Solar developers have struggled to finance projects that would sell power on a merchant basis into the ERCOT wholesale energy market, where prices are set by real-time supply and demand.
There is no provision for the high upfront capital cost of a solar plant. The market structure is better suited to fossil-fired plants, which have moderate capital costs, but higher and less-predictable long-term fuel costs.
“It’s just a new type of market for us as a solar company to innovate and finance within,” Yates says, noting that the impetus is on the solar industry to get its financial backers comfortable with the market structure.
Most of the large-scale solar development that has occurred in Texas so far has been through long-term, bilateral agreements between solar developers and municipal utilities or electricity co-ops, such as Austin Energy’s 25-year contract with the 30 megawatt Webberville Solar Farm, which began delivering power last year. These contracts do not carry the risk of the merchant energy market.
Meanwhile, Texas is trying to create market incentives to attract power plant investment in the state to address its electricity supply shortfalls. The creation of a so-called capacity market—in which, in simplest terms, ERCOT would collect funds from utilities and use it to pay for new generation to be built—could reduce some of the financial risk of solar development in Texas.
The exact form of a capacity market—if it happens at all; other options are under consideration—is unclear. It will undoubtedly be a complex process, with powerful energy industry players vying for advantage.
“Some sort of change, like a capacity market, could be what will provide solar a path to success, but we are currently evaluating what the real impact of this could be,” says Brochu of Recurrent Energy. “Capacity alone might not jump start the solar market, but we see it as a critical component.”
The Public Utility Commission of Texas is expected to take up the issue after the 83rd Legislature completes its regular session May 27.
“First and foremost, we as the solar industry need to be able to innovate and be nimble so that no matter the outcome at the commission, we make sure we have a seat at the table, and make sure there’s not barriers to entry,” Yates says.
