The combination of low-cost solar farms and lithium-ion batteries has produced a dynamic new hybrid resource capable of providing energy from the sun after dark and potentially reshaping America's power mix in the 2020s. The spread of these hybrid facilities has been fueled largely by plummeting solar-plus-storage prices, which have begun undercutting conventional fossil-fueled generation in some regions.

In recent months, though, those prices have stabilized, and in some cases reversed course, according to an S&P Global Market Intelligence review of state regulatory filings, independent analysis and interviews with parties on both sides of power purchase agreements, or PPAs.

Levelized energy prices have dipped into the range of $30/MWh to $40/MWh, in nominal dollars, for many projects scheduled to come online in the next few years. Adjusted for inflation over the estimated 30-year lives of the projects, those contracts are in the $20/MWh to $30/MWh range, according to a recent report from Lawrence Berkeley National Laboratory, or LBNL.

Just a few years ago, solar-plus-storage prices were more than triple today's going rates. The subsequent price drop sparked a contracting surge centered in the West. Buyers include Arizona Public Service Co., Glendale Water & Power, Google LLC, the Los Angeles Department of Water and Power, NV Energy Inc. Portland General Electric Co., Salt River Project, Xcel Energy Inc., and numerous community choice aggregators, or CCAs, in California, along with several utilities in Hawaii.

Fast-falling prices, however, are leveling off, highlighting uncertainties surrounding the future rollout of these hybrid assets.

"The pricing is stabilizing," said Marie Fontenot, senior director of power procurement for East Bay Community Energy, a CCA in the San Francisco Bay area that approved two battery-backed photovoltaic, or PV, contracts last September.

"I think it will still be a declining slope, but not at the trajectory we have seen," added Frank DeRosa, a senior adviser at 8minute Solar Energy LLC, which is developing several big battery-backed PV plants. U.S. tariffs on imported solar panels are "overwhelming cost reduction," he said, while growing battery sizes and fading federal tax incentives for solar and solar-charged batteries are adding pressure.

Upsizing storage

Three PPAs approved in December 2019 between NV Energy and affiliates of 8minute Solar Energy, EDF Renewables Inc. and Quinbrook Infrastructure Partners Pty Ltd illustrate the trend toward larger storage systems and flatter prices.

The all-in levelized prices range from roughly $33/MWh to $38/MWh, filings with the Public Utilities Commission of Nevada show. One year earlier, Nevada regulators approved three PV-plus-storage PPAs for the Berkshire Hathaway Energy utility at slightly lower prices, ranging from roughly $31/MWh to $37/MWh.

The most recent deals feature much bigger batteries. The $1 billion Gemini Solar + Battery Storage Project, for instance, which Quinbrook is co-developing with Arevia Power, will couple a 690-MW PV complex with 380 MW/1,416 MWh of storage. 8minute Solar Energy's Southern Bighorn Solar & Storage Center is a 300-MW PV project with 135 MW/540 MWh of storage. EDF's Arrow Canyon Solar Project pairs 200 MW of solar with 75 MW/375 MWh of storage.

NV Energy's three earlier deals included batteries sized at 25 MW to 50 MW.

Measured in real dollars, adjusted for inflation, NV Energy's six 25-year contracts, with start dates between 2021 and 2023, range from $22/MWh to $26/MWh, according to LBNL.

Pricing certainties, uncertainties

Based on its analysis of 23 PV-battery contracts, many deals "do not seem to be priced at much of a premium" compared with solar-only PPAs, LBNL said in its report.

Projects with batteries sized at roughly 25% of PV capacity carry a storage adder of about $4/MWh, national laboratory analysts estimated. Battery systems sized at 50% and 75% of the PV capacity add roughly $10/MWh and $15/MWh, respectively, LBNL said.

In Hawaii, Kauai Island Utility Co-op and utility subsidiaries of Hawaiian Electric Industries Inc. have amassed a large portfolio of projects with batteries sized equal to the solar generation capacity of the system. Those PPAs are priced significantly higher than their counterparts in the western U.S., but still well below the cost of fossil-fuel generation on the islands. Hawaii's higher prices could also relate to the added value of such projects in the remote location, LBNL said.

How future solar-plus-storage prices develop in coming years will depend largely on whether tariffs on imported solar panels are extended and whether federal tax incentives remain on track to fall to 10% of utility-scale project cost by 2022, from 30% in 2019.

With the full 30% tax credit, solar-plus-storage PPAs in the $30s/MWh have a distinct price advantage over new gas, coal and nuclear generation, based on Lazard Ltd.'s most recent levelized cost of energy estimates, released in November 2019. Some battery-backed PV projects are even competitive with the marginal cost of existing conventional generators.

But on an unsubsidized basis, that advantage narrows or evaporates entirely. Without incentives, a 50-MW PV system with four hours of storage ranges from $102/MWh to $139/MWh, Lazard estimated. That compares with combined-cycle gas at $44/MWh to $68/MWh and gas peakers at $150/MWh to $199/MWh, according to the analysis.

LBNL expects solar, despite recent record low contract prices, to face "stiff competition" from both wind and gas in coming years. But as forecast horizons expand, "it becomes increasingly difficult to forecast fuel costs with any accuracy," the analysts said.