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Large scale solar projects can be defined as utility scale starting at MW of capacity. Most large scale systems are ground mounted and utilized to support the power infrastructure and the public grid. They can serve communities, municipalities or businesses looking to offset their energy consumption and carbon emissions. For investors utility sized solar system offers an attractive long term investment with stable returns.
Utility-scale solar power refers to large-scale solar photovoltaic (PV) systems (normally called solar farms or solar parks) that convert solar irradiation into electricity and feed it directly into the public grid. The electricity is then distributed to homes, businesses and public infrastructure to sustain their energy needs. These systems usually range in size from 5 MW to hundreds of MW, and are designed to deliver cost-efficient, reliable and clean energy to communities, municipalities and urban areas, while allowing to meet growing electricity demand.
The main difference between utility-scale and commercial or residential solar goes beyond size. Indeed, utility-scale solar power plants are required to compete in the wholesale power markets. Therefore, they compete with other electricity wholesalers that supply electricity generated from other renewables as well as coal, nuclear or natural gas.
Solar Farms can be distinguished into utility-scale and community. Utility-scale Solar Farms are much bigger and are usually owned by either public institutions or companies. Community Solar Farms are usually smaller and can be co-owned and financed by an entire community made of local households and business through a subscription model.
Large Scale Renwables
The combination of a solar system and a industrial battery can enable communities to be more self sufficient and independent from the public grid. Further, it is possible to include citizens in the financing of utility scale solar projects and therefore, in the power supply for their whole community.
Community Solar Farms generate and sell electricity directly to homes, businesses and public infrastructures within a given community. The power is sent into the grid and only the subscribers – members of the community – draw it from the grid.
The revenue generated from the sale of electricity is distributed among the members of the community who own shares in the project. Additionally, community solar farms allow community members for credits. This refers to the practice of offsetting an individual’s electricity bill by the amount of electricity generated by their share of the community solar farm. Basically, members of the community buy shares in the solar farm and receive credits on their electricity bill for the energy their share generates. The credits are typically applied to the electricity bill at a fixed rate, which is set by the local utility company or electricity supplier. The amount of credit a member receives depends on the size of their share in the solar farm and the amount of electricity generated by the farm. If your credit is worth €100, then you will have a €100 reduction in your electricity bill. In some cases, the credits can exceed the amount of electricity used, resulting in a negative electricity bill.
The Benefits that community solar farms can deliver to the community members are multiple.
Reduction in Electricity Bills without installing rooftop solar PV
Community members can benefit from the decreasing electricity costs brought about by solar PV without the need to install PV systems on their own house. This is especially beneficial for homeowners who do not have space or financial resources to install solar rooftop panels.
Greater Independence from the Public Grid
Producing electricity for a certain quantity by themselves, a community relies less on the public grid, reducing the likelihood of power cuts and shielding its members from energy price volatility.
Positive Effects on the Public Grid
By decreasing electricity demand from the public grid, especially in moments of peak demand, a community solar farm might even be able to bring down utility prices. Additionally, by spreading out power production, it can make the public grid more stable.
Clean and More Reliable source of Electricity
By consuming electricity produced by solar panels, the community relies on a clean and sustainable source of energy, decreasing its dependence on fossil fuels and reducing its carbon emissions.
A Power Purchase Agreement (PPA) is a long-term contract between a solar developer and a utility or commercial entity that purchases the electricity generated by the solar project. PPAs typically involve fixed prices for the electricity generated by the project, which helps to reduce the risks associated with fluctuations in electricity prices. In most cases, the solar developer retains ownership of the solar project and is responsible for its construction, operation, and maintenance. The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices, accounting, and penalties for non-compliance. It is a bilateral agreement taking many forms and being tailored to the specific application.
Merchant PPAs vs Corporate PPAs
PPAs can be distinguished based on the identity of the off-taker. Accordingly, Merchant PPAs involve the solar developer stipulating a contract with a regulated utility provider that purchases the electricity produced and distributes into the grid. Usually, the solar developer retains the ownership of the solar plant. Differently, a private or public institution (be it a company in the financial sector or a pension fund or a government agency) might also decide to commission to a solar developer the construction of a solar power plant and then sign a Merchant PPA with a utility provider.
On the other hand, Corporate PPAs involve a bilateral contract between a solar developer and a consuming company, university or government agency. A Merchant PPA can also be turned into a Corporate PPA if the utility provider decides to continue serving a specific company with the electricity generated by the solar park.
Types of PPAs
PPAs cannot be fully classified with ease due to the wide range of possible contractual agreements. However, the one below can be a sufficient summary.
Advantages of PPAs
PPAs are an advantageous contract that allows financing and stability in the long-term power delivery. In fact, Power Purchase Agreements are becoming increasingly popular, especially in the form of Corporate PPA. Below are some of the reasons.
Reducing Electricity Price Risks & Ensuring Long-term Price Security
A fixed price determined by the contract in the long-term period helps consumers mitigate electricity price volatility and enhance their financial stability.
PPAs allow both parties involved in the contract to manage and mitigate the risks associated with energy production and consumption.
Secure & Stable Investment Opportunities
PPAs return on investments are generally very stable. Utility-scale solar farms themselves have ROI ranging on average between 10% and 20%. They usually repay their costs within five to ten years and secure at least other 30 years of electricity provision. There are general estimates, as there are other factors influencing ROI, such as local weather, cost of installation, size of the system, technology used and others. Nevertheless, utility-scale solar remains a long-term investment with the potential for solid profit with recurring revenue for years to come.
Renewable Energy Adoption
By involving a more cost-efficient, clean and reliable source of electricity like solar PV, PPAs help promote the adoption of renewable energy by providing a stable revenue stream for renewable energy producers and by enabling consumers to meet their sustainability targets.
Energy Cost Savings
PPAs can help businesses and organizations save on their energy costs over the long term by locking in a fixed price for the electricity they consume. Additionally, utility-scale solar is regarded as one of the cheapest form of electricity, and one of the most competitive in Europe.
Local Economic Benefits
PPAs can help support local economic development by creating jobs and revenue streams in the communities where the renewable energy projects are located.
Companies investing in utility-scale solar through Corporate PPAs can anticipate regulations. Indeed, the REPowerEU plan will gradually make it compulsory within 2030 for new and existing public and commercial buildings with useful rooftop area greater than 250 sqm to deploy solar rooftop. A utility-scale solar PV through PPA represents an alternative investment opportunity for a manufacturing facility to avoid upfront costs related to the acquisition and implementation of a large solar rooftop system. Additionally, a company, especially in the manufacturing sector, that powers its operations through solar energy can benefit from an enhancement of its sustainability image. It can develop a sustainable brand to attract and retain more customers. In fact, 85% of respondents from a 2021 global survey indicated to have shifted their purchase behaviour towards sustainability, with more than a third willing to pay extra for it. In addition, 55% of respondents from another global survey considered environmental responsibility crucial when selecting a brand.
Reduction of Carbon Emissions
By powering an enterprise activity, especially manufacturing operations, through a clean and sustainable source of energy like utility-scale solar, it is possible to drastically decrease carbon emissions, thus contributing to a cleaner future.
The GO system works by assigning a unique serial number to each MWh of renewable energy generated. This number is registered in a central registry and can then be bought and sold separately from the electricity itself. The owner of the GO can then use it to demonstrate that they have supported the generation of renewable energy and can be used to show compliance with renewable energy targets.
Benefits of GOs
Promoting the development of renewable energy
Firstly, it promotes the development of renewable energy by creating a market for renewable energy certificates. This encourages investment in renewable energy projects, as the sale of GOs provides an additional revenue stream for renewable energy generators.
Providing a transparent and traceable way to track the origin of renewable energy
Secondly, the GO system provides a transparent and traceable way to track the origin of renewable energy. This is important for companies that want to demonstrate their commitment to sustainability and to meet their renewable energy targets. By using GOs, companies can show that they are supporting renewable energy generation and can use this to promote their sustainability credentials to customers and stakeholders.
Creating a level playing field for renewable energy generators
Finally, the GO system can help to create a level playing field for renewable energy generators. By creating a market for renewable energy certificates, the GO system enables small-scale renewable energy generators to compete with larger, more established generators. This can help to promote diversity and innovation in the renewable energy sector and to support the growth of new renewable energy technologies.
Considering that solar PV will become the largest source of electricity in the world by 2050 and that global electricity demand will increase by at least 80% up to 150%, utility-scale solar will play a pivotal role in meeting this tremendous growth. In Europe, only between 2022 and 2027, solar PV will lead the expansion of cumulative renewable electricity capacity, accounting for more than half of this growth. And utility-scale PV will hold the largest share within the solar sector.
The EU Solar Strategy released in 2022 states that the deployment of utility-scale solar plants will be crucial to replace fossil fuels at the fast pace required to achieve the REPowerEU goals. As a matter of fact, the Europe-wide plan has set the implementation of approximately 600 GW of solar by 2030, cooperating with other clean sources to bring the share of renewable electricity to 69%. And even pessimistic scenarios foresee more than 400 GW of additions by the end of 2026. In 2022, for the first time 10 EU countries installed more than 1 GW of solar in a year. And the number of member states able of such an accomplishment is set to constantly increase in the upcoming four years.
While European governments are developing new policies and enhancing existing ones to support the implementation of residential and commercial PV, they are increasingly creating demand for larger volumes of utility-scale solar via auctions and tenders. Additionally, Corporate PPAs are becoming increasingly popular, as firms seek to meet sustainability targets and reduce their carbon footprint while also avoiding upfront costs for the direct ownership and operation of large solar parks. Finally, accordig to the EU Solar Strategy announced in May 2022, member states will be required by 2025 to set up at least one renewables-based energy community in every municipality with a population higher than 10,000. In this scenario, community solar farms come to play a crucial role.
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