'I'm bullish about solar in Texas. It's just a matter of timeframe'

5 MINUTES with Declan Flanagan of Lincoln Clean Energy

Chicago-based Lincoln Clean Energy is among the fastest growing renewable energy developers in the Texas ERCOT market, which serves 90% of the state's electric load.

It has the 200MW (ac) Nazareth PV project in development and recently signed an off-take deal with Amazon for 90% capacity from a future 253MW wind farm – among the largest such deals in the US.

Declan Flanagan is founder and CEO of Lincoln Clean, which was acquired in January by I Squared Capital, a global infrastructure fund.

What is the status of the Nazareth PV project in Texas?

We are still developing it. There was a competitive process last year for PPAs and in that particular process, it wasn't selected. Now, with the ITC extension, I feel very confident that other options will come along. I fully expect Nazareth to be under construction in the not-too-distant future, likely after 2016.

Nazareth would be one of the largest PV projects in Texas..

Yes. I think you will typically see projects within the 100-200MW range, it's all about drawing down the levelised cost of energy. 200MW was a good scale for that transmission location, layout and design – it really optimises the cost. Projects can become a bit unwieldy if they are larger than that.

Nazareth participated in that RFP before the extension (in late 2015) of the 30% ITC. The wind production tax credit begins to phase down next year, whereas the ITC will remain at full value through 2019. Won't this have a big impact on the economics of solar versus wind?

Wind has a very clear advantage today with the 100% PTC versus the 100% ITC. Wind is in the money where the current market and forward market is trading in ERCOT, and that is reflected in a range of off-take options: signing long-term contracts with load-serving entities, hedges with investment bank-type counterparties, or for PPAs. Solar is not quite there yet [but the] ramp-down tax credit changes will change that dynamic.

Wind has got some runway yet on 100% PTC, and it will maintain a cost advantage for a number of years versus solar. The solar industry, rightly so, gets a lot of credit for capex reductions. This fact sometimes hides the extraordinary advancements in wind, both in terms of capex, opex, and performance per units of dollar invested.

How would you characterise the Texas market now for large-scale solar? Is it a question of just price, and suitability only for the regulated municipal markets in Austin and San Antonio?

Renewables in Texas have always been about price. It's never really been an RPS-driven market. The success of wind – 16GW of wind on the system now – has not been driven by RPS but by the ability of the wind industry to produce a competitive product: a combination of wind resource, large projects and the state investing in large-scale transmission in the Competitive Renewable Energy Zone (CREZ) system.

Largely, what is driving solar are municipal off-takers who are willing to contract long-term to lock in large volumes of solar at very attractive prices. They have already contracted a lot of wind and want to balance out their portfolios. It makes sense for them.

How large is the cost advantage between wind and solar in Texas?

It's higher than 20%.

What do large solar developers such as Lincoln Clean Energy need to do to succeed in competitive energy markets such as Dallas-Fort Worth and Houston?

One way to succeed with solar is you need patience, capital to stay in deals a long time, funds for development, interconnection, etc., so you can be ready for off-take opportunities. You also need diversity among technologies, and that's why we've always been a multi-technology developer. I think that's why you see less and less specialists who only do wind or solar.

We've done almost 1GW of wind in Texas, and we've been in the market for years. It's taken a bit longer to secure an off-taker for our solar project, however.

What can big transmission service providers like Centerpoint and Oncor do to encourage solar use?

What we really need across renewables, which we have, is a pretty quick process to facilitate interconnection agreements and the construction of facilities. It's one of the reasons why we like Texas and do so much business in Texas: you get schedules that you can trust, and costs that are competitive for the facilities that you can construct.

I have to say from a transmission point of view, Texas is an example of what all large markets should do – big investments in transmission so that the backbone is there.

What sort of a solar market do you see developing in Texas in the next two to four years?

I'm bullish on solar everywhere, to be honest. It's just a matter of timeframe. Specifically over the next two or three years, wind is more competitive. Beyond that, there is going to be an extra trend toward more rooftop, behind-the-meter solar all over the country, and Texas will participate in that.

The other interesting dynamic that everyone is looking at in the ERCOT market…is coal retirements. How many of these 40-year coal plants are going to retire and what will that do to prices, combined with natural gas. You can see the crossover point where solar is going to be cheaper than new-build natural gas coming sooner rather than later.

To sum up, you will keep trying to firm up an off-take agreement for Nazareth and continue to look for opportunities for wind in ERCOT.

Yes. We're very bullish on ERCOT and it will be a mixture. We'll do both wind and solar, and we also have natural gas projects in ERCOT because the market will still need new-build natural gas – and will integrate increased amounts of wind and solar.