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California: A Bright Spot for Solar

Policy, Competition and Location are Key Factors for Success

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California, ANALYSIS

California currently leads the U.S. with over 5,300 MW of operational utility-scale solar capacity and close to 10,000 MW of additional utility-scale solar capacity in various stages of permitting, contracting and construction. Most of this new solar capacity is photovoltaic (PV) technology.

Little more than a decade ago, California had less than 500 MW of installed solar capacity and as recently as 2008, the largest PV solar facility in the U.S. was just 14 MW. But early this year, California will see the full commercial operation of two of the largest PV facilities in the world: the 550 MW Topaz facility and the 550 MW Desert Sunlight facility, both developed and constructed by First Solar.

This is an extraordinary achievement for solar and for California. What has caused this exponential growth? Energy markets are complex, but in my view there are three dominant factors that led to this success: a durable policy framework, competition, and location.

Policy Matters
The solar energy sector is characterised by long development cycles and front-loaded capital investment. Depending on the size and location of the project, it can take five years or more from initial conception to commercial operation for utility-scale solar, and during this period, capital is at risk. Development, capital formation and financing simply will not occur without a known, predictable and durable market on the back end.

California’s renewable portfolio standard (RPS), originally enacted in 2002, and amended several times since, establishes a durable market for solar power by mandating that 33% of retail sales be served by renewable energy in 2020. In practice, this goal is achieved by utilities going to market for long term power purchase contracts.

The knowledge that utilities will enter into long term power contracts has been the most critical factor in California’s success in attracting development capital and enabling financing.

Of course, the size of the market matters too. Although 29 states have enacted RPS legislation with varying percentage goals, California’s 33% of RPS has made California the clear leader by volume of the addressable U.S. market over the last decade.

A third of retail sales is equal to roughly 56,000 GWh or, assuming all of this demand were met with PV, over 21,000 MW of addressable market. The sheer size of this market has allowed PV solar to scale exponentially and, with scale, not surprisingly, has come significant economies, innovation and commensurate price reductions.

Competition Matters
Although the RPS model is a mandate on the regulated utilities, at its core it embraces competition as the driving force for procurement. The California RPS is technology-agnostic. The utilities compete for the “least cost/best fit” projects, and the procurement process is typified by intense competition among developers for long-term contracts with a limited number of buyers.

As a result, California has seen a precipitous drop in PV pricing over the last decade. In the earliest rounds of RPS procurement, it was typical to see clearing prices in the $140-160/MWh range, whereas today, prices in $60-65/MWh range are common.

Unlike feed-in tariff models, which administratively set fixed prices and lack the nimbleness to react quickly to market conditions, the RPS approach has allowed the State, and ultimately the retail end users of electricity, to benefit from competition and intense downward pressure on prices.

To be clear, other factors, including state & federal tax benefits, the federal loan guarantee program, technological innovation, lower balance of system costs associated with scale, among others have also contributed to attracting capital and lowering capital costs. However, the key driver enabling these advances has been the market-based, competitive approach to procurement embedded within California’s RPS policy.

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Location Matters
PV solar is not only infinitely scaleable, it is also a resource suitable for a wide range of operating environments. Witness installations in Ontario Canada and, obviously, in Germany, where solar insolation factors are much lower than in California (yes, policy matters!).

But insolation, topography, access to transmission infrastructure, availability of skilled labor and of course, proximity to large load centers are critical factors, which have combined in California to make PV solar competitive not only with other renewable resources, but also with coal, nuclear and even natural gas.

Every electricity market has unique characteristics and drivers that need to be understood and addressed in order to facilitate the wide-scale deployment of solar facilities.

California’s model may not translate easily into other contexts, but the core elements of success – durability, competitiveness and location - can be replicated elsewhere and, with the economies achieved by California’s leadership, PV now represents a sustainable, economic and valuable proposition in many markets throughout the world.

James Woodruff is Vice President, Public Affairs for First Solar, Inc., a leading provider of comprehensive solar power solutions globally.

Topaz Solar Farm - San Luis Obispo County
Developer: First Solar
Owner: Mid American Solar
PPA: Pacific Gas & Electric
Capacity: 550MW
Number of Modules: 9 million
Type: Ground mount
Homes Powered: 160,000
Cars Removed: 73,000
Tons CO2 displaced: 377,000 per year
Construction Period: 2011-2014
Operating Period: 2014-2034

Facts:
- 2002 The year California enacted its renewable portfolio standard (RPS)
- 5,300MW California’s operational utility scale solar capacity 

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