Rethinking Solar PV Contracts in a World of Increasing Curtailment Risk

Curtailment of solar photovoltaics (PV) could increase significantly as PV composes greater shares of grid capacity. Curtailment risk—the possibility that future curtailment levels exceed projections—poses a challenge to PV project economics. PV industry stakeholders have begun to develop new contract structures that may address curtailment risk more optimally than conventional structures. Using a simplified theoretical framework and modeled results, we analyze PV project economics in the context of increasing curtailment risk under alternative contract structures with fixed and time-of-delivery payments. We show that both alternative structures tend to shift curtailment risk from generators to electricity buyers. Electricity buyers—particularly utilities—may be willing to bear that additional risk in order to reap higher and more diverse project values facilitated by fixed-payment and time-of-delivery contracts. Our results suggest that these alternative structures provide new ways to redistribute curtailment risk in the context of increasing PV curtailment.