The Austin City Council voted 9-2 today to authorize Austin Energy to enter into contracts for up to 300 megawatts (MW) of new solar energy. This decision comes as a result of the generation planning process that began in February 2014 and has included numerous studies, briefings, public hearings, and recommendations from citizen advisory groups and Austin Energy. Those voting in support were Mayor Adler, Mayor Pro Tem Tovo and Council Members Garza, Pool, Casar, Kitchen, Gallo, Renteria and Houston.As consumer advocates, we cheer this wise decision by the Austin City Council because these solar contracts will provide energy at affordable rates for all Austin Energy customers. While the utility will pay slightly more for this energy in the first few years than it would if it just purchased energy from the market, that dynamic will be short-lived and these solar contracts will offer more affordable rates than market purchases for most of the contract periods. Solar contracts can be for up to 25 years and are at a fixed price of less than 4 cents per kilowatt-hour, offering an excellent opportunity to keep prices low and predictable for customers.
This addition of solar energy will bring the city and its electric utility closer to achieving the climate protection goals that Council has adopted. Those goals are to achieve net-zero community-wide greenhouse gas emissions by 2050, or earlier, if possible and to make all Austin Energy-controlled electric generating assets carbon-free by 2030. The later goal will require retirement of the utility’s coal-fired Fayette Power Project and the natural gas-fired generators at the Decker Creek Power Station (Austin’s single largest source of air pollution) and the Sand Hill Energy Center. In order to protect customers against fluctuating prices in the electricity market, Austin Energy will need new carbon-free energy sources to replace those coal and natural gas-fired power plants. These new solar contracts will help enable that transition.
Even before Austin Energy begins retirement of its fossil fuel fleet, these new solar farms will displace dirty energy from the Texas electric grid. Because they have no fuel cost, solar farms will take the place of the most inefficient (and most polluting) natural gas plants that currently provide Texas electric consumers with energy when demand is high in the afternoons and early evenings. By placing solar installations in sunny west Texas, the utility (and its customers) will benefit from high energy production that will continue even as solar intensity is starting to decline in central Texas.
Austin Energy and other utilities have been able to obtain exceptionally low prices for solar contracts recently because solar companies are eager to complete projects before the impending decline of the federal solar investment tax credit from 30% to 10% for commercial projects at the end of 2016. Bloomberg New Energy Finance projects that development of new utility-scale solar projects will decline from a high of over 11 gigawatts (GW) in 2016 to just over 3 GW in 2017. Installations are projected to slowly increase after 2017, but Bloomberg doesn’t project a return to the boom levels we are seeing now and will continue to see through 2016.
This boom is exciting, but it means that some proposed projects won’t be able to be completed by the end of 2016. Several companies, including First Solar are running out of capacity to produce enough solar panels to keep up with demand. That’s great for solar manufacturers to have, but it means that utilities wanting to benefit from low prices need to get contracts signed right away.
The Austin City Council also voted today to postpone authorization for up to another 350 MW of solar energy until October 15 to give Austin Energy staff additional time to negotiate more favorable prices on those contracts. Although the prices for those contracts are already competitive, they are closer to 4.5 cents per kilowatt-hour and can likely be negotiated to closer to the first batch of contracts that was authorized today. That will result in additional savings in the years to come. Just as no savvy consumer walks on to a car lot and pays sticker price, utilities can and should use proposed energy prices as a starting point for negotiations. We applaud the City Council for acting on the most affordable contracts now and for employing this strategy to get the best possible deals on the second batch of solar contracts.