Travis Moller, Vice President of Business Development at Meridian Solar, has seen a lot of changes in his eight years working in commercial solar in Texas.
“When I started,” he told us in an interview, “the idea of even a megawatt was unthinkable. Now we’re hearing about hundreds of megawatts in development fairly consistently. It’s been a slow transition, but it’s tremendous now.”
Falling cost of solar
What’s driven this change? In a word, price. “Prices have become shockingly cheap,” noted Moller, pointing to Austin’s recent deal with Recurrent Energy as an example.
It’s not just the falling cost of solar that’s contributed to easier solar financing but also utilities and financiers becoming more comfortable with solar as an asset, says Moller. That’s allowed rates for power purchase agreements (PPAs) to come down significantly — “to where you can’t really say no when you’re getting a price per kilowatt-hour lower than natural gas, in a period of low gas prices.”
A recent notable change in the Texas market is that more utilities are procuring solar, either through direct ownership or PPAs. CPS Energy has a 400 MW project, and Austin Energy already has a 30 MW plant and is adding much more. Moller is seeing a great deal more large utility-scale solar than in years past.
The main motivator for commercial customers to go solar in Texas? Again, the answer is price. In Austin, commercial customers can enjoy a 5- to 7-year payback with an IRR in the high teens. Moller notes, “Financial returns are what ultimately get the contracts signed.” But that’s not the only motivator. “Almost without exception, customers are excited about the positive PR associated with solar installations, and the visibility.”
Varied markets in Texas
Over the last five years, Moller says, the primary markets in Texas have been Austin and San Antonio, which have municipal utilities, and Oncor, covering a larger service area. The most consistent of those has been Austin, which has had an attractive commercial incentive program for eight years — though that’s come down from $4.50 a watt to around a dollar. Other areas are more dependent on the annual approval of budgets.
And that’s the biggest hurdle to moving more projects forward. “Customers all over the state are interested in solar, but budgets are unpredictable,” Moller says. The lack of a statewide incentive program makes it hard to plan.
To overcome this obstacle, Meridian Solar plans ahead. “We have to have projects fully baked and strike fast when incentive programs are released. There are more projects than incentive dollars to support those projects.” And very few projects, Moller notes, happen without any incentive, even though incentives have come down significantly.
Of course, a major reason solar needs those incentives and hasn’t progressed more than it has in Texas is the relatively cheap grid electricity there, especially for utility and commercial customers. Moller calls out the low avoided cost of electricity and a lack of time-of-use and tiered rate structures. Though he hasn’t seen any indication of that changing in the near term, he feels these kinds of rate structures are probably inevitable in the future, to reflect the increased cost of power at hot times of the day.
Because of the low cost of energy in Texas, installers must get creative. “It makes us work harder to get our costs down to make the projects pencil out, and make projects as efficient as possible,” says Moller. The result? “Texas has among the cheapest solar you can get in the U.S.”
Meridian Solar is also creative when it comes to financing projects. In municipal utilities, third-party ownership is prohibited, so in those cases projects are financed with a loan or cash purchase. In deregulated parts of the state, PPAs and operating leases are common. A model Meridian Solar has found works well is an operating lease in which a for-profit owner partners with a nonprofit site host. In this hybrid model, lease payments are reduced by the ability of the for-profit to use the Investment Tax Credit (ITC). The company has implemented this successfully with nonprofits like Goodwill and the Boy Scouts. The model is a win-win, helping the nonprofit and allowing the for-profit to retain some of the tax benefit.
PACE programs are exciting as well, Moller notes. They’re not yet active in Texas, and may still be a year or so away. But the groundwork has been put in place, and he’s keeping an eye on this possibility.
The future of solar in Texas
Solar is growing in Texas, and Moller is excited to see what happens, especially with utility-scale solar. There’s an ideal overlap, he notes, with the load curve and the demand curve, making him nearly certain that the market there is going to take off. “Solar is cheaper than any of us thought possible at this point,” he says. “While we don’t have as much as we should going on here, we have an incredible resource and an incredibly overburdened electrical grid — at some point it’s got to happen.”