California Solar Auction Crushes Grid Parity

Initial results from California's Renewable Auction Mechanism, also known as RAM, have started coming in, and they're impressive. If you still don't think solar is cost-competitive, you may want to sit down for this.

The weighted average cost of the bids accepted by PG&E (NYS: PCG) , San Diego Gas & Electric, and Southern California Edison is 8.923 cents per kilowatt hour. That's far below the average cost of California's residential electricity, which is 15.29 cents/kWhr, and is lower than the 11.52 cents/kWhr national average cost of residential electricity. This isn't an all-in cost, which would include transmission connection, but even after transmission costs the projects should be less than retail costs.

There were 92 offers received for SCE's contracts, of which seven bids won, totaling 67 megawatts. PG&E had 122 offers from 52 counterparties and gave four contracts totaling 63 MW.

Blowing away grid parity
We've been hearing about grid parity for some time, but it's usually some sort of hypothetical calculation. SunPower (NAS: SPWR) and First Solar (NAS: FSLR) don't release cost or power purchase agreement prices for their solar projects, so we only know that margins have been increasing on project developments as costs have fallen.

There was also the rush to install solar power in Germany to point to, even though FIT rates in Germany have fallen below retail electricity prices. All of this is great, but it rarely gives a single number we can point to and say, "See? Solar is less expensive than power from the grid."

This may be one of the first big milestones that changes the solar narrative nationally.

And the winners are ...
SunPower stayed out of the bidding directly, but it may still gain some business from bid winners. First Solar put in seven offers to SCE and PG&E, although none of them won. Trina Solar (NYS: TSL) was also in the game, putting in four total bids, again not winning.

It's unknown which manufacturers will win module contracts for the 107 MW in solar that won bids this time around, but low-cost Chinese manufacturers should be first on the list. Suntech Power (NYS: STP) , the largest module maker in the world, is growing its U.S. presence and may be able to capture this business with low-cost modules. Trina Solar and Yingli Green Energy are also players we should watch for.

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At the time thisarticle was published Fool contributorTravis Hoiumowns shares of SunPower in a personal and a managed account. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdings, or follow his CAPS picks atTMFFlushDraw.Motley Fool newsletter serviceshave recommended buying shares of First Solar. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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