Apple’s Solar Deal Could Be a Steal

Apple CEO Tim Cook says his company will pay $848 million over 25 years to buy electricity from a large solar power plant to be built in Monterey County, California, by First Solar. The deal not only lets Apple tout its environmental conscience; it also probably makes sound business sense.

Even a few years ago, solar power was generally much more expensive than power from the grid. As prices for solar have plummeted in recent years, however, solar has become cheap enough to compete with grid energy in some situations and some places (see “Hawaii’s Solar Push Strains the Grid”).

Apple will purchase about 45 percent of the power from the 280-megawatt California Flats Power Project. Cook says this will cover the power needs for Apple’s new headquarters in Cupertino, California, and all the company’s existing stores and data centers in California. First Solar expects to start building the plant by mid-year and finish it in 2016. Typically in such agreements the power produced at a plant is fed into the grid, and whoever has bought the power gets to count it against their normal power consumption.

The total cost for the new plant is not being disclosed; nor is how much Apple will pay per kilowatt-hour for electricity from it. But in 2010 electricity from such a plant would have cost around 24 cents per kilowatt-hour, and the U.S. Department of Energy estimates that the cost per watt for solar has dropped more than 50 percent since.

The cost of electricity from the grid varies considerably in California, depending on factors such as peak demand and how much electricity a company requires. According to the U.S. Energy Information Administration, in 2012 the average commercial electricity rate in California was 13.4 cents per kilowatt-hour, although in some cases it was twice as much. So 12 cents per kilowatt-hour would be a good deal.

There are a few other factors to consider. Building a solar farm in Monterey County is likely to be expensive, and First Solar will also need to make a profit. But given the falling cost of solar power, and the fact that conventional electricity rates are likely to go up, Apple seems to have made a smart decision.