Glossary

LMP (Locational Marginal Price): LMP is a pricing mechanism used in electricity markets to determine the cost of electricity at specific locations (called ‘nodes’) within the grid. A node is not a physical structure – it represents a unique location on the grid where electricity is consumed, produced, or transmitted, and LMP is calculated and assigned to each node individually. Nodes are typically located near electrical infrastructure, such as substations.

LMP considers a few factors, including the cost of generating electricity, transmission constraints (ie; bottlenecks or congestion in the transmission infrastructure delivering electricity from one location to another), demand at a particular node, and the availability of renewable energy sources. By calculating LMP at different nodes, the electricity market can reflect the variations in supply and demand across the grid, which is crucial information for energy developers since it helps them make informed decisions about their production strategies.

Higher LMP prices correspond to higher electricity costs, and vice versa. That being said, solar energy companies are more likely to construct solar farms and produce solar energy in locations where LMP prices are high, because this leads to greater revenues.

Power purchase agreements (PPAs): A PPA is a contract between 2 parties – a power producer (ie; a renewable energy developer) and a power purchaser (often an electricity utility or a large energy consumer). The agreement sets out the terms and conditions under which the power producer agrees to sell electricity to the power purchaser over a specified period of time.

PPA’s have been crucial in supporting the growth of renewable energy projects by providing developers with long-term revenue certainty, which is often necessary to secure funding for large-scale projects.

Utility-Scale Solar: Utility-scale solar refers to large-scale solar farms designed to generate electricity for the grid to supply power to utilities or large consumers. On the contrary, community-scale solar refers to smaller-scale solar power facilities that are primarily intended to provide power to local communities or particular user groups. Learn more about community vs. utility-scale solar here.

Inflation Reduction Act, the Solar Investment Tax Credit (ITC): The ITC is a federal tax credit for those who purchase solar energy systems for residential, commercial, or utility-scale properties. The ITC (Solar Investment Tax Credit) increased to 30% as a result of provisions in the Inflation Reduction Act, meaning that these individuals get to subtract 30% of the cost of installing solar heating, electricity generation, and other solar home products from their federal taxes.

Renewable Portfolio Standard (RPS): RPS sets the percentage or quantity of electricity that utilities or electricity suppliers must obtain from renewable energy sources. Utilities or electricity providers are required by an RPS to purchase a specific percentage of the electricity they sell from approved renewable energy sources, such as solar, wind, biomass, geothermal, or hydroelectricity.

Interconnection Queues: When developers and producers want to connect their power projects to the electric grid, they must go through a process known as an interconnection queue, also called a transmission interconnection queue, which is managed and evaluated by grid operators and utilities. It is necessary to link a new power generation project, such as a wind farm or solar farm, to the current electrical grid in order to provide the electricity produced to consumers. The interconnection queue serves as a waiting list or lineup of proposed projects seeking to connect to the grid.

ISO: A non-profit organization known as an ISO, or independent system operator, is in charge of administering, coordinating, and supervising the operation of an electric grid within a particular area or region. The efficient flow of electricity, the maintenance of grid reliability, and the facilitation of an equitable and competitive exchange of electricity among power producers, suppliers, and consumers are all important functions performed by ISOs.

Transmission Line: Transmission lines are high voltage power lines used to move enormous amounts of electricity across long distances from power production plants to substations or significant load centers.

Distribution Lines: Distribution lines are low- to medium-voltage lines that distribute energy from substations to residences, businesses, and other end users in communities.

Regulated and Deregulated Market: In a regulated market, one power company may be in charge of the generation of electricity, the transmission of that energy from the source to the generator, and the distribution of that energy to structures used by consumers (such as residences, workplaces, schools, etc.).

In a deregulated market, although a main utility is still in charge of supplying the power through the transmission and distribution lines, generation in deregulated states is separated from distribution and transmission, and consumers can choose to purchase their electricity from multiple businesses.

Solar Irradiance: Solar irradiance refers to the amount of solar energy (light and heat) received on a given surface area at a specific location. It is a measure of the solar power per unit area and is usually measured in watts per square meter (W/m2). It is a critical factor in determining the solar energy potential of a particular location.

Site Control: Site control is the legal right that a solar developer obtains to use a specific property for installing a solar system. When a solar developer identifies a suitable location for a solar project, they need to secure the necessary permissions to access and use that land.

Option Period: The option period is the 2-6 year term at the start of a lease agreement that grants solar developers the exclusive right to enter into a formal lease agreement. During the time, the solar developer evaluates the parcel’s suitability for solar leasing and obtains the proper permits that would allow them to begin construction. That being said, entering into a solar lease option does not guarantee that the developer will move forward with construction. However, the option period is essential for solar developers to properly assess the feasibility of the proposed project before they invest in construction.

Queued phase: A queued solar project is a solar project that has applied for interconnection to the electrical grid but has not yet been approved to proceed with its connection and start generating electricity.

Planned Project: ISO verifies available grid capacity and confirms that all engineering specifications meet utility standards. When the project passes all the regulatory processes, it is planned for construction.

Building Phase: The construction/ installation of the solar panels and supporting infrastructure begins.

Active Phase: The solar farm is operational and the installed solar panels actively generate electricity for communities and industries.