Location, Location, Location
It is well understood in the business world that selecting the proper location is often crucial to the success of the business. Fast food, pharmacies, restaurants, and gas stations carefully scout out the ideal location to establish their business. Why? To maximize profit of course.
Retail Customers and Utility-Scale Solar
Unmistakably, a solar evolution is underway with many retail customers jumping in with both feet. The boardroom has given the marching orders. “We want to be 100% renewable!” Moreover, the preference for many retail customers is utility-scale solar since it is more cost effective, has greater output, and provides more environmental benefits than rooftop solar.
To accommodate utility-scale solar, which is not physically connected to the retail customer, a virtual purchase power agreement or VPPA is used. The VPPA swaps 100% renewable power for the customer’s retail power needs.
But here’s the rub. Now retail customers must be knowledgeable about the wholesale electricity market to ensure they’re making good decisions and managing the wholesale market price and risk.
Deer in the Headlights Syndrome
Often, it is the purchasing manager who is tasked with making the solar project happen. Given the high stakes involved, the manager likely feels like a deer in the headlights of an oncoming truck, freezing in their tracks. This is very understandable. The purchasing manager has experience and expertise in purchasing supplies and negotiating contracts; however, the nuances of the wholesale electricity market is likely a new endeavor.
It often comes as a surprise to retail customers that electricity is a traded commodity just like corn, gold or pork bellies. The market is volatile and ever changing which means the revenue stream for the solar project is volatile and ever changing. And location matters.
For example, let’s assume the year is 2006 and a company with two different manufacturing locations wants to enter into a 10-year solar VPPA. One site is Hartford, CT and the other is Richmond, VA. The desired solar project size is a 10 MW single-axis tracking system to be located near one of the two manufacturing locations. The Hartford site will produce 14,753 MWh annually, while the Richmond site will produce 16,531 MWh (12% more). All things being equal, the solar site should be located at Richmond since it produces more MWh. Right?
Not so fast. If we look at the historical energy prices (2006-2015) of the two locations, we see that the Richmond site averaged $55.17/MWh while the Hartford site averaged $63.95/MWh. So, when considering the difference in energy price between the two locations, the Hartford site provides $318,150 more revenue over the 10-year life of the contract.
While there are many considerations in selecting a location, often the wholesale revenue stream is ignored because forecasting wholesale electricity revenue is outside of the purchasing manager’s area of expertise.
Software as a Service
For the new retail players in the wholesale market, Horizons Energy has developed a tool called SOLAR FLARE$ which values the entire fleet of existing and proposed solar resources across all North American wholesale markets. The tool evaluates solar resources against a set of future scenarios representing a highly researched forward view. SOLAR FLARE$ emphasizes both ease-of-use and data transparency to quickly provide indications of levels of exposure to the risks of a given PPA, VPPA, or self-financed project. SOLAR FLARE$ embeds and summarizes the market research, physical operation and project finance in one software product, and is offered at a significantly lower cost as compared to consulting engagements.
SOLAR FLARE$ Workflow
To use SOLAR FLARE$, first select a location by pointing and clicking on the interactive map.
Then, choose a tracker type, market scenario, and level of solar output. With these inputs, SOLAR FLARE$ provides a market valuation of the facility by combining solar data with Horizons Energy’s Forward View. Projects are then tested against a range of financing parameters for robustness and risk.
SOLAR FLARE$ Dashboards
The SOLAR FLARE$ dashboards provide a quick graphical summary of the solar site’s expected profitability under a wide range of scenarios. The product is also very useful for calculating the fair market value of existing solar sites.
About Horizons Energy. Working with a variety of participants in North American electricity markets, Horizons Energy provides in-depth market analysis and Software as a Service (SaaS) solutions including SOLAR FLARE$.