Solar Portfolio Standard Analysis
Submitted to the Arizona Corporation Commission By Pacific Energy Group


On August 6, 1997, the Solar Portfolio Standard Subcommittee requested an independently-derived analysis of the impact of suggested changes to the Arizona Solar Portfolio Standard (SPS){The current rule sets the SPS at one-half of one percent beginning in 1999 and one percent beginning in 2002.}. Pacific Energy Group, under subcontract to NREL, developed a computer spreadsheet tool to analyze costs, MW deployment schedule, and rate impacts of five different options to the current SPS {The spreadsheet tool is available for downloading at}. The following major findings have been abstracted from a more detailed report. 

  • Table 1 provides a summary of the analysis results {Option 4 has substantially higher requirements than all other options because it has a I .5% SPS. All other options have a 1% SPS. Therefore Option 4 has been excluded from the table to avoid skewing the summary results.}. Depending on the SPS option selected, the Base Case ("best guess") results indicate that 250 to 330 MW of new solar capacity will be needed by the year 2010 at a total cost to Energy Service Providers (ESPs) of $450 to $750 million (1998$). This cost range results in a rate increase of about 0.6% to 1.0% or $0.0005/kWh to $0.0008/kWh. The costs and rate impacts are bounded by the Low and High Case which are about 50% lower and 50% higher than the Base Case, respectively. The analysis assumed that Salt River Project is a full participant in the SPS. The total costs and solar capacity needs are reduced by about 40% if SRP does not participate.




Table 1. Results Summary




Solar Capacity by 2010 (MW)


Total Cost, NPV ($million)


Rate Increase (%)


Rate Increase ($/kWh)


Low Case


250 to 330


$250 to $450


0.3% to 0.6%


$0.0002 to $0.0005


Base Case


250 to 330


$450 to $750


0.6% to 1.0%


$0.0005 to $0.0008


High Case


250 to 330


$750 to $1,150


1.0% to 1.7%


$0.0008 to $0.0013



  • Between 11,600 GWh and 12,800 GWh of new solar energy generation and/or credits are needed cumulatively by 2020 for all options, except Option 4 which requires 17,400 GWh.
  • The results indicate there is a strong incentive for ESPs to comply with the SPS rather than pay a credit, or penalty charge, even at the high end of the cost assumptions. Non-compliance costs for most options range between $1.3 and $1.6 billion.
  • Including a double or multiple credit provision as an incentive for in-state economic development and/or longer-term power purchase contracts reduces total costs by about 30% and solar capacity needs by about 20% relative to the current SPS. It also provides ESPs an added incentive to comply with the SPS rather than pay for credits or penalty charges.
  • ESPs can substantially delay and more evenly spread out the costs associated with the SPS by contracting with solar power providers. Contracting for power may also serve to minimize risks to the ESP associated with new plant construction.
  • Rate impacts are substantially lower than expected. Rate impacts (or rate increases), however, are somewhat illusory in the sense that once competition is introduced rates are projected to decline considerably. Rates for certain customers may not be at all impacted by the SPS. Rates for other customers may just not decline as much with the SPS.


To illustrate this point, take the case of a residential customer. The average AZ rate over the next 30 years is estimated at $0.0761/kWh. The SPS requirement increases this $0.0761 /kWh rate to about $0.0768/kWh. This translates to a bill increase of about 70 cents per month for a residential customer with a 12,000 kWh/year demand. This increase, however, may in fact be transparent to the customer. Assume because of competition the customer would have realized a 10% rate reduction with a net bill savings of about $8.45 per month. Now because of the SPS the customer saves $7.75 per month instead. See Table 2.




Table 2. Bill Impact for Residential Customer




Before Competition


After Competition without SPS


After Competition with SPS


Customer Electric Bill Total ($/month)








Customer Electric Bill Savings ($/month)









  • In our opinion, all of the objectives of the Solar Portfolio Standard will be met. This statement must be qualified in part to say that at least three of the objectives may require further attention: "Economic benefit throughout Arizona", "Reach an acceptable cost/benefit point", and "Environmental benefits". In order to address these objectives, the benefits of the SPS to Arizona need to be quantified. The focus so far has been on costs.


Table 3 shows a preliminary estimate of selected economic development and environmental benefits, assuming full implementation of the current SPS. The analysis indicates that these benefits may indeed be substantial with some 600 jobs created and $450 million in wages, salaries, state income taxes, and avoided environmental externalities. These results are intended to begin to address the open questions regarding benefits-oriented objectives.


The results are preliminary, however, and a detailed input-output analysis that quantifies direct, indirect, and induced effects is suggested. Other studies provide some insight to these detailed analyses, including a macroeconomic study of the Wisconsin economy: "The results show that renewable energy investments produce over three times more jobs, income, and economic activity than the same amount of electricity generated from coal and natural gas power plants" {Clemmer, S., and D. Wichert, The Economic Impacts of Renewable Energy Use in Wisconsin, Wisconsin Department of Administration, Energy Bureau, April, 1994.}.




Table 3. Preliminary estimate of selected SPS benefits to Arizona








Jobs Created by 2010


600 jobs


From operating solar plants, 20 MW/yr. local manufacturing and ancillary services. Indirect and induced effects are not included.


Wage, salary, and state income tax revenue (1998-2020)


$200 million


$400 million in nominal$. Does not include other direct, indirect, and induced effects normally considered in a full input-output model used in economic development analysis. These multipliers are considerable.


Global warming CO 2 emissions avoided by 2020


12 million tons, $120 million


At $13/ton this equates to $120 million in 1998$.


Acid rain SOx emissions avoided by 2020


32 thousand tons, $85 million


At $2.03/lb this equates to $85 million in 1998$.


SMOG NOx emissions avoided by 2020


38 thousand tons, $40 million


At $0.82/lb this equates to $40 million in 1998$.

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