatory committees to study the second set of contracts, which indicates that they will not be approved today.

This is the approach that the Lone Star Chapter Sierra Club has called for, which puts it at odds with other environmental and public interest groups, which want approval of the full 600 MW now.

The organization says that its position comes from its work with multiple stakeholders. “We think it is more important to build consensus among the City Council so that they are comfortable with it, as well as with large industrial customers while being sure to mitigate any potential rate impacts on people on the lower end of the income scale,” states Sierra Club Conservation Director Cyrus Reed.

Approval of the first set of contracts should allow these projects to be completed before the drop-down of the U.S. Investment Tax Credit (ITC) to 10% at the end of 2016. Despite this, Reed thinks that the city may be able to get a better deal by waiting to build the remaining 300-350 MW.

“There is a theory that even if the ITC goes down to 10%, within a few years the solar prices will be even better,” notes Reed.

Even with low wholesale electricity prices in Texas, the first set of contracts is set to have minimal impacts on rates, due to the very low bid prices. However, Reed notes that by waiting on the remaining contracts, there is a possibility that Austin may be able to finance and own some of the 600 MW itself, which could be done with lower-cost municipal funding.

Currently Austin has only one utility-scale solar project, the 30 MW Webberville plant, which was completed in 2012 at a cost three times higher than the current bids. With Webberville, 851 MW of wind projects and 112 MW of biomass, the city is getting 28% of its power from renewables, without even counting an estimated 40 MW of distributed solar.

The city has already contracted with Recurrent Energy to build another 150 MW PV project, which will go online in 2016. When this and the 200-300 MW of solar projects in the first set of contracts are completed, Sierra Club’s Reed estimates that the city will get around 40% of its electricity from renewable energy.

“At the end of the day, there is going to be a huge purchase by Austin Energy of solar,” notes Reed.

He also notes that this is not unique in the state, where the largest utility carbon emitter, Luminant Energy, earlier this month announced a contract to procure electricity from a 116 MW solar project owned by SunEdison. This is a far cry from the lack of interest that investor-owned utilities in Texas showed in solar as recently as last year.

“It’s kind of new world,” says Reed.

Source: PV Magazine. Reproduced with permission.