Large-Scale Solar Having Its Moment in the Sun

Last week the Portland Press Herald reported that the Maine Public Utilities Commission will direct Maine’s transmission and distribution utilities to enter into a long-term contract with Dirigo Solar for the construction of up to 75 MW of new solar installations across the state.

The Commission was especially pleased with the price offered by Dirigo. According to a term sheet filed with the Commission last month, the price will be $35/MWh for all of the energy and capacity benefits generated by the solar projects. The price will increase by 2.5% annually over a total term of 20 years. These terms compare very favorably with other long-term renewable contracts approved by the Commission.

Earlier this year, for example, the Commission approved a 25-year contract for the Highland Wind project at a price of $43.80/MWh with the same annual 2.5% increase. Although the Highland Wind contract included other provisions that make an apples-to-apples comparison difficult, $35/MWh is nevertheless an impressive price for solar.

One reason Dirigo is able to offer this lower price is because it will retain the rights to all Renewable Energy Credits (RECs) generated by its solar projects. RECs are tradeable credits that are purchased by utilities to meet their renewable energy targets under state renewable portfolio standards (RPS). Every MWh of electricity generated by a renewable resource also generates one REC that can be sold independently of the electricity generated. In certain New England states, RECs are very valuable because of the state’s aggressive RPS targets. For example, in Massachusetts, RECs were trading around $50 in September 2015. RECs can be traded across any of the New England states, so a REC generated in Maine can be sold to a Massachusetts utility.

Solar RECs can often obtain an additional price premium because many state renewable laws have specific targets for solar power. These solar carve-outs typically only apply to generation within the state and are not tradeable throughout the region.

Solar also benefits from federal investment tax credits. The current credit will drop from its current level of 30% to 10% in 2016 without congressional action. It is unclear what effect this drop will have on the industry, with some analysts saying the importance of tax credits is overstated, while others are predicting catastrophe.

Right now, commercial solar installations are booming. Dirigo’s proposal is just one example of the large-scale projects being proposed across the country as prices for solar continue to drop. Whether this trend will continue in the face of persisting low natural gas and oil prices and reduced federal support will be a key question for the industry in 2016 and beyond.