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'Texas is excellent in terms of prospects for utility-scale solar'

John Huffaker, VP for commercial operations at OCI Solar

Little known in the US until 2012, OCI Solar Power – a subsidiary of Seoul, South Korea-based OCI Company - made a splash in Texas with a 400MW (ac) commitment to San Antonio’s CPS Energy, the US’s largest municipal utility.

The deal was unprecedented in scope in a state where fossil fuels are its lifeblood. To comply, OCI has built and placed in operation four PV plants – 4.4MW, 5.5MW, 37.6MW and 39.2MW – called Alamo 1-4, with three others in construction – 95MW, 110.2MW and 107MW (Alamo 5-7). They will be on line next year to qualify for the 30% federal investment tax credit.

As part of the deal, OCI and its partners agreed to create 800 jobs in Greater San Antonio. They eventually did, but not before OCI had to step in and acquire a 67% stake in module assembler Nexolon America, now called Mission Solar Energy. It also had to find a new joint-venture partner to manufacture tracker systems.

OCI views Texas as promising for utility-scale solar. John Huffaker, vice president for commercial operations at OCI Solar, recently talked with Recharge about the Texas market.

How does OCI see Texas as a market for utility-scale solar?
Texas is excellent in terms of prospects for utility-scale solar. We have large projects coming online. I think the price point is down very close to grid parity in most instances. The right answer for Texas is a mix and balance of generation sources, and solar has to factor largely into that. Wind certainly has a predominant place. Solar has the better fit within demand profiles in Texas, and gas and other generation sources can certainly supplement it.

What are the main advantages for utility-scale solar in the Texas market?
It really is a combination of factors. Great resource in West Texas and most of Texas. I would say the vision by the municipalities, cooperatives and utilities. They have really taken the lead on that, which is to their credit. CPS Energy, for example, has done a great job. It identified an opportunity. Then, it took the bull by the horns to make sure it all works out. The ERCOT grid has really provided a great platform for solar integration as well as the ability to interconnect (Electric Reliability Council of Texas is the grid manager or 90% of the state’s electric load). You also have availability of land but not at California prices. 

Not to mention the country’s largest electricity market here...
Absolutely.

What about the disadvantages? Not at lot of impetus for policy to support solar at state level. ERCOT says solar will have to win on economics.
That is where solar has to be and that is where we will. Whatever cost elements go into putting projects together that will serve it out well. Mixed in there will be any consideration of energy storage and the ability to balance out intermittency and provide grid stability. The market is changing very rapidly. It is an exciting space for solar.

Solar may be the cheapest on-peak electricity source that can be built right now in Texas. Do you agree with that?
I do. Again, think of the alternatives. If you look at the ERCOT nodal pricing, and where the opportunities are within the grid itself. There is a lot of advantage for solar to be online here.

Natural gas sets wholesale power prices in Texas. Solar seems competitive with gas on price.
It absolutely is. There is a rational logic behind it. At the end of the day fossil fuels need a forward curve to look to. Whereas for solar, you have a fixed price for 20 years. There is certainty and predictability around solar pricing that you cannot get in fossil fuel power generation.

The 30% federal investment tax credit (ITC) for big solar is scheduled to decrease to 10% at the end of next year. What impact will this have on Texas development of utility-scale solar?
Losing the ITC really means that developers, utilities and independent power producers all need to be much more creative about how we’re approaching solar financing as well as structuring projects. Increasingly it is a commodity market as you look to modules, inverters and trackers. You can buy those anywhere at pretty competitive pricing. Then it comes down to financing and structuring that is going to make or break your transaction.

The ITC helped to drive the market to start with and was a big incentive. We ought to live with the reality of what we have today which is that currently it is going to go away unless something happens to fix it. Certainly making solar projects more attractive as an investment vehicle if we want to promote the solar industry, passage of an ITC extension would be the best way to do it. 

The ability to feed projects into yieldcos and other financing vehicles is driving much of the solar development process. For one way or another, it is factoring into it.

Part of the reason why you are seeing (electricity) prices where they are currently (in Texas) is that wind is behind that from the bidder’s perspective. If you look at solar project economics, it makes for very thin margins.

First Solar began to sell part of the capacity from its new 30MW Barilla plant into the Texas merchant power market. Some output is under contract. The wind sector is already using financial hedges to help finance certain projects in Texas. Do you see similar hybrid structures emerging for solar here?
That’s how we see it. You can also argue there is some benefit to building projects in advance of the ITC expiring. In anticipation of future contracts. It doesn’t need to be an entirely merchant plant. You can have hybrids and I think that will be the wave you are referring to.

Any sense of how much Texas merchant solar capacity might be built over next few years?
I couldn’t give you a number but that all developers are looking in that direction.

How are things progressing with the CPS deal?
We have met and exceeded our job requirements. Not just for OCI but for our consortium - partner companies that have located to San Antonio. We will have an ongoing obligation and meet those commitments going forward. I do not see it being an issue. We continue to look for ways to support that even after the Alamo projects are constructed.

Where is OCI Solar heading next in Texas?
We are looking at all solar projects – utility-scale, and smaller. We are diversifying our product mix and looking at how we are going to be competitive - particularly with reduction of the ITC. We have to find ways to best deploy our capital. We have seven projects in the works that we are excited about and they stand a very good chance of seeing the light of day.

These are large projects?
Both large and small.

What about distributed generation in Texas? It has no mandatory net metering law. Smaller municipal utilities and a few electric co-operatives are tinkering with it. Any future for DG here?
It’s going to be market-to-market. Every utility, muni and co-op has their own view of it, and that view is changing. It’s a dynamic environment. I think everyone is examining what is the best vehicle to bring solar closer to the demand centers. That’s where the smaller projects come in.

The City of Georgetown became the first in Texas to go 100% renewable energy. Has OCI Solar looked into working with municipalities?
Absolutely. We would be foolish not to. Frankly, they are some of the more receptive audiences to RE. We are having that discussion.

You see that as a good emerging market for solar?
Absolutely.

You sound upbeat about solar in Texas, particularly utility-scale.
I’m not saying it won’t have its challenges. At the end of the day, it will be a mixture of generation source. Utilities, munis and co-ops would be remiss not to consider solar as a large part of that portfolio. Meeting demand profile but also because the costs are getting down to where they are predictable and there is less risk involved in promoting them.

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