ECONOMICS OF LARGE-SCALE PV SOLAR IN NEW ENGLAND

Vermont has a Standard Offer, SO, program that uses federal, state and other subsidies and feed-in tariffs, c/kWh, in excess of wholesale prices to increase the build-out renewable energy systems. Most of those systems are large-scale, field-mounted solar systems. The Public Utilities Commission, PUC, oversees the program and issues a Certificate of Public Good for each project. This article examines the economics of a large-scale solar system.

This article examines the economics of a large-scale solar system. It shows the economic cost of such solar systems is about 27.1 c/kWh during the first 6 years of operation in New England. Because of rapid solar build-outs, a substantial part of the installed solar capacity is less than 6 years old, and therefore in 27.1 c/kWh mode.

NOTE: The same is true for wind projects. Wind and solar projects in this mode act as a major drag on economic growth, because it shifts billions of dollars of spending power from mostly middle class households towards multi-millionaire households; instead of trickle down, this is trickle up. The economics of small-scale solar, such as residential rooftop, is worse, because of higher installed costs per kW and less subsidies.

In Vermont, a typical, large-scale, solar system, 2000 kW, has a turnkey capital cost of about $5.9 million, and produces about 2794 MWh/y, and has revenues of about $365,000/y. See URL and funding sources summary in table 1. Almost all numbers in this article are from this URL.

http://puc.vermont.gov/document/7874-standard-offer-solar-cash-flow...

Table 1/Funding Source

$

%/y

Repaid

Short term loan

1,356,212

3.0

6 y

Long term loan

1,356,212

4.5

18 y

Federal ITC

1,190,475

Upfront gift

 

State ITC

185,714

Upfront gift

 

Owner funds

1,808,283

 

 

Total

5,896,897

 

 

 

Subsidies and Tax Credits Attract High-Income Investors: During the first 6 years, the equivalent of about $3.5 million/$5.9 million = 59% of the turnkey capital cost is returned to investors and consists of:

 

1) State and federal taxes not paid due to accelerated 6-y depreciation write offs

2) State and federal ITCs; upfront cash gifts

3) Excess paid above NE midday wholesale prices. See URL and table 3

http://www.windtaskforce.org/profiles/blogs/subsidized-solar-system...

NOTE: The $3.5 million is for only 3 of 6 subsidy items to simplify the analysis. If all 6 items were accounted for the 27.1 c/kWh would be even higher. See Appendix 1 for all 6 subsidy items and see URL.

Owners earn a risk-free rate of return of (IRR) of about 9%/y

Owners are not required to pay federal and state taxes due to loan interest deducted from taxable profits.

Owners are not required to pay the school portion of property taxes; Vermont households have to pay more.

Owners are not required to pay state sales taxes on solar system components.

- The variable, intermittent solar electricity is bought by utilities from owners at 13.036 c/kWh. Higher-quality electricity (not variable, not intermittent, steady, 24/7/365) could have been bought by utilities at the NE annual average midday wholesale price of about 6 c/kWh. The excess electricity costs would occur for 25 years, per SO contract.

- The federal ITC is 30% of the qualified portion of the turnkey capital cost. The qualified portion is 1,190,475/0.30 = $4 million of the $5.9 million turnkey capital cost, or 67%.

 

- The state ITC is 185,714/1,190,475, or 15.6% of the federal ITC.

 

- Owners collect ITCs up front and avoid paying any taxes due to accelerated asset depreciation, for a total of $2,332,758, during the first 6 years. See table 3 of above URL.

 

Whereas owners pay no taxes for the first 6 years, after year 6, the project would have taxable income on which state taxes ($285,476) and federal taxes ($1,075,571) likely would be collected during the 7 - 25 year period, unless investors have losses in other businesses to offset that taxable income.

The subsidy gravy train seems to be never-ending for mostly out of state multi-millionaires who own the larger solar systems. Already-struggling Vermont households and businesses trying to make ends meet in the anemic, near-zero, real-growth Vermont economy, have to pay by means of 1) increased taxes, fees and surcharges, and 2) increased electric rates, and 3) increased prices of goods and services. There is no free lunch.

 

NOTE: Clearly, the overall economic cost of SO solar is much greater than the 13.036 c/kWh paid to owners. See table 3 in URL. The economics shows the cost of solar is nowhere near competitive with fossil, hydro and nuclear in New England.

http://www.windtaskforce.org/profiles/blogs/subsidized-solar-system...

 

PV Solar Electricity Cost During 25 Years of Operation 

Large-scale solar projects usually are financially structured in three phases: 

 

Phase 1, years 1 – 6, the subsidy and write off phase, short-term loan being paid off.
Phase 2, years 7 – 18, remaining subsidy phase, long-term loan being paid off.
Phase 3, years 19 – 25, remaining subsidy phase, no outstanding loans.

 

Phase 1, year 1 – 6: Dividing the “Subsidy costs” and the “Excess paid above New England midday wholesale prices” by the 6-y production yields 14.0 c/kWh and 7.0 c/kWh, respectively, and adding the 6.0 c/kWh for NE midday wholesale, yields a total production cost of 27.1 c/kWh, during the first 6 years of operation. See table 2 and note.

 

Phase 2, year 7 – 18: The remaining subsidy is the “Excess paid above NE midday wholesale prices” of about 7 c/kWh. Adding other costs, such as paying off long-term loans, the production cost decreases to about 9.8 c/kWh

 

Phase 3, year 19 – 25: The remaining subsidy is the “Excess paid above NE midday wholesale prices” of about 7 c/kWh. Adding other costs, the production cost decreases to about 8.2 c/kWh.

 

The weighted average price of all 3 phases is about 13.036 c/kWh for this SO project.

 

NOTE: This price is similar to the average price of the 4 auctioned SO solar projects. See table 3 and URL.

http://www.windtaskforce.org/profiles/blogs/from-brownfield-to-gree...

 

NOTE: The 27.1 c/kWh and 13.036 c/kWh is less in sunnier areas of the US, such as Texas and the US southwest.

NOTE: Almost all numbers in table 2 are from this URL. If you have difficulty downloading it, I can send it as an attachment to an email.

http://puc.vermont.gov/document/7874-standard-offer-solar-cash-flow...

 

 

 

 

 

 

 

 

State

Fed

Total

Table 2/Year

1

2

3

4

5

6

6y total

c/kWh

c/kWh

c/kWh

State tax not paid

42996

78104

41169

18803

18337

1227

200636

1.2

 

 

Fed tax not paid

161996

294270

155112

70845

69087

4623

755933

 

4.6

 

Total tax not paid

204992

372374

196281

89648

87424

5850

956569

 

 

 

State ITC gift

185714

185714

1.1

 

 

Fed ITC gift

1190475

1190475

 

7.2

 

Total ITC gift

1376189

1376189

 

 

 

Total tax subsidies (1)

1581181

372374

196281

89648

87424

5850

2332758

2.3

11.8

14.1

 

 

 

Paid for electricity

2158559

13.0

 

 

Wholesale, 6 c/kWh

993507

6.0

 

6.0

Electricity subsidy (2)

1165052

7.0

 

7.0

Total subsidy; 1 + 2

3497810

 

 

 

Total electricity cost

 

 

 

 

 

 

 

 

 

27.1

REC

 

 

 

 

 

 

 

3.0

 

 

Utility cost, 13 - 3

 

 

 

 

 

 

 

10.0

 

 

APPENDIX 1

Vermont has an anemic, near-zero, real-growth economy, which does not produce enough tax revenues year after year, partially due to the huge RE giveaways, such as: 

 

  1. Federal and state ITCs; upfront giveaways to offset any taxes. 
  2. Federal and state taxes not paid due to rapid depreciation write-offs during the first 6 years 
  3. Federal and state taxes not paid due to loan interest deducted from taxable profits.
  4. School portion of property taxes not paid; households have to pay more.
  5. State sales taxes not paid on some solar system components.
  6. ALL electricity sold to utilities at 13 - 14.5 c/kWh (large-scale, field-mounted solar, mostly owned by multi-millionaires); NE midday wholesale prices are about 6 c/kWh.
  7. Excess electricity sold to utilities at about 19 c/kWh (residential, roof-mounted, mostly owned by rate payers); NE household rates are about 19 c/kWh.

 

The state giving ITC money (extracted from already over-burdened taxpayers) to the tax shelters of multi-millionaires, who own the larger systems, and not collecting taxes due to rapid depreciation write-offs, etc., has resulted in contributing to chronic budget deficits.

 

The state legalizing above subsidies has resulted in higher NE electric rates than they would have been.

APPENDIX 2

Money received by investors in the early years, such as upfront federal and state ITCs, is always better than in later years. The SO projects are structured to provide a risk-free, internal rate of return (IRR) of about 9%/y, which is similar to an electrical utility in Vermont, such as GMP. It is quite generous compared to long-term interest rates of 4.5%/y.

During the first 6 years of a solar project, the economic cost is 27.1 c/kWh (using only 3 of the above 6 subsidies to simplify the analysis). Because of rapid solar build-outs, a substantial part of the installed solar capacity is less than 6 years old, and therefore in 27.1 c/kWh mode, in New England. The same is true for wind projects. Wind and solar projects in this mode act as a major drag on economic growth.

 

APPENDIX 3

The above 27.1 c/kWh and 13.036 c/kWh excludes the costs of externalities, such as:

 

– Any peaking, filling-in and balancing performed by the other generators
– Any battery systems to stabilize distribution grids with many solar systems.
– Any measures to deal with DUCK curves, such as utility-scale storage and demand management
– Any grid expansions and augmentations to connect distributed solar systems

 

Those costs, as c/kWh, are not easy to quantify, and as a result they are charged to ratepayers via rate schedules, and to taxpayers. Ultimately, they are reflected in the increased costs of goods and services, which usually act as a headwind to economic growth. There is no free lunch.

 

For example, to bring wind electricity from the Panhandle in west Texas to population centers in east Texas, $7 billion of transmission was built. The entire cost was “socialized” as a surcharge on residential electric bills.

APPENDIX 4

Various Subsidies for Wind and Solar: Because of the various subsidies, taxpayers and rate payers are forced to pay 1) higher monthly electricity bills, 2) higher prices for goods and services, and 2) taxes to finance various subsidies for wind, solar and other RE producers. Here is a partial list:

 

- The federal ITC, 30% of the qualified portion of the turnkey capital cost. The federal ITC is an upfront, tax credit that can be applied against any of owner’s taxes.

- The state ITC, usually a percentage of the federal ITC. The state ITC is an upfront, tax credit that can be applied against any of owner’s taxes.

- The federal production tax credit, PTC, of 2.4 c/kWh for the first 10 years of operation, a subsidy of 2.4/5 = 48% of the US average wholesale price. No wonder owners are crowing about underbidding traditional generating plants. For example, in areas with good winds, low construction costs and low operation and maintenance costs (Texas, Great Plains), if an owner’s cost is 7.3 c/kWh and he deducts 2.4 c/kWh as PTC, then his bid price could be 4.9 c/kWh, which is sufficient to get the contract, in most cases, and “competitive” with traditional plants.

- The federal and state tax savings due to rapid depreciation write-offs in about 5 to 6 years, much more rapid than normal utility equipment write-off schedules of 10 to 20 years. Having tax savings earlier, instead of later, is financially more advantageous.

- The exemption of equipment purchases from the state sales tax and from the education property tax.

- Selling wind electricity at generous feed in tariffs of about 9 - 10 c/kWh in areas with high capital costs and low capacity factors (CFs), such as New England.

- Selling solar electricity at generous feed in tariffs of about 13.5 - 14.5 c/kWh in areas with high capital costs and low capacity factors, such as New England.

- Selling renewable energy credits, RECs, which lower the utility purchased RE energy cost by up to 50%.

- Loan guarantees by the federal and state government, which lower the interest rate of the funds borrowed from private entities, because the federal and state government assume the risk of the loans.

 

Views: 61

Comment

You need to be a member of Citizens' Task Force on Wind Power - Maine to add comments!

Join Citizens' Task Force on Wind Power - Maine

First Prize

NE Book Festival

 

Maine as Third World Country:

CMP Transmission Rate Skyrockets 19.6% Due to Wind Power

 

Click here to read how the Maine ratepayer has been sold down the river by the Angus King cabal.

Maine Center For Public Interest Reporting – Three Part Series: A CRITICAL LOOK AT MAINE’S WIND ACT (excerpts) From Part 1 – On Maine’s Wind Law “Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine if the law’s goals were met." . – Maine Center for Public Interest Reporting, August 2010  http://www.pinetreewatchdog.org/wind-power-bandwagon-hits-bumps-in-the-road-3/From Part 2 – On Wind and Oil Yet using wind energy doesn’t lower dependence on imported foreign oil. That’s because the majority of imported oil in Maine is used for heating and transportation. And switching our dependence from foreign oil to Maine-produced electricity isn’t likely to happen very soon, says Bartlett. “Right now, people can’t switch to electric cars and heating – if they did, we’d be in trouble.” So was one of the fundamental premises of the task force false, or at least misleading?"  http://www.pinetreewatchdog.org/wind-swept-task-force-set-the-rules/From Part 3 – On Wind-Required New Transmission Lines Finally, the building of enormous, high-voltage transmission lines that the regional electricity system operator says are required to move substantial amounts of wind power to markets south of Maine was never even discussed by the task force – an omission that Mills said will come to haunt the state.“If you try to put 2,500 or 3,000 megawatts in northern or eastern Maine – oh, my god, try to build the transmission!” said Mills. “It’s not just the towers, it’s the lines – that’s when I begin to think that the goal is a little farfetched.” http://www.pinetreewatchdog.org/flaws-in-bill-like-skating-with-dull-skates/

Not yet a member?

Sign up today and lend your voice and presence to the steadily rising tide that will soon sweep the scourge of useless and wretched turbines from our beloved Maine countryside. For many of us, our little pieces of paradise have been hard won. Did the carpetbaggers think they could simply steal them from us?

We have the facts on our side. We have the truth on our side. All we need now is YOU.

“First they ignore you, then they laugh at you, then they fight you, then you win.”

 -- Mahatma Gandhi

"It's not whether you get knocked down: it's whether you get up."
Vince Lombardi 

Task Force membership is free. Please sign up today!

© 2018   Created by Eben Thurston.   Powered by

Badges  |  Report an Issue  |  Terms of Service