Solar Cheaper Than Natural Gas? It’s Happening

The crossover everyone has been waiting for is underway. Under power purchase agreements signed this year, developers will deliver power from large utility-scale solar plants will be selling at below the price of electricity from natural gas by 2021, according to a new report from Lawrence Berkeley National Laboratory.
Between 2017 and 2040, the lifetime of the solar plants, the average levelized cost of power from these solar plants will come to $42.1 per megawatt hour, wrote Mark Bolinger and Joachim Seel, versus $48.1 for the cost of gas alone.
So what’s that mean? Solar will be cheaper than traditional grid power in at least some locations in a few years, so any utility looking to keep control of pricing will look more and more at solar.
Granted, the authors qualify their findings. A substantial portion of these power plants are located in the Southwest, gas prices are difficult to predict and some of these plants haven’t fully come online. The industry will also have to deal with economic impacts if federal tax credits vanish. Still, this is the projected pricing for real contracts, and they aren’t even counting in the cost of the natural gas plants, just the fuel.
“Some of the most-recent PPAs in the Southwest have levelized PPA prices as low as (or even lower than) $40/MWh (in real 2014 dollars). At these low levels, which appear to be robust, given the strong response to recent utility solicitations, PV compares favorably to just the fuel costs (i.e., ignoring fixed capital costs) of natural gas-fired generation, and can therefore potentially serve as a “fuel saver” alongside existing gas-fired generation (and can also provide a hedge against possible future increases in fuel prices),” the authors wrote.
The declining costs of solar are also creating a new opportunity for selling solar under ‘avoided costs’ contracts. Utilities often have to buy power from out-of-state facilities, particularly during peak hours when solar works best. In Utah, two 80MW plants will start selling power to PacificCorp under avoided costs contracts while Idaho Power signed a contract for 461MW.
The report will likely further add to the growing momentum for solar. The total footprint of utility-scale solar in the U.S. is 31 times larger than it was a decade ago, according to GTM Research, and all of the variables are working in the industry’s favor: the technology is improving, costs are going down and utilities are discovering that they can leverage solar in a way that’s good for their balance sheet.