The global push for renewable energy is gaining momentum. State governments and ISOs are increasingly setting ambitious renewable energy goals to meet net-zero commitments, attracting significant capital investment. As a result, project developers are seeking ways to participate in this growing sector. However, siting a renewable energy project is a complex process with economic, environmental and market factors to consider. This guide aims to help developers navigate the stages of the siting process from establishing initial screening criteria to evaluating favorable markets and designing a plant’s layout.
The drive for renewable energy is accelerating. According to the International Energy Agency (IEA), the world’s renewable energy capacity jumped an astounding 45% in 2020 as part of an “unprecedented boom” in wind and solar energy. Renewable energy sources are expected to account for 90% of the total global power capacity increase in 20221. We expect state governments and ISOs to set higher renewable energy goals over the next few years to meet net-zero commitments. With the trend of renewable energy projected to jump to 60% higher than 2020 levels, investors are reallocating more capital to renewable energy projects. Project developers have taken notice of the shift in capital allocation and are working on determining how they can participate in this influx of capital and find land ideal for renewable energy projects.
Siting a renewable energy project is complex, involving multiple economic, environmental and market factors. Traditionally, project siting required developers to pull from multiple sources with varying levels of data integrity. Approval to build a renewable plant is a multi-phase process, with each study potentially costing hundreds of thousands of dollars. But given that upwards of 80% of projects are suspended or withdrawn from the interconnection queue, simplifying the siting process is essential. With solid criteria, tools and data, developers can uncover parcels with potential for renewable project development within minutes, saving time and money.
This guide is designed to help you learn the stages of the renewable siting process and how to establish initial screening criteria. We’ll show you how to filter areas by favorable markets, economic considerations and parcel attributes. Lastly, we will show you the plant design considerations that need to be made to determine if the site is suitable for renewable plant development.
Setting initial screening criteria is the first step to finding a project site. This criteria will help guide a project developer through the siting process and help them determine what types of projects are appropriate for the site. Depending on how strict the criteria are, up to 90% of project opportunities could be filtered out. Below are some standard screening criteria a developer might set prior to project siting.
Project Size
A developer needs to set the size of the project they are comfortable developing. The developer should look at their own capabilities to understand if they can reasonably take on a project. Does the developer have the staff to plan and develop a 500 MW project? Will the supply chain be able to produce the necessary equipment in a reasonable time? How quickly does the developer want to complete this project? Does the developer have access to funding to support a project of this size? Choosing a project size will help the developer understand the resources required and narrow down their supplier list.
Preferred Regions
Whether it is proximity, comfortability or friendliness of the policy, developers have preferred regions. But a preferred region or state may not have the best economics for renewable project development. Laws and incentives change frequently in the renewable energy industry, and it may be worthwhile to examine the economics of other regions, which could be more favorable and warrant further exploration. For example, PJM has a moratorium on solar as of 2022, prohibiting any development in its area until it evaluates the benefits of solar.
Expected Return on Investment (ROI)
To secure funding for a project, developers need a strong grasp of their costs and expected revenue to present to potential investors (or a really good story!). Investors will want to see ROI – how much they can expect back for what they lend out. With renewable innovation and advancements in renewable technologies driving project costs down, being up to date on the latest costs and tax incentives can help make the difference in whether a developer’s project is funded. Having a targeted ROI can help give a guideline for the project developers consider different states or suppliers for their renewable project development.
Other Screening Criteria
Project developers may use more screening criteria, with some criteria being specific to just that one developer. It is up to the developer to establish criteria to determine which projects are suitable for undertaking. For example, benchmarking operating and planned project returns may help certain developers with their siting decisions.
Once a developer has captured their initial screening criteria, the next step is to narrow down the locations to focus on. One way to do this is to focus on the favorable markets for renewables. This focus will uncover prime areas for renewable plant development. There are several ways to think about favorable markets for renewable projects.
State’s Renewable Power Goals
Many states will share their targets for renewable energy for upcoming years. Developers can use this information to understand the expected demand for renewable energy in the coming years and plan accordingly. Additionally, integrated resource plans (IRPs) are a place to track down siting opportunities based on the long-term resource plans of different regions/utilities.
Interconnection Queue
To further understand the demand, a developer needs to evaluate the interconnection queue. The interconnection queue is a list of transmission and generation projects that are currently proposed and seeking to join the grid. The queue reveals information such as the company involved, the electric capacity the project is expected to bring to the grid, the expected timeline for the project to come online, and the status of each project. It also includes information on suspended projects. The interconnection queue provides with valuable insight into areas that are overcrowded with companies competing to build renewable plants and uncovers underserved areas that may be prime for renewable plant development.
Decommissioned Power Plants
Developers need to look at a power plant’s decommission dates. The supply of power in the area will be reduced after a plant is decommissioned and another power generator will need to pick up the loss of power production (assuming there is also no loss of power demand in the area). Decommissioned plants will also affect the price of power, known as locational marginal price (LMP), at nearby nodes.
Solar or Wind Capacity Factor
If a developer is planning to build a solar or wind plant, they will need to understand if the area gets enough sun or wind to generate electricity! Solar or wind capacity factor will help determine how much sun or wind has historically been recorded in the area. With higher solar or wind availability, more electricity can be generated. Ideally, developers want their renewable plants in areas that will see significant sun or wind availability, but those might also be competitive areas, resulting in lower chances of project approval or lower electricity prices. Areas that may not have the highest solar or wind capacity factor, but have less competition, higher chances of project approval and higher price of electricity are still worthy of consideration.
Tax Incentives
Currently, federal and state tax incentives contribute significantly to a renewable project’s ROI. Some states may have more favorable tax incentives for renewable developers than others, but states with more favorable tax incentives will have more competition and a lower chance of project approval.
Other Screening Criteria
Developers will have other locational conditions that they may find favorable such as economic opportunity zones or designated energy communities. These will all have to be taken into consideration based on the goals and objectives of each project the developer is looking to build.
At this point, the developer has filtered down to a smaller list of areas that warrant further due diligence. The next step is to evaluate the economics of projects in the narrowed-down area. This step is critical to understanding if a project will achieve or exceed the developer’s targeted ROI. Below are some relevant economic data and analytics developers can evaluate in existing renewable power plants to help benchmark the financials behind the developer’s renewable project.
Renewable Plant Costs
A developer can start understanding the economics of renewable plants by looking at similarly built plants. Developers can find recently built, similarly sized plants that use the same renewable technology in the target area to get an estimate of what their project costs will look like. Some of the economic numbers to evaluate are levelized cost of energy (LCOE) 2 , total installed costs, variable operating and maintenance costs, and capex per megawatt 3 . There are public resources providing some of these economic data points. If the public data is for a general area or state, developers will need to make reasonable assumptions to estimate the economics for the plant of interest, factoring in plant size, the technology used, the date built, material costs and labor costs. For the sake of this guide’s readability, we use PRISM Foundations Power and Renewables | NAV & Economics Analytics to present the cost data and analytics.
Reviewing the economics of similarly built plants will also help the developer benchmark their supply chain and development costs to understand if their project’s costs are in line with the industry.
2. LCOE is the average net present cost of electricity generation for a generating plant over its lifetime and can also be considered the breakeven electricity price.
3. Capex per megawatt is the cost to build a plant in relation to megawatt output; it can also be considered as the breakeven electricity price.
Price of Power
Developers ultimately want to know how much they can make from the power generated from their renewable plants! Two parameters developers want to evaluate are locational marginal pricing and solar or wind weighted prices. Depending on the arbitrage opportunities given the solar and wind weighted prices vs all hours pricing, a developer may also consider developing batteries co-located with their renewable plants.
Understanding LMP is critical in determining what a renewable plant can sell its power for once it is connected to the grid. An area with consistently lower LMP may be less desirable to develop a renewable plant, particularly in situations where the power purchase agreement (PPA) doesn’t cover the useful life of the plant. In addition, new plants coming online in an area could drive LMP lower, impacting the project’s ROI negatively. On the flip side, if plants are being decommissioned in the area, LMP may become higher, positively impacting the project’s ROI. In addition, LMP data can give guidance to developers in setting prices for PPAs.
Solar and wind weighted prices are the LMP during times when solar and wind generate electricity for the grid. Understanding the solar and wind weighted prices will give the developer a better estimate of the price they can sell electricity to the grid when it is being generated by the developer’s solar and wind plants. This price can be significantly different than the average all hours pricing.
If LMP is significantly higher during parts of the day when solar and wind power are not being generated, a developer may consider using batteries. Batteries can store electricity when LMP is lower and bring the electricity to the grid when LMP is higher.
With favorable markets and economic considerations narrowing down areas of interest, a developer can evaluate characteristics of the land to find the most suitable parcel for renewable plant development.
Exclusion Layers
There are areas that are not suitable for renewable plant development. Developers should exclude parcels that include waterways, protected areas, existing infrastructure, pipelines (both above and below ground), or are in proximity to towns and floodplains from their search for suitable land development. In addition, solar and wind have ideal levels of slope to maximize the power produced. Adding all the exclusion layers will give you a map of the ideal places for solar or wind plant development.
Proximity to Infrastructure
If possible, a developer should identify the right size parcel(s) as close to transmission lines as possible. The closer a plant is developed to a transmission line, the lower the interconnection costs will be to bring power to the grid. Developers can exclude parcels that exceed a certain radius from a transmission line.
Who Owns the Land?
Once all the exclusion layers have been determined, the developer will be left with suitable land for renewable plant development. The next step is to identify the parcel owners of the suitable land and to reach out to the owners about developing on their land. In most cases, the parcel owners can be found in public sources.
Once you’ve found a suitable location for your renewable power plant, the next step involves planning the design of the plant, assessing its potential power generation capacity on the site and evaluating its profitability as a business venture.
Selecting equipment
The process of equipment selection plays a pivotal role in ensuring the utmost efficiency and productivity of the power plant. This critical step involves a comprehensive evaluation of various components to harness maximum energy capture and optimize overall performance. When planning the implementation of a solar PV plant, meticulous attention to detail is required in selecting the right equipment.
Solar photovoltaic (PV) systems are a prime example. To establish a successful solar PV plant, a well-informed decision-making process is necessary when choosing components such as PV modules, inverters and supporting racking systems. Here’s an overview of the key considerations:
Capacity planning and civil aspects
Once the equipment has been selected, it is time to set a capacity target for the renewable power plant. Consider such factors as local energy demand, available resources in the area and future scalability. Additionally, consider civil aspects, such as designing roads and access points, determining distances and setbacks, and choosing the optimal orientation for the layout. Proper planning of these elements will maximize the renewable plant’s capacity and facilitate smooth operations and maintenance for the plant.
Local energy demand and resource assessment: Account for the energy demands within the region, considering residential, commercial and industrial needs. Equally important is an evaluation of the available renewable resources – whether it’s the consistent gusts of wind or the abundant sunshine. Balancing these elements ensures that the plant’s capacity aligns with the needs and energy potential of the area.
Scalability and future growth: Design the plant’s capacity with consideration for accommodating increased demand, evolving technologies and the ever-growing appetite for sustainable energy solutions. This forward-thinking approach positions the plant as a dynamic contributor to the ongoing energy landscape.
Integrating civil aspects: Consider road design, access points, distance calculations and setbacks when designing the renewable plant. Thoughtful civil planning ensures harmonious integration into the surrounding area. Selecting optimal orientations and layouts contributes to enhanced energy capture while facilitating streamlined operations and maintenance.
Determine grid connection and electrical configuration
Determining how the power will be connected to the grid is important to ensure smooth energy transmission to the grid. Define the interconnection facility required, consider grid connection requirements (including power factor considerations), carefully plan the cabling configuration, taking into account distance, voltage and load capacities.
Energy output projection and financial analysis
With the power generation, design and equipment determined, it is time to assess the expected energy output of the renewable power plant and build a projection of the project’s energy production over time. It takes significant engineering resources to be able to assess this, but commercially available software for PV plant design are readily available in the marketplace to provide these projections quickly.
Conducting a financial analysis is equally important. Assess the costs associated with constructing and operating of the plant based on the plant design. Determine the price the plant’s electricity can be sold to the grid based on historic and recent LMP data and grid activity in the area.
Evaluate and decide
By now, a comprehensive understanding of the renewable power plant’s potential in terms of both energy output and financial viability has been made. Evaluate the results to assess whether the project aligns with the goals and requirements of the project. If the project proves feasible, proceed with further due diligence, including environmental assessments, permits and interconnection agreements with the grid operation.
With the right data and analytics, developers can narrow down the best parcels of land for renewable solar or wind development within a couple of minutes. At a time when there is a lot of capital chasing renewable projects, it is key to have an edge. The Enverus Power & Renewables platform offers that edge.
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