Apple's Newly Announced Solar Farm Comes With Huge Price Tag; California's New Solar Mega-Farm With Mega-Price Tag -- February 10, 2015

Updates

February 16, 2015: this is really, really cool. This explains why Apple is willing to pay almost any price for solar energy. The price is not the issue: programming, budgeting in the outyears is the issue. Great, great article at Seeking Alpha:

It's the oldest trick in the financial book, a hedge you can write a bond on.

Electricity is an input cost to a data center operator, or to anyone with a lot of electronics. If you're going to plan ahead, and these companies now think in terms of decades ahead, you're going to want to predict that cost.

Solar power makes the cost predictable. You buy X number of panels delivering Y amount of megawatts, with a life expectancy of Z. You put that capital cost into a sinking fund, a lease, or a mortgage, and you let time do the rest. Now you know what your costs for electricity are going to be next year, and the year after that, and 10 years down the road.

Whatever the other claimed benefits of fossil fuels, they can't deliver that certainty. This is especially true for California utilities, whose costs (and rates) can vary considerably from place-to-place. A lot depends on the cost of fuel. That may be low today, but it may be higher tomorrow. Whatever the cost, it's not fixed.

So if you can afford to deal with whatever the cost of your lease or mortgage is for solar panels today, and if you have faith in the operator it's a win-win for a utility like Pacific Gas & Electric because they're buying the project, which adds to their capex, and they're guaranteeing a customer account for decades, which assures cash flow.

This is an important point when you're looking at utility "resistance" to solar power. Resistance is less about costs than control. If a utility builds or buys a solar farm, it's getting solar power wholesale and adding to its capex. It can plan for the cost of getting that power to market as well. If you put panels on your roof, on the other hand, it is buying power retail, you are not adding to capex, but you are adding to the utility's costs - it has to manage and may have to store that power.

For solar stocks, it means that "solar parity" - the point at which solar costs fall below those of utility power - isn't necessary to get a deal done. So long as you can see parity on the horizon, with current technology, you can make the deal. You no longer have to assume that your costs are going to drop, merely that their costs are going to rise.

February 11, 2015: finally, environmentalists see the problem solar energy: takes up large tracts of land; single use. CNBC is reporting:

A lineup of significant environmental groups, including the Audubon Society, Defenders of Wildlife and the Sierra Club, say the land that solar power contractor First Solar has purchased for its California Flats solar farm is home to several species of endangered or threatened species of wildlife. Some activists would prefer solar companies would choose "degraded" sites for their projects, rather than an area one activist calls "beautiful, open, largely intact land."

One of the species in question is the federally protected golden eagle.

Talk about disingenuous, dishonest folks: wind farms are killing a lot more golden eagles than any solar farm -- and this particular solar farm is going to be pretty small. I think the only thing the environmentalists are upset about is the fact that this was another "big, bad corporation" building the solar farm (First Solar).

Note: see "Flummoxed" as a separate entry near the bottom of this post.  

Later, exact time unknown (forgot to post), February 10, 2015: It was just announced this afternoon, apparently during Tim Cook's presentation, that Apple is building another 130 MW solar farm to power in central California. Forbes is reporting: 

First Solar said Tuesday it’s signed a 25-year contract with Apple to deliver solar electricity from a yet-to-be-built project in central California.

Apple “has committed $848 million” for 130 megawatts of energy from California Flats Solar Project in southeast Monterey County, said a press release.

The deal is part of Apple’s larger plan to inject more clean energy into the grid in areas it operates. Earlier this month, Apple announced a plan build a solar-powered data center in Mesa, Ariz., and has completed similar projects near its data center in North Carolina.

Apple won’t directly use the electricity from California Flats, but it will get credit, at wholesale rates, from the local utility, Pacific Gas and Electric, for sending that much energy into the grid, said Steve Krum, First Solar’s spokesman. The project is located roughly 150 miles south of Apple’s headquarters.

$848 million / 130 MW = $6.5 million / MW.  Disclaimer: you may want to check my arithmetic. I often make simple arithmetic errors. But the story says $848 million for 130 MW of energy; if that's correct, and if $6.5 million / MW is correct, that's horrendous by anyone's standards. See story below. But again, I could be wrong. Deserve Sunlight is costing not enough twice $848 million and is getting way more than 130 MW.

Original Post

********************************

Desert Sunlight

There's been a lot of press regarding the new solar farm in California, Desert Sunlight. I believe the price tag for this 550-MW solar farm was $1.46 billion though I can't find a source that clearly states what the final cost was. One gets the feeling this was the "posted price" but the final price may come in at a completely different number.

Be that as it may, the mainstream media stories that I've seen on this solar farm do not tell us how much this farm cost/MW nor did they post comparison prices for wind farms and/or natural gas plants.

But they all use the "boilerplate" language that solar energy is coming down in price so fast that it is becoming with "conventionally-produced" electricity -- produced from coal and/or natural gas I assume.

At $1.46 billion and 550 MW one gets about $2.65 million / MW.

How does that compare with other sources of electricity?

From an August 25, 2014, post, this is 30-second sound bite for "cost of renewable megawatt":

• Solar: $3 million / MW
• Wind: $2.5 million / MW
• Natural gas: $865,000 / MW

The Los Angeles Times pretty much makes it clear that these projects would not work without huge tax incentives. Even with tax incentives, it is the mandates that drive the projects.

By the way, this is what makes me wonder about the price for this solar farm. From the linked LA Times story:

First Solar received $1.46 billion from the U.S. Department of Energy, a partial loan guarantee funded by a group of private investors, to finance the project.

".... received $1.46 billion...a partial loan guarantee ... funded by ...."

But there are other obstacles:

[A spokesman] expects the company will explore other forms of solar energy generation that use less land area than the approximately 4,000 acres the PV field requires. Such large energy developments are becoming increasingly challenging amid new federal regulations that seek to minimize both the actual footprint and the environmental impact of power projects.

“The 550(-megawatt projects) probably will be lesser and lesser just simply because of the dynamics of land, but I would see it as an important part of the future of renewable energy,” Antoun said.

One major obstacle for solar development has been the looming expiration of a 30% federal investment tax credit, which is scheduled to fall to 10% at the end of 2016. Jewell said she is committed to urging Congress to continue such benefits, as it has with fossil fuel industries.

And remember, the 160,000 homes served by this solar farm will need a conventional power plant to provide electricity during twilight, dusk, night, dawn, and twilight again.  

Disclaimer: I often make simple arithmetic errors, and I often misread news reports. Sometimes I mis-remember facts and factoids. Do not make any investment, financial, or relationship decisions based on what you read above. If this information is important to you or if you are writing a "term paper" for your college course, go to the source.

****************************

Flummoxed

I normally don't do this, posting something before it's ready for prime time but I am really confused on this one: Apple's announcement regarding a new California solar farm. A reader sent me a one-word e-mail after reading the post on Apple's new central California solar farm: "interesting."

I replied:

I have absolutely nothing against solar per se. I just like to have everything as "transparent" as possible and I don't think folks are getting the full story on costs associated with solar. 

I originally thought Apple was getting into solar to guarantee power to their facilities; solar for their communications center in Mesa, I thought, was to take them off the grid, so they would never have to worry about power outages, brownouts, etc. But with this deal in central California announced today, it makes no sense, except as a a) PR stunt; b) a tax write-off, which I doubt; c) a real concern about global warming; d) an "insurance policy" so that environmental nuts don't go after Apple as being "not green." 

But if the math is correct, Apple is really, really paying a lot for this energy -- which, of course, they can afford. It puts a lot of pressure on other corporations to follow suit, and for investors, to look at some opportunities. 

This is really beyond my pay grade as they say in the military; I don't understand it -- not at this cost and if it isn't going to feed Apple headquarters directly to get them off the grid to insure uninterruptible power.

Because this has me so confused, I am opening up the "comments" section again to see if anyone want to comment. Folks can always e-mail me but I get the feeling some folks prefer not to go that route.

Reader:  I had forgotten -- Agore is on the Apple board of directors. It all makes sense now. It would be interesting to see how his relationship with First Solar, others; shares he owns in these other companies.