Solar Developers Face Threat as More Utilities Opt to Own

  • Utilities want to own solar farms, not just buy the power
  • ‘Developers’ business models are potentially damaged’

A growing number of U.S. utilities are opting to own their own solar farms instead of striking decades-long deals to buy just the power.

NextEra Energy Inc. and Dominion Resources Inc. are among utility-owners that may build as much as 1 gigawatt of solar farms in regulated markets this year, a potential threat to developers that build clean-energy projects and depend on them to buy the electricity.

Most utilities prefer to build and own generating assets, passing on the costs to customers. This model, known as rate-basing, has been less common for solar in part because the power is only available during the day. As photovoltaic panels get more competitive with natural gas and coal -- in some places it’s now the cheapest source of electricity -- it’s starting to make sense to rate-base solar farms.

“It’s a natural transition for us,” said Carmine Tilghman, senior director of energy supply at Arizona utility Tucson Electric Power Co. “The customer base wants us to move toward” clean energy.

Tucson Electric is considering solar to replace some old thermal power plants being retired, Tilghman said during a panel discussion at Infocast’s Solar Power Finance & Investment Summit in San Diego. The company prefers to own about 25 percent of the power it uses, with the rest coming from power-purchase agreements.

Developer Model

“Some developers’ business models are potentially damaged if utilities want to take the drivers’ seat,” Eran Mahrer, senior director of utilities at Tempe, Arizona-based panel maker First Solar Inc., said during the panel discussion.

Utilities may account for about 14 percent of the large-scale projects added in the U.S. this year, compared with 7 percent of big projects commissioned from 2009 to 2015, according to Nathan Serota, an analyst at Bloomberg New Energy Finance. That may lead to a significant shift in the industry.

“It’s an existential threat,” Serota said in an interview Wednesday at the conference. “Developers are used to building projects, selling power and raising debt and tax equity. Utilities can do all those things.”

NextEra is already a major clean-energy developer in deregulated markets, where it sells the output to local utilities. Its Florida Power & Light utility unit said last month it’s planning to build about 600 megawatts of new solar projects over the next year in Florida, a regulated state. That would add to the 335 megawatts it already owns and operates in the state.

And Dominion said this week it’s planning two solar farms in South Carolina with 81.4 megawatts of capacity.

In regulated markets, utilities are granted a local monopoly and regulators guarantee a certain profit for building and maintaining power plants. In deregulated regions, including California, the top solar state, utilities are generally barred from owning generating assets and deliver electricity they buy from other companies. 

Regulated utilities in the Southeast are seeking “to funnel the expertise they’ve gained developing projects out west to their home turf,” Serota said in an email Thursday.

— With assistance by Mark Chediak

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