United States: Comparative Generation Costs Of Utility-Scale And Residential-Scale PV In Xcel Energy Colorado's Service Area

Article by Toshiki Bruce Tsuchida, Sanem Sergici, Robert S. Mudge, Will Gorman, Peter S. Fox-Penner and Jens Schoene

I. Executive Summary

Electricity generated from solar photovoltaic (PV) panels has become a significant source of carbon-free power in the United States over the last decade. Compared to other solar-electric technologies, solar PV systems are unique in that they are highly scalable and may be deployed in configurations ranging from just a few kilowatts (kW) (residential-scale) to hundreds of megawatts (MW) (utility-scale). This report examines the comparative customer-paid costs of generating power from equal amounts of utility- and residential-scale solar PV panels in the Xcel Energy Colorado system. The report was prepared by consultants at The Brattle Group for First Solar, with support from the Edison Electric Institute. Xcel Energy Colorado provided data and technical support.

The analysis in this report looks at the Xcel Energy Colorado system in 2019 and compares the per-megawatt hour (MWh) customer supply costs of adding 300 MW of PV panels (measured in W-DC) either in the form of: (1) 60,000 distributed 5-kilowatt residential-scale (rooftop) systems owned or leased by retail customers; or (2) 300 MW of utility-scale solar power plants that sell their entire output to Xcel Energy Colorado under long-term purchase power agreements (PPA).

Using a Reference Case and five scenarios with varying investment tax credit (ITC), PV cost, inflation, and financing parameters, the study finds that customer generation costs per solar MWh are estimated to be more than twice as high for residential-scale systems than the equivalent amount of utility-scale PV systems. The projected 2019 utility-scale PV power costs in Xcel Energy Colorado range from $66/MWh to $117/MWh (6.6¢/kWh to 11.7¢/kWh) across the scenarios, while residential-scale PV power costs range from $123/MWh to $193/MWh (12.3¢/kWh to 19.3¢/kWh) for a typical residential-scale system owned by the customer. For leased residential-scale systems, the costs are even larger and between $140/MWh and $237/MWh (14.0¢/kWh to 23.7¢/kWh). The generation cost difference between the utility- and residential-scale systems owned by the customer ranges from 6.7¢/kWh to 9.2¢/kWh solar across the scenarios. To put this in perspective, national average retail all-in residential electric rates in 2014 were 12.5¢/kWh.

The large gap in per-MWh costs between utility- and residential-scale systems results principally from: (a) lower total plant costs per installed kilowatt for larger facilities; and (b) greater solar electric output from the same PV capacity (300 MW-DC) due to optimized panel placement, tracking and other economies of scale and efficiencies associated with utility-scale installations.

Additionally, the analysis finds that residential-scale PV systems cost $195 million more than the utility-scale systems under the Reference Case on an NPV basis over 25 years. If the same amount of residential-scale PV systems (1,200 MW) were installed in 2019 as in 2014, they would cost customers roughly $800 million more in NPV than a comparable purchase of utility-scale systems, under conditions assumed for the Reference Case.

These cost results include only the customer-paid costs for the generation from equal amounts of PV capacity deployed in two configurations in one utility service area. A complete tally of the differences between equal amounts of the two types of PV capacity would require that these two resource options be alternatively embedded in a complete, subsequently optimized integrated resource plan (IRP) for Xcel Energy Colorado or other systems of interest, which would better reflect the effects of each PV option on system costs and potential benefits such as savings on transmission and distribution outlays and ancillary service costs. However, as discussed below, we evaluate avoided and/or increased transmission and distribution costs between the two types of PV plants, as well as externalities, and conclude that including these added or avoided costs is unlikely to change our conclusion.

Additionally, while the results of this analysis apply solely to the Xcel Energy Colorado system and should not be transferred to other areas without attention to comparative insolation levels and other cost drivers that vary by region, the authors believe that the general relationship between costs is likely to hold true for most of, if not all, U.S. utilities with significant solar potential. The authors also find through the sensitivity cases that the results are robust to changes in federal tax credits, inflation, interest rates, and changes in PV costs than we project in our Reference Case.

Overall, the findings in this report demonstrate that utility-scale PV system is significantly more cost-effective than residential-scale PV systems when considered as a vehicle for achieving the economic and policy benefits commonly associated with PV solar. If, as the study shows, there are meaningful cost differentials between residential- and utility-scale systems, it is important to recognize these differences, particularly if utilities and their regulators are looking to maximize the benefits of procuring solar capacity at the lowest overall system costs. With the likely onset of new state greenhouse gas savings targets from pending EPA rules, the options for reducing carbon emissions and the costs of achieving them will take on an even greater importance.

Simply stated, most of the environmental and social benefits provided by PV systems can be achieved at a much lower total cost at utility-scale than at residential-scale.

To read this Report in full, please click here.

First Solar commissioned the report with support from the Edison Electric Institute. Xcel Energy Colorado provided data and technical support.

We would like to thank the study team including Beth Chacon, David Stevens, Craig Groeling, Lynn Worrell, and Chad Nickell from Xcel Energy Colorado, other members of The Brattle Group, including Kevin Arritt, Pablo Ruiz, Rebecca Carroll, Heidi Bishop, and Marianne Gray, and of EnerNex, including Vadim Zheglov and Bob Zavadil, for their excellent contributions to the study. We would also like to thank our internal peer reviewers Frank Graves and Jurgen Weiss, and our two outside technical peer reviewers, Professors Steven Hegedus and Jan Kleissl. We greatly appreciate the excellent input from these reviewers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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