Independence Power and Light customers are paying a hefty price for solar energy. I know because I performed the economic evaluations and have been doing such evaluations in the utility industry for over 38 years.
In the July 9 City Council study session, I exposed the truth: IPL’s solar contracts are expected to result in a $15.4 million loss to IPL over 25 years. I should have phrased the statement differently. IPL won’t lose any money because utility ratepayers will pay for these losses.
The City has a very different perspective. They’ve told you solar energy costs 8 cents per unit-of-energy; community solar participants reduce this cost to 6.5 cents; and IPL sells the energy for roughly 14 cents. If you do the math, that’s a profit of 7.5 cents. While one could look at it this way, it’s a typical political smokescreen and it is absolutely the wrong way to evaluate the financial impact of any project decision.
The proper evaluation is to compare IPL’s cost of energy with the solar contracts to the cost of energy without the solar contracts. That’s the only way to know if the addition of solar increased or decreased costs.
With the solar contracts, IPL pays a net cost of 6.5 cents for the solar energy. Without the solar contracts, IPL would be paying 3.3 cents for the same amount of energy. Solar is costing IPL ratepayers 3.2 cents more per unit-of-energy than they could be paying. This increased cost is passed on to ratepayers through the utility’s fuel cost adjustment, which changes monthly depending on IPL’s overall cost of energy.
Additionally, the city indicated that competitive bids were pursued for solar energy. This is true for the 3-megawatt, Phase I solar contract, but not the 8.5-megawatt Phase II addition. Before adding Phase II, IPL staff recommended a new competitive bidding process. Why? Because staff knew that solar pricing had declined and that larger solar farms cost less than smaller solar farms. The council ignored this recommendation and fast-tracked an additional 8.5-megawatt second phase at the original price.
This was a new $30 million commitment. Somehow the council didn’t think a $30 million commitment was worth the time to seek competitive bids. Local voters should remember this at election time.
To make matters worse, IPL staff obtained a competitive bid for an 8.5-megawatt solar project at a cost of 6.5 cents, a 20 percent lower cost. When this was presented to the council, they ignored it.
You were told that the impact on individual monthly bills is small. Again, this is true. Solar energy provides less than 2 percent of IPL’s energy and the cost of energy is only a portion of your total bill. This doesn’t change the fact that, collectively, IPL customers are currently paying an additional $644,000 per year for solar energy.
According to the city, the projected 25-year, $15.4 million loss was based on a snapshot of current prices and did not include events that could increase the market price of alternative energy supplies. That’s not true. The projected loss included forecasts of future price increases.
Finally, the city told you IPL was not losing money on solar. We now know that’s true because IPL customers will be paying the increased cost.
– Randy Hughes is an engineer with 38 years of utility experience, including 20 years as manager of generation planning, which focuses on the economics of alternative electric generating technologies as well as fully understanding environmental issues. He retired from Kansas City Power and Light after 30 years and recently retired from Independence after eight years of service.