A team of 5 MBA students worked on an MBA+ initiative sponsored by Calpine Corp., and developed a sophisticated methodology for forecasting where and how quickly solar installations will take off in California, particularly for smaller rooftop solar projects installed by individual homeowners and small businesses.
Company/Division/Operating Group Description:
Calpine is a Houston-based independent wholesale power company that owns and operates natural gas-fired and geothermal power plants across North America with a focus on competitive power markets in California, Texas, and the Mid-Atlantic. Calpine sells wholesale electricity and related services to utilities, cities, industrial facilities and independent electric system operators and is the country’s largest generator of electricity from natural gas and from geothermal assets. The company is publicly traded under the ticker symbol CPN with market capitalization of $9.6 billion and 2013 revenues of $6.3 billion. Calpine’s Fundamental Analysis group forecasts supply and demand trends for each unique electricity market in the US, supports the company’s hedging and trading activities, and provides in-house analysis of legislative and regulatory trends that affect natural gas and electricity markets.
Business Issue to be Addressed:
Calpine is the largest generator of electricity in California, operating a diverse fleet of plants that includes the Geysers geothermal units, highly efficient gas-fired combined cycle power plants and gas peaking plants capable of together generating 7,500 MW of power. As a major market participant, we are closely following the growth of solar power plants in California and their impact on electricity prices and market dynamics. Some of these impacts have already become apparent in early 2013 with the completion of several large-scale solar projects in the desert, while others are only likely to emerge over the next several years as solar becomes a major source of California’s power generating mix. Calpine’s traders and analysts would like to develop a more sophisticated methodology for forecasting where and how quickly solar installations will take off in California. Information on medium and large solar projects is readily available from state agencies and the electricity grid operator. Smaller rooftop solar projects installed by individual homeowners and small businesses, however, are much harder to track and forecast. The ultimate growth trajectory of this sub-set of solar installations depends on the individual decisions of hundreds of thousands of homeowners, all weighing the cost and expected production of a rooftop solar array against his or her current power bill. Calpine is looking for a team of MBAs to use publicly available data to develop a creative means to infer where in the state rooftop solar will appeal to a critical mass of homeowners.
Specific Scope for this McCombs Project
As a first step, students will use publicly available data to compile a spreadsheet that compares the estimated cost of residential solar to the utility bill for the average homeowner in all 58 counties of California. As a second step, students will be asked to think creatively about how other demographic, economic, and societal variables may affect the growth of rooftop solar, and test these ideas against a historical dataset of installed rooftop solar arrays. The team will use these findings to develop a forecast of residential solar growth and will present their forecast to a group of Calpine executives and traders at the end of the semester.