In the right spot, renewables near parity with natural gas

A well-placed wind power or solar energy development could prove increasingly cost-competitive with electricity generated by natural gas in today’s changing marketplace, ScottMadden Management Consultants said in a recent report.

At the right location, subsidized utility-scale solar power and unsubsidized wind projects are close to competing with new natural gas-fired generation based on the levelized cost of electricity, ScottMadden said in its recent industry update.

Siting of solar and wind facilities in high-resource locations, meaning ample sunshine or strong wind speeds, improves project economics, the firm said.

High wind and solar resources are 47 percent and 21 percent capacity factors, respectively compared to low-end wind and solar resources of 21 percent and 13.6 percent capacity factors, respectively.

With high-resource locations, resulting in these higher capacity factors, wind and solar can be cost-competitive with gas-fired generation at reasonable gas prices — “although not necessarily at current low gas prices,” the firm adds. Henry Hub spot prices are currently running below $3/mmBtu.

After estimating average installed costs through 2025, ScottMadden finds the potential for utility-scale solar becoming the least-cost resource is primarily a function of changes in the investment tax credit and declining installed costs.

In the absence of carbon trading or Clean Power Plan impacts, solar subsidized with a 30 percent federal investment tax credit (ITC) competes with $4/MMBtu natural gas in 2016.

After changes to the ITC, solar subsidized with a 10 percent ITC does not compete with $4/MMBtu natural gas until 2024, assuming continued but decreasing experience curve effects will reduce the cost of solar.

Declining installed costs and strong resource availability, as well as aggressive pricing, help explain recent “rock-bottom” power purchase agreements being signed for renewable projects, ScottMadden said.

In July 2015, Berkshire Hathaway Energy affiliate NV Energy sought regulatory approval for a 20-year solar PPA with SunPower for a level $46/MWh. This is one of the lowest-cost solar PPAs in the United States as sub-$40/MWh PPAs often include annual escalators, ScottMadden said in the report.

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