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Utility-scale solar market growing more competitive as economics improve

Theutility-scale solar power generation market is heating up as the Clean PowerPlan encourages state-level renewable portfolio standards, a fresh look at thecost of carbon and rampingcommercial and industrial end-user demand in the coming years. Howeverinvestors looking to develop bigger solar projects have several tools withintheir reach to help make their plans more viable.

Speakingat the North American Energy Markets Association's spring conference in Orlandoon April 28, John Larkey, vice president of power marketing at RecurrentEnergy, said that most potential investors understand and appreciate the valueproposition and available technologies for utility scale solar. But allprojects are not equal and investors also need to consider the aspects oftiming and project scale, he said.

"Thecost of utility-scale solar has come down almost 80% in the last few years.That's a pretty significant number," Larkey said. "It's across theboard," including soft costs, such as labor and permitting, and hardcosts, such as equipment and materials, with hard costs typically making upabout 65% of a project's total price tag.

Buteven with a big drop in project costs, Larkey noted that larger-scale projectsprovide better economics. "As in any industry, the larger the denominator,the more you can spread that over and so that 35% [soft] cost, if you divide itover a larger megawatt project, it certainly helps your ability to drive the[power purchase agreement] price from a [levelized cost of energy] perspective."

"Drivingdown the soft costs over a much larger volume will drive overall installedcosts down significantly," he said. "That's why we see utility-scalesolar being competitive today; the economics just work."

Accordingto an April 6 report from Recurrent Energy and the Solar Electric PowerAssociation, utility-scale projects can now achieve levelized costs of energyof less than $70/MWh in poor solar resource areas and less than $50/MWh ingood-to-strong resource areas. LCOE will fall as hardware and soft costs alsodecline, the report stated.

Timingalso is important since most solar projects take three to six years tocomplete, which could mean that projects started now could risk losing thefull value of theinvestment tax credit for solar. The ITC, which was extended by Congress in2015, provides a 30% tax credit for projects that commence construction through2019, then steps down to 26% in 2020 and 22% in 2021. After 2023, the ITC forsolar will drop to a permanent 10%.

"Ifpeople are thinking about [developing a solar project], you need to startthinking about it now if you want to take advantage of the benefits of the ITCextension in 2019 given a three- to four-year window," Larkey said.

Larkeyalso highlighted the importance of value proposition. Solar power generation isclean, safe and sustainable but also reliable and highly predictable. Inaddition, not only are the daytime peaks in solar generation coincident withpeak load but they also compliment wind generation trends, which createstransmission efficiencies.

Locationalso matters immensely. A project in Arizona can expect a capacity value ofbetween 33% and 36%, the highest of all states, whereas a project in Alaskawould reflect the lowest of all states with a capacity factor of just 13% to16%. By comparison, projects in the Northeast and Midwest tend to see acapacity factor of 23% to 28% while projects in the South tend to approach orexceed 30%.