United States Utility-Scale Solar Trends for 2011 – 2012

The utility-scale PV solar market continues to develop as new players enter the market and existing companies merge. The improvement of solar installation processes and advances in equipment technology, as well as the increased Renewable Portfolio Standards (RPS) from utilities for renewable power, has spurred interest from existing power generation companies to join the solar market. The mergers and acquisitions among solar developers, solar equipment manufacturers, and the increasing number of vertically-integrated equipment providers looking to secure their materials pipelines, continues to define the U.S. solar space.

The solar projects entering the market today are showing a recognizable shift in size. In 2008 projects were ranging in size from less than 1megawatt (MW) up to thousands of megawatts, with no noticeable project strategy (consideration for interconnection, permitting, financing ease, etc.). In late 2010 and into early 2011, the solar industry saw a noticeable reduction in project size, but an increase in quantity.

With projects ranging from less than 1 to 5 MW, distributed solar projects and arrays providing electricity directly to a host facility or the grid have become a popular market. Benefits of these smaller projects are accelerated interconnection reviews, reduced permitting hurdles, and more manageable financial risks. In addition to distributed solar, the 10-50 MW utility-scale project size appears to be in the sweet spot for grid-interconnected solar. Repeatable permitting processes, predictable interconnection review timetables, and increased interest within the financial market for projects of this size has created a greater interest in building these mid-sized projects.

The pipeline of announced projects equal to or greater than 100MW is active; however, some power purchase agreements (PPAs) have been negotiated using forecasted project pricing based on future interconnection locations and transmission expansion. Anticipated cost reductions at some future time will be needed to move these projects forward, and will be dependent upon additional cost reductions in the major capital equipment, completed grid upgrades within the time frames dictated by the PPA, and the education of the financiers to understand and become comfortable with the risks associated with these larger projects.

As a condition of financial risk, the current solar market is seeing a broad range of requests from the financial community asking for project performance certainty. This certainty, or guarantee, is being met through a number of contractual formats. One of these approaches is a 100% EPC “wrap,” which is assigned to the contractor responsible for designing and building the solar facility to warrant the output of the facility for a set duration of years. Other, more simple contractual terms request certainty of workmanship, price, and schedule guarantees from the contractor, requiring the equipment providers and/or owner/developer to share in the risk of plant output.

As more utility scale solar facilities come on line and longer-term operational data is collected, risk profiles will change and create more certainty in the financial community on the profitability of the projects. Educating the financial community, thereby helping them better understand the operational risks associated with solar systems, will help them reevaluate the need for performance guarantees and potentially reduce the overall cost of the project.

If current trends continue, 2012 may be the year that utility-scale solar becomes a mainstream renewable energy resource in the U.S. Industry reports claim that the North American market is poised to become the largest solar market in the world. Equipment prices are currently falling and the 1603 grant program is nearing a close. The current U.S. utility scale solar pipeline includes 8.6GW of projects with executed PPAs, the majority expected to come online by 2014.