Tuesday, February 6, 2018

Economies of Scale and PURPA

2016 Q4 data.  Cost per Watt by installation size.  Horizontal scale is logrithmic.
As discussed in an earlier post, solar power installations are subject to the economies of scale.  The cost decreases in a decaying exponential manner as fixed, up-front costs are amortized over ever greater volume.

The price paid for the energy generated is impacted by each state's interpretation of PURPA, the Public Utility Regulatory Policies Act of 1978.

In Michigan, the Michigan Public Service Commission determined that utilities SHALL purchase solar energy at a price "pinned" by the cost of electricity from natural gas combustion turbine units.  The reasoning is that natural gas powered turbines are the "swing" producers that come into play to meet peak demand.

Furthermore, the MPSC guarantees a 20-year, fixed price contract for projects 2 MW and smaller.  (Source)
Prime corn ground might gross $500 an acre per year.  Or it can be leased out for solar development.  Based on conversations with some local landowners, leases for solar development are floating around $1000 an acre per year, nearly all of which will be net.

At the time of this writing, that price is about nine cents a KW-hr.

The practical implications
Until pricing stabilizes for larger installations, the default installation in Michigan will be in increments of 2MW.  Smaller units will be handicapped by higher cost-per-Watt and larger units will be hamstrung by pricing uncertainties.

Another advantage of standardizing on a given installation size, in this case 2.0MW, is that installations can be "productionized".  There is no guessing about the size of the footprint (about 10 acres), the amount of racking, wire, concrete to purchase.  The drawings can be updated to incorporate lessons-learned.  Preferred equipment sets can be identified and standardized.

But wait, there's more
At the time of this writing there is no language that disqualifies multiple, 2MW installations on given distribution line.  In fact, there are some significant advantages.

Centrally generated power suffers transmission losses.  Those loses occur through the transmission lines, the transformers that step the voltage down to about 15kV for the distribution lines, and then there is a voltage drop from the start of the distribution line to the endmost customer.

2MW generating stations placed along the distribution line every 300 or 400 residential customers apart will minimize the distance the power must be carried, thus minimizing losses.  The inefficiencies are due to both the resistance of the wire and something called power-factor.  Pushing current through the wires creates a magnetic field around those same wires.  Reversing the flow results in an offset in current and voltage.  The current flow lags the voltage and is an impedance that the power companies must deal with.

Stations in excess of the 2MW every 300 customers should be clustered near the distribution station to minimize the distance the power must travel before it is stepped up to the higher, transmission voltage.

And even more...
At the time of this writing the current interpretation of the Michigan Public Service Commission ruling is that a land owner can host multiple, 2MW sites and still qualify for the advantaged, MPSC rates.

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