Market Insight

Key Takeaways from the Texas Renewable Energy Summit 2017

September 28, 2017

Camron Barati Camron Barati Senior Analyst, Solar & Energy Storage

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Solar and energy storage technology analysts from IHS Markit attended the Texas Renewable Energy Summit in Austin on September 19th and 20th. Below are some of the key takeaways from the event:

Texas is a market where support for thermal generation remains high. However, renewable energy generation has made much progress in the last few years because of abundant wind and sunlight, and the continuing decline in the cost of both wind and solar technologies. Already known as a top state for wind energy, Texas is also rapidly becoming a leading market for solar PV. The Texas Renewable Energy Summit brought together some of the leading players in the market to discuss the current state and outlook for renewable energy in Texas.

Municipal and cooperative utilities have been a huge driver of solar PV in the last couple of years

Municipal utilities such as Austin Energy, Georgetown Utility, and CPS Energy have implemented clean energy goals that have directed the utilities to become some of the earliest adopters of large-scale solar generation in the market. In the process, they have set some of the lowest price records for power purchase agreements (PPAs) for solar in 2015 and 2016. The push for renewable energy by the municipalities has primarily been driven by public support, but utility representatives at the summit noted that other factors are also of value, such as to hedge against changing prices in the wholesale market and to have a predictable resource for long-term plans.

Cooperative utilities are also pushing forward with the procurement of distributed megawatt-scale PV to meet local needs at the distribution level rather than of typical high transmission generation procured from wholesale market retailers. For example, Pedernales Electric Cooperative (PEC) is deploying 15 MW of distributed PV to offer its membership community solar rate options.

While utilities have been the primary drivers of clean energy development in the state, they are also quick to note that location and congestion variables are an important aspect when deciding to develop and procure large-scale renewable energy. Particularly in West Texas, transmission lines have become saturated in many areas with the rapid deployment of wind energy in recent years. Additionally, as the forward pricing curve of power in the wholesale market continues to flatten, the ability to sign long-term contracts for wind and solar power becomes less attractive.

Corporations and industrials could represent a huge opportunity for PV development in Texas

Corporate demand is beginning to become a significant driver of renewable energy development in Texas, both in front of the meter and behind it. The primary driver for such demand has been the desire to offset corporate greenhouse gas emissions with renewable energy credits from wind and solar facilities at cost-effective rates. Generally, credits are contracted through a virtual PPA, typically in the form of a contract for difference. Sustainability goals and the associated social and environmental values of meeting such goals are the primary drivers of corporate demand for renewable energy, but a strict balance between value and costs remains a key element of winning such projects.

Notably, market participants at the summit noted that corporate appetite for wind had become saturated, and that there was increasing interest in solar; however, markets other than Texas currently appear more attractive. Furthermore, industrial customers are beginning to see more value in behind-the-meter solar, as their load profile typically matches such generation well and costs continue to decline for the technology.

Utility-scale solar continues to shine brightly in the State of Texas

According to the Solar Market Tracker North America from IHS Markit, Texas has deployed over 1,000 MWdc of solar PV in the last three years. Utility-scale PV systems have accounted for most of this growth and are predicted to dominate the more than 6 GW forecast to be deployed over the five years from 2017 to 2021.

Contracts for long term generation from solar in Texas are reportedly reaching levels of $30/MWh and below for forward-looking projects targeting commercial operation in 2019 and later. This indicates Texas as one of the most attractive markets for solar. The potential for such low power prices from solar is generating further interest with offtakers, which include utilities, government entities, corporates, and energy retailers. Additionally, merchant solar generation is gaining interest in the Texas market, especially the opportunity of pairing such generation with cost-effective energy storage to improve flexibility. Representatives from Engie, a multinational French utility, with vast experience in global merchant power markets and with operations in Texas, indicated that Texas will likely be the first market in the United States where merchant solar becomes viable.

Speakers at the event noted that one critical attribute of Texas is that the solar resource in the market aligns relative well with peak demand. Considering the high saturation of wind energy in the market, this fact is particularly beneficial as the transmission capacity available is generally much greater for solar than wind, which can reduce congestion constraints. Additionally, solar plants can be sited much closer to load centers as necessary, providing more flexibility to take advantage of the high solar resource and transmission capacity available in West Texas; and in being in closer proximity to urban population centers to enable lower transmission costs.

As attractive as the Texas market may be for utility-scale solar, it is important to note that the federal trade case and associated Section 201 remedy for imported PV cells and modules poses a serious threat to developers and investors. Price increases that may result from the implementation of new tariffs on imported PV modules could prevent developers from achieving the attractive PPA price targets that are expected to drive much of the demand over the next few years. Many projects that are counting on the low cost of imported components may no longer be viable after a remedy is decided and implemented by January 2018.

Behind-the-meter residential and commercial PV has been dwarfed by the utility-scale market to date, but demand is growing rapidly

Historically, municipal markets in Austin and San Antonio have driven demand for residential and commercial PV. The common trait among similar markets where installation of rooftop PV has grown has been the existence of rebates and healthy buyback policies such as net metering. Austin is considered a unique market because the utility has implemented a value-of-solar rate rather than a simple net metering program, which can be adjusted to account for the relative value of solar to the grid and the local community. Austin’s value-of-solar rate is generally viewed positively by market participants; however, installers and developers that rely on a third-party financing business model and long-term 20-year contracts argue that the variable value of solar rate creates too much uncertainty to offer attractive financing deals for customers and investors.

Competitive retail markets account for most of the electricity customers in Texas; but the lack of viable, standardized compensation offers for exported customer generation has limited market growth to date. To meet such demand, a handful of retailers have initiated partnerships with solar developers. A notable example of this includes the partnership recently established between leading national installer Sunrun and Engie’s retail energy subsidiary, Think Energy. The two companies have begun to offer 20-year net metering agreements with homeowners in competitive retail areas, including major markets such as Houston and Dallas.

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