Rural electricity distribution co-ops in eastern and northern Colorado can save money by choosing community-scale solar over coal under 25-year power purchase agreements, the Rocky Mountain Institute reported earlier this month, based on a request for proposals the clean energy think tank issued last March on the co-ops’ behalf.
“RFP results confirm that we have crossed a significant tipping point where distributed solar is not only a means to supply green energy and promote regional economic development, but also an opportunity to decrease energy costs and drive down bills for price-sensitive energy consumers,” writes RMI Senior Associate Kevin Brehm.
“The Colorado RFP outcomes are informative to utilities nation-wide, but particularly to co-ops and municipal utilities in Colorado and neighbouring states that are contemplating solar development and are interested in joining a regional procurement opportunity.”
Brehm says RMI opted for a power purchase agreement (PPA) structure to maximize the tax credits available to the co-ops, while helping them minimize risk and the need for up-front capital. The RFP covered 12 solar projects, ranging in size from less than a megawatt to up to 5 MW.
The experience showed that solar buyers can cut costs more than 15% by issuing competitive procurements, and more than 10% by consolidating smaller projects in regional blocks. While the value of solar to an individual utility depends on rate structures, wholesale markets, and whether a jurisdiction has a “crediting structure” like a feed-in tariff, RMI’s analysis showed that all the co-ops “can save money immediately” under a FIT scheme.
“Co-ops for which the value of solar is defined by the cost to burn and deliver coal can also save money under community-scale solar if they aggregate a small portfolio of sites,” Brehm writes. “While the PPA cost reduction achieved by aggregating a larger portfolio is modest (11% lower for a single project with a 40-MW portfolio), it leads to a 200% increase in net present value.”
The other advantage is that solar costs can be expected to stay constant over the life of a 25-year PPA, while coal prices would rise 2.4% per year (assuming 2% annual inflation). So “even without accounting for the cost of transmission, the solar installations will break even with coal power part-way through the contract period.”