Procuring Utility-Scale Solar Projects (Can You Really Afford Not To?)
Even before the introduction of the RE100, internal and external stakeholders have been pushing organizations to minimize their impact on the environment by embracing renewable energy options like utility-scale solar power. Today, companies are continuing to use renewable energy growth to differentiate themselves as leaders with a brand-shaping sustainability commitment. But as more and more corporations and institutions set goals for procuring renewable energy, those who fail to act will be at a reputational, branding, and economic disadvantage. For those considering corporate renewable energy procurement, now is the time to turn commitments into action. Utility-scale solar power projects are the most impactful and often economically beneficial way to reach sustainability goals.
What Does Procuring Utility-Scale Solar Power Cost?
As a developer of utility-scale solar projects, we are often asked the question, What will a Solar Power Purchase Agreement (PPA) cost? For renewable energy buyers, the simple answer is there is no upfront capital cost. Under a Solar PPA:
- The solar project development is handled by a utility-scale solar developer, like Urban Grid Solar
- Engineering, equipment, and construction costs are covered by the project developer and/or the long term owner. Operation and maintenance costs of the utility-scale solar project are the responsibility of the project owner/operator
As with any contractual agreement, utility-scale solar costs include transactional fees, including legal and accounting costs, for which the buyer is responsible. A renewable energy PPA ensures a fixed price for a solar project’s energy, and often the accompanying environmental attributes and renewable energy credits (RECs).
How Are Solar PPA Prices Set?
In the construction of a utility-scale solar power project, there are three main drivers that contribute to solar PPA prices:
- Cost to Build
The cost of building utility-scale solar projects is falling due to ever-improving technology.
- Cost to Develop
Solar project development costs are driven by land costs, local approval costs, and interconnection costs. These costs will vary by location, time, money, and effort the developer must put into the approval process.
- Cost to Finance
Due to historically low interest rates, investors are seeking yield in new investments. Many large institutions including pension funds, private funds and insurance companies, with lower costs of capital are seeking the relatively higher returns of solar investments.
Why Enter A Solar Power Purchase Agreement Now?
There are many benefits of utility-scale solar power purchase agreements that make it a smart decision from both a financial and environmental perspective.
The Price of Utility Scale Solar Power Is Falling
The cost of solar energy generation continues to fall and in most areas and can now compete on cost with fossil fuels. Utility scale solar power has also become increasingly competitive with wind on a levelized cost of energy basis in many traditional wind states.
The primary benefit of a Solar PPA is that it provides a fixed, predictable cost of electricity for 10+ years. Many current project’s PPA rates are at or below competitive market rates. A retail PPA locks in a potential savings over the contract term and a VPPA often models a positive net present value.
Renewable Energy PPAs Can Act as a Hedge Against Rising Energy Costs
With solar PPA prices falling and the cost of fossil fuels increasing, power purchase agreements can act as a hedge against rising energy costs. The closer the utility-scale solar project is to a conventional energy supply source, the more tightly correlated the hedge. If the RECs purchased from a utility-scale solar project are bundled (can be traced back to its project), the buyer is able to claim additionality — meaning that their purchase directly contributed to the increase of renewables beyond what would have otherwise occurred. This is an unquestionable display of sustainability leadership.
There Are Significant Competitive and Reputational Advantages
To date, over 200 Corporations have joined the RE 100 and made the commitment to go 100% renewable. Third-party reporting and benchmarking programs are growing, and the number of companies from around the world that are setting science-based carbon reduction targets has surpassed 500. These companies are making this move not only to improve their bottom line, but also because they realize that sustainability measures can impact their competitive advantage and brand reputation. Many companies are going as far as calling out others within their industry and encouraging them to follow their lead in becoming more sustainable.
Given the potential economic upside, pressure from investors, consumers and even competitors, and the potential for improved talent attraction, it is no wonder many companies are finding that they can no longer afford not to procure utility-scale solar power.
If you’re interested in exploring utility-scale solar options, please give us a call at (410) 604-3603, or contact us online today.