Some regions of the US allow what are called “merchant projects”; that is projects that sell power into the grid directly. The most promising and fastest-growing solar PV markets lie within deregulated markets in the Mid-Atlantic, New England, California, and Texas.

In these regions, solar developers can opt to sell power directly into the market as a merchant energy supplier, bypassing the normal requirement to arrange a Power Purchase Agreement (PPA) with a utility or a commercial entity for the energy.

While electricity prices are high in the Mid-Atlantic and New England, perhaps the most vibrant of these upcoming merchant solar markets in the US is in Texas, due to an unusual combination of circumstances; a merchant market that is ready-to-go, an abundance of available transmission in areas with good solar resources, fast-growing daytime electricity demand from a booming oil industry, and natural gas prices that have doubled in the last year.

Transmission already in place

Under the Texas Competitive Renewable energy Zone (CREZ) law passed in 2005, transmission has now been pre-installed in areas of renewable potential even in advance of renewable projects being built there. The Electric Reliability Council of Texas (ERCOT) operates the electric grid and manages the deregulated market for most of the state.


“So the legislature passed the law, the commission working with ERCOT and working with state legislators determined what the appropriate renewable energy zones were and what the ERCOT recommended specific improvements, and the commission authorised those improvements,” says ERCOT Director of System Planning Warren Lasher.

“And now fast-forward to December 2013. All of those transmission improvements have been put into place and are in service.”

With the CREZ transmission complete, there is now an unprecedented opportunity, not just for wind but also for solar, to sell energy directly into the market, because the same areas that have wind potential, and thus have CREZ lines, are also excellent solar resources.

Oil industry driving demand

Not only is there a merchant market and available transmission, but in the very areas that are served by CREZ transmission in West Texas, there is now also a huge growth in demand for electricity.

The oil industry is booming in that region, so greatly increased activity in the Permian Basin has added demand on the local grid for daytime power to supply drilling electricity needs. Compared to only around 2 percent growth statewide, electricity demand in the Permian Basin is rising at between five and six per cent a year. This rising local need is good news because it is daytime demand.

“One of the reasons that solar is exploding on the scene is because it is going to come on at peak usage, during the day,” says Doug May, Executive Director of the Fort Stockton Economic Development Corporation in Pecos County. “Even though there is a better wind resource overall, its highest peak production is not during the highest usage hours.”

“We are producing around 300 MW of solar right now. And it's really happening in a hurry,” says May. “We have about six different solar developers in here right now. One has started construction while the others are in various phases. We’re really excited to have that industry come.”

The first of these developers to take advantage of the merchant solar opportunities opening up is First Solar, which will build and operate a 22MW merchant project west of Fort Stockton in Pecos County; the Barilla Solar Project, competing with other electricity sources on the open market.

Merchant plants

“Given the way that the Texas power system is – essentially it's entirely deregulated – there is an ability to deliver merchant plants into the grid,” says Jack Curtis, First Solar VP of Business Development. “And so we think Texas is a market that certainly has a lot of potential. The way that the grid is structured, it was set up to access the CREZ lines, to access wind in West Texas - that solar can certainly leverage to achieve a similar outcome.”

“Permian commercial industrial load represents what we consider an opportunity,” he adds. “The ability to deliver and sell power directly to that large industrial load, whether it's oil and gas or large manufacturing; that's certainly a market that we have potential in.”

Competitive prices

To compete on the open market means competing on price with the lowest priced fossil energy, which in the US, is natural gas. There are no preferences for renewables in the Texas market. So these merchant projects like First Solar’s Barilla and low PPAs such as the municipally-owned Austin Energy agreement to sell the power from a 150MW project to SunEdison-- for a record low price-- are evidence that solar is becoming very competitive.

According to Tim Rebhorn, Senior Vice President of Business Development for First Solar, First Solar will eventually consider selling the Barilla Solar Project to a long-term owner. This sale opportunity was mentioned in a First Solar investor news brief on the company's web site in January.

“Natural gas is running at about seven cents,” says May. “The Austin Energy solar PPA was about five, though I don’t know how they did it for five. But I think as the technology increases, both for the wind industry and solar, that their costs are going to come down, and they'll be very competitive, as natural gas prices go up.”

While natural gas prices have been at all-time lows in recent years, they are currently trending upward, and have doubled in just the last year. But solar prices have been going in the opposite direction, setting records for lower prices. First Solar has been able to reduce the price it sells at, in part because as an industry leader, it is able to access capital at a lower price.

“Being regarded as a very financially strong and a bankable company will obviously influence the cost at which you can access capital to finance your projects,” Curtis explains.

While Texas has lagged other states in solar until now, some insiders are now suggesting that solar is about to be the new wind in Texas.