What Apple’s PPA With First Solar Could Mean For The Utility-Scale Solar Industry

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On Tuesday, First Solar (NASDAQ: FSLR) announced that Apple (NASDAQ:AAPL) had committed $848 million towards clean energy from the company’s California Flats Solar Project. Apple will receive electricity from 130 megawatts (MW) AC of the solar project under a 25-year power purchase agreement (PPA), in what will be the largest agreement to provide clean energy to a commercial end-user. First Solar is expected to begin construction of the 280 MW project in Monterey County, California sometime in mid-2015. [1] The plant is expected to come online by the end of 2016. To be sure, the contract is not particularly large for First Solar, given that it has signed PPAs of over twice that size with utility companies in the past. However, we believe that the deal could signal that large commercial customers will play an increasing role in the wholesale renewable energy and utility-scale solar markets in the United States, as utility companies have been slowly meeting their mandated renewable power requirements. While First Solar said that this deal is the first wholesale commercial and industrial PPA that it has executed, it notes that it has placed a strategic focus on directly providing large commercial and industrial customers with wholesale electricity through long-term agreements.

Trefis has a $64 price estimate for First Solar, which is about 30% ahead of the current market price.

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Demand Growth For Solar PPAs From Utilities Could Slow

While utility-scale solar continues to be the key driver of the U.S. solar market, accounting for 61% of total installations in Q3 2014, the market could be poised for a slow down. [2] Solar installations and power purchase agreements initiated by utilities in the U.S. have been driven primarily by regulatory requirements. Over half of all U.S. states have renewable energy portfolio standards in place that require utilities to derive a certain percentage of their electricity from renewable sources. However, of late, utilities in the largest solar markets such as California, Arizona and New Mexico have significantly ramped up their renewable capacity, meeting their state mandated requirements and sometimes even exceeding it. Utilities have also been planning for their future requirements. For instance, California’s three largest utility companies have already identified projects to meet their requirement of deriving 33% of solar power from renewables by 2020. [3] Although solar is slowly beginning to make economic sense (in some markets) as capacity prices decline, utility solar demand growth could still decline in the U.S. as regulatory requirements are met.

Growing Demand For Clean Energy From Data Centers

While the demand for commercial and industrial renewable power purchase agreements is likely to be smaller compared to demand from the electric utility market, it should still provide scope for growth for solar project developers. One example is the data center industry, which is one of the largest and fastest growing consumers of electricity in the United States. In 2013, data centers in the U.S. consumed an estimated 91 billion kilowatt-hours of electricity and this number is set to grow to 140 billion kilowatt-hours by 2020, outpacing growth in the broader electricity market. [4] Internet and technology companies that operate large data centers are facing mounting pressure to increase their renewable energy usage, driven by the growth of corporate social responsibility programs as well as potential federal legislation in the U.S. that could impose caps on carbon emissions. [5] Several companies including Amazon, Google and Facebook have a long-term mission to achieve 100% renewable energy usage and Apple claims that its data centers are already 100% powered by renewable energy. [6] Apple says that the energy from the California Flats Solar Project will power its headquarters, along with some retail stores and a data center.

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Notes:
  1. First Solar Press Release []
  2. Solar Market Insight Report 2014 Q3, SEIA []
  3. First Solar Seeking Growth to Replace Giant Desert Plants, Bloomberg, March 2014 []
  4. America’s Data Centers Consuming and Wasting Growing Amounts of Energy, NRDC []
  5. Special Report: Data Centers & Renewable Energy, Data Center Knowledge []
  6. Amazon Cloud Gets a Little Greener with Indiana Wind Farm Deal, Breaking Energy, January 2014 []