THE VALUE OF SOLAR IS ON THE DECLINE
According to a recent study published by The Breakthrough Institute, the value of solar in California’s wholesale electricity market has fallen by around 37% since 2014 relative to other sources of electricity generation. Observed value deflation is even more pronounced — at around 50% — in the Spring months, where negative daytime electricity prices and high levels of solar curtailment are increasingly common. Based on these trends, the value of solar is expected to fall by 85% by 2045.
As explained in recent article published by MIT, “The problem is that solar panels generate lots of electricity in the middle of sunny days, frequently more than what’s required, driving down prices—sometimes even into negative territory.” “Simply put: the more solar you add to the grid, the less valuable it becomes.”
The deflating value of solar has several implications. Efforts to clean up the energy supply in our wholesale electricity markets will be challenged with finding continued investment in the deployment of new utility-scale solar projects. Existing utility-scale solar projects selling power as merchant generators will find it increasingly difficult to remain profitable. And existing utility-scale solar projects whose offtake agreements are soon to expire, will face this same challenge as they look to secure new offtake agreements and / or sell their power directly into the wholesale markets.
Solar value deflation also presents a challenge for retail electricity customers who have solar projects deployed at their sites. This deflation trend in the wholesale market has already resulted in major retail market shifts in California, including the shift of peak time-of-use prices moving out from the middle of the day to the evening, as well as changes in the State’s Net Energy Metering Program. These changes are resulting in a substantial reduction in the bill savings value of solar projects deployed at retail customer sites. For example, we found that, for one school district, across their 7 megawatt portfolio (including 17 sites) this time-of-use peak period shift resulted in a $400k annual reduction in savings from their solar.
SOLAR VALUE DEFLATION: A FEATURE, NOT A BUG
While this deflation trend and its market implications come as a surprise to some, this has been the expected outcome from the success and momentum of solar power generation. As expected, the market is now looking to energy storage and flexible loads to provide needed support in both the wholesale and retail electricity markets. And with this expected turn come several opportunities.
The key in creating value is to enable your operations to use the surplus solar generation for other use cases that derive higher value including battery energy storage, electric vehicle charging, or other flexible load systems. The surplus solar generation refers to the electricity generated by your solar PV systems that would be exported to the power grid, as your electricity usage has already been 100% offset with solar.
For retail electricity customers that have existing solar projects, the addition of battery energy storage can increase the value of your solar generation by storing the surplus solar generation and using it in the evening during the higher priced time-of-use electricity periods. In addition, a solar plus battery energy storage system (when paired with the proper switching and controls) can provide you with valuable backup power during grid outages.
For retail electricity customers who deployed solar projects under Power Purchase Agreements (PPA), the market changes resulting from solar value deflation may be impacting the savings that you were promised from your PPA. As discussed in our recent article, now may be the time to explore buying out or refinancing your solar PPA and to assess the addition of battery energy storage at your sites.
The surplus solar electricity generation could also create tremendous value for commercial entities exploring fleet electrification strategies. You may be able to leverage your existing solar PV system or optimally size your new installations to support day time charging of your new electric vehicle fleet.
For utility-scale project owners, there are opportunities available that leverage the addition of battery energy storage systems and new offtake agreements that can mitigate curtailment losses and optimize solar revenues.
As independent energy advisors, TerraVerde Energy is supporting clients in getting the most out of their solar programs. We support commercial electricity customers in leveraging available incentives to deploy battery energy storage and refinancing existing solar PPAs. In addition, we support utility-scale project owners with leveraging energy storage and new offtake agreements to optimize their project value. For more information, you can reach out to us at firstname.lastname@example.org.