First Solar's New Mexico Project: The Parity and the Pain
Unusually public details about a newly signed solar project deal in New Mexico raise some interesting questions about the purchasing power of solar energy, how close it's getting to grid parity -- and just how much pressure is on upstream suppliers to fulfill that objective.
First Solar (FSLR) has acquired a 50-megawatt (MW) solar power project in New Mexico from the solar division of Element Power. The deal is billed as the state's largest solar project; it also, according to some unusually public information revealed in a regulatory filing, raises some interesting questions about the purchasing power of solar energy.
The Macho Springs Solar Project is on land leased from the New Mexico State Land Office in Deming (Luna County); it's expected to be completed in 2014. (Element Power also has a 50-MW wind project at Macho Springs, selling power to Tucson Electric Power.) Electricity will be purchased by El Paso Electric, which had sought more electric peaking resources for its current energy mix. In a statement, the companies said the project's PPA is still subject to regulatory approvals, which is expected to happen "in the first half of 2013."
In fact, a regulatory filing from the New Mexico Public Regulatory Commission (PRC) is already loose in the wild, revealing exactly what El Paso Electric is paying: 5.79 cents per kilowatt-hour (kWh). That's almost a third of the price that thin-film solar PV projects typically sell for (16.3 cents/kWh), says Bloomberg New Energy Finance, and less than half the 12.8 cents/kWh average price for new coal plants. That's also roughly half of what First Solar will get for its marquee solar projects: Antelope Valley, Topaz, and Agua Caliente, points out Maxim Group analyst Aaron Chew. (We obtained a copy of the official document; but a quick Google search will reveal it too.)
Bloomberg points out that El Paso Power will be submitting more information about whether any renewable energy credits are being applied to the deal to lower its cost. In an interview, Chew points out that New Mexico's performance-based incentives (PBI) will probably add 2-4 cents/kWh. Assuming manufacturing cost targets of $0.60, plus $0.80 adding in balance-of-systems costs, that suggests a system price target of $1.50/W. But don't forget to factor back in the undisclosed price that First Solar paid for this project in the first place, Chew points out. "It is hard for us to fathom how it could possibly build this project profitably," he says.
Paula Mints, founder and chief market research analyst at Solar PV Market Research, says PPA prices were ranging from 8-14 cents/kWh in 2012. Even on the high-end that's a tough pill to swallow for suppliers; at the low end it's brutal. Meanwhile, she points out crystalline silicon modules have been selling in the $0.65-$0.75/W range -- roughly the same, and with higher efficiency, than First Solar's manufacturing costs alone.
We've contacted First Solar for clarifications, though they've already publicly declined to comment on the details of this deal. The project will use First Solar's thin-film panels, since the company only does EPC for projects using its thin-film technology. To that end, Chew points out that First Solar's project pipeline is stocked for probably a year and a half, but he calculates that with the company's current capacity (1.6 GW, averaged to 450 MW a quarter) it needs to keep pulling in a lot more deals -- and maybe is willing to make a little less in this deal, or is making up the difference with other projects, to keep its factories humming.
Still, the big takeaway from this new deal is that El Paso itself "is still only paying six cents for solar out of pocket," Chew notes. That means two things: yet more evidence that solar energy is becoming more attractive and competitive; and that the economics are becoming severely compressed on the manufacturing side, even more than we knew.Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.
This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.