Wind and solar projects in the western U.S. have reached price levels that few would have predicted even a few years ago. For those that have read our blogs before, you might be thinking that we’ve said that before, and, well, we have. But the prices keep falling, breaking records time and time again. These prices should have every policymaker, utility, and energy investor in the region reconsidering their thinking about how much renewable energy to purchase, and when. The short answer: as much as you can get, and now.
Wind and Solar Prices Hit Record-breaking Lows Across the West
In Colorado, Xcel Energy recently asked project developers to submit bids for new electricity generation projects in what is known as a request for proposals (RFP), and the results were astounding. Xcel received bids from 42 different wind projects, totaling over 17 gigawatts (GW), and 75 different solar projects, amounting to over 13 GW; notably, they only received bids for a little over 5 GW of fossil fuel projects. The median prices that Xcel received from these bids were $18 per megawatt-hour (MWh) for a new wind project and $29.50 per MWh for a new solar project. A solar project price of under $30 per MWh was unthinkable for even a single project just a few years ago, and now it is the median offer in a solicitation that received 75 bids.
At prices that low, it is cheaper to build a new wind or solar project than to operate most existing coal plants in the West. It’s also significantly cheaper than the cost of a new gas plant, often considered the most significant competitor of coal, and renewables provide long-term price stability that gas plants don't.
These financial savings don’t include the cost of carbon and health and environmental costs from burning coal and gas, which are immense.
In fact, Xcel Energy in Colorado is proposing to retire several coal plants and replace them with wind, all while saving money for its customers. Xcel is not only on track to meet and exceed the state’s target of 30 percent renewables by 2020 – the utility is also aiming to get its generation mix to 55 percent renewables by 2026, which would include 40 percent from wind alone.
Austin Energy is also continuing its run of record-breaking solar projects, signing a contract for a new large-scale project (a power purchase agreement, or PPA) that analysts estimate has a price of between $23 and $27 per MWh. And in New Mexico, the Otero County Electric Cooperative signed a PPA for a 3 megawatt (MW) solar project at a price of $45 per MWh, a record-low price for small-scale solar projects. The CEO of the co-op, Mario Romero, declared that the project “allows us to deliver renewable energy to our members while also saving them money.”
Developers Are Adding Storage to Renewables Projects at Remarkably Low Costs
As we accelerate the shift to clean, renewable energy, higher amounts of variable wind and solar generation will bring new challenges. Market operators are increasingly valuing flexible resources and the services they can provide in order to manage the grid and balance fluctuations in variable renewable output. As the Brattle Group described in a recent report, the modern supply mix is becoming “a complementary mix of variable resources that provide least-cost energy and environmental attributes, and flexible resources that provide low-cost energy and operational flexibility.”
Storage can play a critical role in providing flexibility and balancing services to the grid, and recent developments show that the technology is emerging as a low-cost option much faster than analysts expected.
Project developers are now coupling renewables with battery storage at competitive prices. Last year, Tucson Electric Power signed a PPA for 100 MW of solar coupled with 30 MW (120 MWh) of storage, at an astonishingly low price of less than $45 per MWh—cheaper than a new natural gas plant, and offering many of the same reliability services.
In the same solicitation mentioned above, Xcel also received bids for 5 GW of wind with battery storage and nearly 11 GW of solar with battery storage, as well as combined wind + solar + storage projects. While we don’t know yet how much storage was included in these proposals, the results are still incredible: wind + storage project bids came in at a median price of just $21 per MWh, and the median offer for solar + storage projects was $36 per MWh.
In Nevada, NV Energy issued a request for proposals yesterday in which it is seeking to add up to 330 MW of new renewables to its portfolio, which will potentially include battery storage. NV Energy expects that it can add this clean energy to the grid without increasing rates for its customers, and we’ll be watching that process closely to see if the record books need updating once again.
Western States Should Strengthen Their Renewables Policies
With renewables prices falling to all-time lows, there’s a clear opportunity for states across the region to increase the ambition of their clean energy policies. As noted above, some electric utilities are moving to take advantage of these record low renewable energy prices to save money for customers. Unfortunately, others appear to have buried their heads in the sand. Policymakers in the region should take note and ensure their states take full advantage highly competitive renewable energy. Oregon and California both have enacted 50 percent renewable energy standards, and incredibly, new reports indicate that California is likely to meet that target a full 10 years early. The Nevada legislature also passed an increase to its standard to 40 percent last year, though that bill was unfortunately vetoed by the Governor. Electric utilities in New Mexico, Colorado, Arizona and Washington have all moved to retire coal assets early, but not all of these utilities have committed to replace coal generation with renewables. State policymakers should ensure that they do so by increasing the ambition of their renewable portfolio standards.
Strengthening their renewables policies would bring tremendous benefits. An analysis by Lawrence Berkeley National Laboratory found that in 2013 alone, state renewable mandates across the country supported nearly 200,000 renewable energy-related jobs, provided $5.2 billion worth of health benefits through improved air quality, and resulted in global climate benefits of $2.2 billion.
Western states have an unprecedented opportunity to strengthen their RPSs and reaffirm their leadership on climate change, cut harmful pollution, and bolster the thriving clean energy economy. With prices this low, there’s simply no excuse not to.