Q&A with a CEO on the Front Lines of Solar Power
I recently sat down to talk solar with CEO Bob Powell, a former chief financial officer of Pacific Gas & Electric, one of California's largest utility companies. Edited excerpts of our conversation follow.
DailyFinance: What trends are you seeing in solar power these days?
Bob Powell: We are seeing a couple of different trends for independent power producers seeking to sell to utilities. One is growing interest in smaller so-called distributed solar projects. These projects could be anywhere from 1 megawatt up to 20 MW. It's an area a lot of people had not thought about until a year or two ago. Those projects are focused on placing the solar panels at a location that sits well within an existing power distribution network and close to where the utility needs it to be.
Why are these types of projects so popular now?
There is a lot of value to the utility in locating some form of generation close to where their customers are. In the large population centers, it's difficult to fit the larger projects into the cities. There just isn't enough space. These projects are mostly built in areas where permitting is less difficult because the land has been disturbed by previous business or residential uses.
What about more traditional large utility projects?
Those projects, which include generating capabilities over 20 MW, are still growing but it's harder to expand that space quickly. The size of the project means everything is more difficult. Permitting for these projects can take years and be contentious, particularly in areas that are relatively untouched and have not been used by people before.
Construction time lines and planning for these sizes of projects are more difficult and require more complex logistics. Upfront costs are higher because it can take years to bring the project online. And for utilities, integrating projects of this size into the power grid can pose challenges.
What about in terms of regulatory approvals?
Those are also longer and more difficult for large-scale solar. There is a regulatory framework for when a power producer accesses the interconnect transmission grid that can serve multiple states and utilities. With a smaller installation within an existing municipal or utility grid, you are just dealing with, say in California, PG&E.
With a bigger project that could server utilities all over the West, you have to deal with the FERC (Federal Energy Regulatory Commission) and the regional ISOs (Independent Systems Operators) that act as traffic cops for the utility grid. Not only do you have to go through this regulatory process, but the cost to upgrade a project to be able to interconnect is considerably higher. You have to upgrade line quality and do other things that cost more money.
The Holy Grail for solar companies is achieving "grid parity" -- the same price for solar power generation as for coal or gas-fired. Are we there yet?
No, but we're getting closer. Whether it be a feed-in tariff [FIT, which that sets a higher rate for solar power sold to a utility] or a negotiated PPA [power purchase agreement] with a price that supports a solar project over time, right now, the costs of a solar system are such that we need price support to get in the same ballpark as what a utility would traditional pay for less clean forms of generation.
There are some power peaks in some markets where the pricing of electricity is so high that solar power is actually on par or below power produced by nonrenewable sources. But we have to build a solar power plant to generate a return over 20 years. So we can't build a power plant to only get paid 12 periods in a month. We need to get a continuous return. So we need a FIT and or a PPA so we can earn return.
What about solar thermal? Are you doing any projects in that category?
Not yet, but I am thinking about solar thermal. There is a lot of value in storing the energy and selling it at other points of time in the day, which is what you can do by harvesting the heat of the sun and storing it either as steam or in other forms. The issue of solar thermal is that, for larger-scale systems you need to be able to prove that technology is dependable and will work. If you can't show that, no one will finance those technologies.
At this point in time, the banks are skeptical of new technologies. So I'd have a difficult time financing most solar thermal technologies I have seen out there. Utilities have signed a lot of cutting-edge alternative energy projects that have not been built and will not be built because the technology has been difficult to prove it will work. If I sign a contract with the utility, I want to be absolutely sure I can deliver what I am promising on.