by James A. Bacon
The Old Dominion Electric Cooperative (ODEC) has joined Virginia’s solar club, awarding 25-year contracts to deliver 30 megawatts of electric output from solar power plants in Northampton County and Clarke County. Hecate Energy, a developer of renewable energy projects based in Nashville, Tenn., will build and operate the facilities.
“Adding clean solar generation to our portfolio will allow us to keep fulfilling our mission of maintaining a diversified mix so that we can continue to provide affordable and reliable electricity to our member cooperatives,” said Jack Reasor, ODEC’s president & CEO in a press release last month.
ODEC is the generation and transmission entity for 11 electrical cooperatives in Virginia, Maryland and Delaware. The nine Virginia-based cooperatives serve 10.6% of Virginia’s electric customers. Collectively ODEC cooperatives experience a peak demand of approximately 3,000 megawatts daily. That compares to a peak demand of roughly 20,000 megawatts for Dominion Virginia Power, Virginia’s dominant electricity provider.
In partnership with Dominion, ODEC owns 50% of the Clover coal-fired power station, 10% of the North Anna nuclear power station, and multiple natural gas-fired generating units. The company is building a gas-fired combined-cycle plant in Maryland, which should be operational by mid-2016, and it has negotiated Power Purchase Agreements (PPAs) for about 265 megawatts of renewable wind power from projects in Virginia and Maryland. The two solar units will be the company’s first foray into solar.
“In the near-term, solar is still a little more expensive than some of the alternatives,” ODEC Portfolio Manager Mike Cocco told me when I asked him about the economics of solar. However, the contracts with Hecate will provide rate stability for rate payers of ODEC’s member cooperative, and over the life of the contracts, he said, costs are expected to be lower than projected wholesale market prices. Unlike power plants burning fossil fuels, solar energy is not subject to fuel price increases.
The timing of the projects, said Cocco was driven by the expected expiration of the 30% solar tax credit next year. To qualify for the credit, which will drop to 10% in 2017, projects must go online by the end of 2016. “We’re purchasing that power. Hecate is building it and getting the investment tax credit, which allows them to offer us a lower price,” said Cocco. “If we had waited much longer, we would have been faced with a higher cost for solar. If we wanted solar in our portfolio, we had to jump on it.”
The coal-fired Clover plant is “totally compliant,” with the Environmental Protection Agency’s air toxic regulations, which caused the shut-down of dozens of other coal plants around the country in recent years, but the jury is still out on how the Clean Power Plan will effect ODEC. “The impact is unknown at the time,” said Cocco. “A lot depends on how Virginia rolls out the plan.”
However the state divvies up the CO2 reductions between Dominion, Appalachian Power, ODEC and other minor players in the state, the addition of the two solar units to ODEC’s electric power portfolio will help meet whatever goals are set. What the public doesn’t know is how the solar investment will impact rate payers.
Because the solar generators are being developed by a third party, Cocco does not know specifics on costs such as the up-front capital expense, ongoing maintenance & operations costs, or land acquisition. He does know the cost per kilowatt hour under the Power Purchase Agreement, he said, but he cannot reveal it. Cocco noted that Hecate’s bid was the most economical offer among over a dozen submitted in ODEC’s competitive solicitation process.
Why the lack of transparency? ODEC is bound by confidentiality agreements with Hecate, said Cocco. “They’re in a competitive market, competing with other suppliers. That’s commercially sensitive information.” While ODEC will not release cost data to the public, it does provide the data to its member cooperatives, he said. “The officers of the companies understand the rates and approve the contracts..”
The cost per kilowatt generated by a power-generating facility, regardless of fuel type, is only one component of the total cost. A power plant is embedded in a larger system of power sources, electric transmission lines and wholesale markets in which power providers swap surplus electricity with each other. A drawback of a solar facility as a component of the larger system is that power companies cannot control when it generates electricity — output varies with the sun’s position in the sky and with cloud cover. To ensure a reliable supply of electricity to customers, power companies have to maintain back-up capacity or purchase electricity on wholesale markets, paying a premium during periods of peak demand.
An advantage of solar energy is that it generates electricity during the daytime when it is needed more than at night. But it doesn’t meet peak demand, when electricity is most expensive. ODEC’s two facilities will provide maximum output between 10:00 a.m. and 4:00 p.m., a period of fairly high demand, said Cocco. But output declines as the sun sinks in the horizon, he concedes, just as demand peaks around 5 p.m. when people come home and crank up their air conditioners and appliances. ODEC will have to fill that gap either through owned resources or by purchasing the power on wholesale markets.
Bacon’s bottom line: Once again, I am stymied in my effort to make transparent the impact of solar-generating projects on Virginia rate payers. All we can safely say is that the up-front capital cost of solar is higher (even after tax credits) than gas-fired electricity, and that the cost is offset to some degree by the zero cost of fuel. But that doesn’t tell us much at all. Cocco says that ODEC will pay less over the life of the contract, which is somewhat helpful. But is that calculation adjusted for net present value (the fact that, economically speaking, a dollar today is much more valuable than a dollar 25 years from now)? And, given the intermittent nature of solar production, what is the cost of ensuring a reliable electricity supply even when the sun isn’t shining? The public doesn’t know.
In every instance that I have dug into, critical details have been kept under wraps by confidentiality clauses required by the solar-development companies, supposedly on the grounds of protecting commercially sensitive information. ODEC, Dominion and other electric utilities turn to solar development companies to assemble solar projects because they are structured to take advantage of the 30% tax credits without which the deals would not be economically viable.
Which raises another question. How much of that 30% tax credit is applied to driving down the cost of the project, ultimately benefiting rate payers, and how much is pocketed by the solar development companies? To what extent does the tax credit make solar power more economically competitive, and to what extent does it pump up profits for the guys who put the deals together? Once again, the public is in the dark.
I am not arguing that solar is a bad investment. I’m saying the public isn’t given enough information to judge whether it’s a good investment or a bad one. When the nation is spending billions of dollars on solar construction, the lack of transparency is not a good thing.
