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101-SPPA Staff report 11-1-10.pdf OFFICE OF THE CITY MANAGER CITY HALL 10 10300 TORRE AVENUE • CUPERTINO, CA 95014-3255 TELEPHONE: (408) 777-3212 www.cupertino.org CITY COUNCIL STAFF REPORT Meeting: November 1, 2010 Subject Report on the status of the Solar Power Purchase Agreement (SPPA) project. Recommended Action Receive report and provide direction to staff. Description The SPPA will allow the construction and purchase of renewable energy from carport photovoltaic arrays at City Hall, Corporation Yard, and the Quinlan Community Center. A Solar Power Purchase Agreement (SPPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system and a host customer agrees to site the system on its roof or elsewhere on its property (i.e. carport structure) and purchases the system’s electric output from the solar services provider for a predetermined price and period. Power purchase agreements address many of the traditional barriers to adoption for organizations looking to install solar systems including high up-front capital costs, system performance risk and complex design and permitting processes. Challenges of Siting Renewables One of the major barriers for local governments in purchasing renewable energy systems is the high upfront costs involved. Although purchasing a renewable energy system outright is generally considered to be the most cost effective strategy in the long-term, the high up front capital costs are often prohibitive. An alternative method of financing has been sought in order to utilize renewable energy and thereby decrease energy costs. In the past five years, the financial sector and renewable energy providers have developed innovative third party ownership financing structures, such as Power Purchase Agreements, to take advantage of the tax incentives available to the private sector. However, these financing structures require significant legal, procurement, property management, and engineering expertise to execute and therefore have high transaction costs that have presented a barrier to local governments. The Opportunity of Regional Aggregation In order to reduce the transaction costs associated with Power Purchase Agreements and to support the diffusion of renewable energy generation, the members of the Joint Venture Climate Protection Task Force created a regional collaborative procurement, lead by Santa Clara County. By leveraging the contractual resource investment of the lead agency and creating a procurement pool, all participating agencies have benefitted by reducing or eliminating the barriers to adoption of renewable power. In 2007, a collaboration of Joint Venture Silicon Valley, the Association of Bay Area Governments (ABAG), and Santa Clara County initiated a program to create a regional Renewable Power Purchase agreement (RPPA) with the specific intent of enabling an affordable group purchase of renewable energy. The Department of Energy (DOE) was to later join this effort. A RPPA is one model which provides an opportunity to break down both the upfront capital barriers to direct ownership and the transaction costs associated with third party financing and move our community and organization forward in renewable energy usage. Additionally, by creating a regional PPA rather than individual PPAs for each city, the costs of developing the agreement are reduced significantly for all parties involved. This method not only conserves funds, but also accelerates the financing process and deployment of renewable energy technologies, promotes energy and tax-dollar savings, and supports local economic development. Since the summer of 2008, the collaborative has researched solar power purchase agreement issuances, and developed RFQ and RFP documents. The overall objective of this effort has been multifaceted; to reduce transaction costs associated with development and negotiation of RPPA contracts, to obtain favorable pricing and terms through a large scale regional aggregate purchase, to rapidly diffuse solar and other renewable technologies, and to enable participation in RPPA contracts for small governmental entities that would otherwise be unable to participate in RPPA financing structures due to the size of project sites. Over 22 jurisdictions in Santa Clara and San Mateo County expressed an interest in “piggybacking” on the RPPA effort. On February 2, 2010, Cupertino’s Council authorized a Memorandum of Understanding for Cooperative Purchasing of Power with the County of Santa Clara, allowing Cupertino’s participation in a County solicitation, a Request for Proposals for a th Regional Renewable Power Purchase Agreement (RFP# RRPPA-001-310) issued March 29, 2010. The first Request for Proposals (RFP) issuance included nine participating public agencies, including the cities of Cupertino, Los Gatos, Milpitas, Morgan Hill, Mountain View, and Pacifica, along with the County of Santa Clara, the Valley Transit Authority, and the South Bayside Waste Management Authority. The initial RFP was to procure a 4MW of renewable power through power purchase agreements. DOE, Optony (an independent solar consulting firm) and Joint Venture Silicon Valley assisted the County of Santa Clara, in assembling an evaluation panel consisting of members of the collaborative. The panel reviewed bid proposals from nine vendors several of which submitted proposals for more than one bid bundle (grouping of sites for procurement purposes). This process officially closed on September 8, with the selection of qualified firms for five bundled project types: large (>650kW/site), medium (160kW – 650kW/site), small (<160kW/site), small rooftop installations (<220kW/site), and other systems (solar thermal PV, fuel cell, micro-wind turbine). Cupertino sites included in this RFP were all for solar canopy/carport parking installations at City Hall, Quinlan Community Center and the Corporation Yard. Prior to participating in the RFP, Cupertino worked with City staff, Siemens, and Critigen to evaluate the solar potential of these sites. A summary of findings are as follows: Facility Annual kWh Generated Average Annual kWh % Met by System by PV System Used at Site City Hall 475,005 524,650 91% Quinlan 140,564 495,595 28% Community Center Corporation Yard 450,503 143,595 314% Renewable Energy Financing Options This pilot project considered several available financing structures for renewable energy systems. Three types of financing are common: owned, leased or Power Purchase Agreement. Each financing structure has advantages and disadvantages: 1.City-Owned - The City would own the solar power generation system. Advantages include eligibility for incentive funds and ownership of tradable emission credits. Disadvantages include significant up front capital costs, annual maintenance expenses for approximately 20 years, and the replacement of inverters between years 10 and 13. Owned systems are generally considered appropriate for sites where security and access are restricted. 2.Lease-to-buy - Advantages include no up-front capital expenses, and long-term leases that allow amortization of costs with the potential for ownership. There is a growing market of lenders and brokers interested in leasing solar installations. 3.Solar Power Purchase Agreements (SPPA) - This option creates a long term agreement for the purchase of power generated from the solar installation. Typically SPPA's have 20 year terms with prices determined through negotiations. In the past several years, local governments throughout California have funded renewable energy projects through lease to purchase, and Solar Power Purchase Agreements (SPPA). These types of financing structures provide the opportunity to obtain solar power without the up-front capital investment as the power generation system is designed and installed by a third party provider and financed through a third party financier. The governmental entity benefits from capped or slowed growth in electricity rates, as the normal utility bill is paid to the financier through terms established in the SPPA. In California, at least ten jurisdictions have issued SPPA’s in the past two years. These issuances include the California Department of General Services, City of Fresno, San Francisco Public Utilities Commission, County of Solana, County of San Diego, and County of Ventura, among others. Project staff reviewed all ten SPPA issuances to compare terms and conditions. The SPPA currently being negotiated is working to include a lease-to-buy option. Project Steps and Status 1.Issue Request for Information - COMPLETE The purpose of the RFI was to test the assumptions and information gathered to date on different financing mechanisms and procurement approaches. The RFI required vendors to show their experience with what financing mechanisms, the extent of that experience, possible terms that the County could expect, how the market would respond to bundled projects, whether additional sites should be considered and whether collaborative procurement at scale would deliver significantly reduced power purchase prices. Nineteen vendors responded to the RFI. Most firms have experience with a variety of financing methods. Installed price per kwH power varies as a reflection of the cost of capital, the Federal tax incentive for private sector investment and state solar incentives, and economies of scale in supply and financing. The attached RFI Summary Graphs provide general information from the responses to the RFI. Preliminary observations provided by the County include: Most respondents indicated that their firm had been in business between 2 and 5 years -The significance of this finding is that traditional municipal government procurement criteria require extensive years of experience. Doing so in the renewable energy market would preclude most firms from competition. Most respondents are specialized in either solar ground-mount or rooftop systems. A few firms offer expertise in two or more technology areas, but they tended to be large vendors. The majority of respondents indicated that the installed cost of power for systems in general was below $0.19 per kwH. Many firms in lower cost ranges were newer market entrants. Most respondents indicated that economies of scale exist in collaborative procurement, and that these are quantifiable around 5% for bundled project packages of 10 MW, 15 % for packages of 20 MW, and 20% for packages of 50 MW. These discounts are incorporated to be compared to the cost per kwH of PG&E rates over the 20 year term of power purchase agreements. 2.City Signs Memorandum of Understanding – COMPLETE In order to obtain commitments, County staff requested a Memorandum of Understanding (MOU) from all jurisdictions. The MOUs were due to the County on February 5, 2010. Staff th held a mandatory meeting with City attorneys and staff on December 4, 2009 to review PPA document terms, the RFP process and other issues. At this meeting 12 jurisdictions indicated that they wanted to participate in the first RFP issuance. These include; VTA, Morgan Hill, Mountain View, Cupertino, Sunnyvale, Los Gatos, Milpitas, County of San Mateo, Pacifica, Burlingame, Foster City and the Silicon Valley Waste Management Authority.. The MOU was finalized th through the review of the Board of Supervisors on February 9. 3.Conduct Detailed Solar Site Survey - COMPLETE Per Section 2.C. of the aforementioned Memorandum of Understanding, to participate in the bundled PPA project, cities were required to submit proposed real property sites that may accommodate renewable energy installations (individually, a “Site Survey”, and collectively the “Site Surveys”) prepared by a licensed engineer in a uniform, industry standard format. To achieve this requirement, the city joined neighboring jurisdictions to work with CH2M Hill (now Critigen, LLC) to conduct solar site surveys by piggyback upon the competitively bid contract won by the company to analyze Santa Clara County-owned assets. The survey was solar site analysis and electrical and structural analysis. The city completed this process with three sites and abutting parking lots, Community Hall, Quinlan Community Center and the Corporation Yard. Work concluded in June and the results of the study are included in Comment \[EC1\]: EC to add. Attachment A. 4.Issue Request for Proposal (RFP) for Power Purchase Agreements COMPLETE The Request for Proposals to procure an initial 4MW of renewable power for county sites th through power purchase agreements was issued on March 29 through BidSync. This th Solicitation was managed in two steps: Step 1 – Pre-Qualification due by 3PM on May 7, 2010 and Step 2 – Final Selection for Renewable Power Generating (RPG) Systems Bundles due by 3PM on June 29, 2010. 5.Evaluate Vendor Proposals COMPLETE The proposals for seven qualified firms were reviewed between the RFP deadline by the project’s leadership team which included the following members: Siva Darbhamulla, Chief of Design Services, County of Santa Clara Ben Foster, Vice President, Optony Caroline Judy, Assistant Director, Government Support Services, County of Alameda Jerry Lahr, Power Program Manager, Association of Bay Area Governments Kara Gross, Vice President, Joint Venture: Silicon Valley Network Rachel Massaro, Associate Director of Climate Initiatives, Joint Venture: Silicon Valley Network Steve Mitra, County Counsel, County of Santa Clara Lin Ortega, Utilities Engineer/Program Manager, County of Santa Clara Chris Schroeder, Purchasing Agent, City of Milpitas , Energy Program Manager, City of San Jose Mary Tucker The RFP evaluation criteria is provided on pages 27 – 29 in the RFP document, but focus primarily within four categories: firm and team qualifications, relevant project experience, technical expertise and proposed system cost. Using these factors, the Evaluation Committee determined the responsiveness and best value quality of the proposal. Using this criteria the following firms were selected for the following bundles: Large – >650kW/site Medium – 160kW – 650kW/site Small – <160kW/site Small Rooftop – <220kW/site Other - solar thermal PV, fuel cell, micro-wind turbine Relevant to Cupertino, the evaluation team selected Borrego Solar Systems, Inc. ) to contract with cities to site medium sized bundles and Ecoplexus (www.borregosolar.com ) to develop the City’s small sites. (www.ecoplexus.com 6.Negotiate Final Contract Initiated: November 2010 Over the course of the month of October, legal and environmental representatives from each participating agency have participated in a series of joint contract negotiations with SPPA vendors. The coordinating committee convened this process to save both staff time and leverage the collective bargaining power of representative public agencies. Staff met in advance of initiating the vendor negotiation to discuss each agency’s key contracting requirements and establish a strategy to ensure all parties achieved mutually beneficial joint outcomes from the process. Vendor negotiations are scheduled to continue through November 10. 7.Prepare for and Complete Construction Anticipated: December 2010 – December 2011 The consulting firm, Optony, which has been assisting the County and partner agencies in the solar renewable energy procurement project to date, will be retained throughout the design, engineering and construction phases of the project. In this role, Optony will ensure that the renewable energy system is (1) optimized through the review of system drawings and plans, is (2) constructed using the same components required through the contract, (3) meets industry standards for installation and production, and is (4) properly maintained to achieve all applicable warrantees. In partnership with staff, Optony will also work with Pacific Gas and Electric to develop an interconnection plan and verify that all California Solar Initiative (CSI) milestones are being met with rebates and deposits transferred back to the City. Furthermore, supporting staff will work with the vendor to ensure that parking lot closures are minimized during the construction phase and that vendor strictly adheres to the arborist’s tree mitigation plan and procedures. 8.Monitor and report on system production ONGOING The RFP clearly states that the firm must also provide for real-time monitoring and verification of power generated at each site listed during commercial operation. To achieve this requirement, the SPPA builds in a series of activities including the installation and maintenance of a meter at the delivery point and a monitoring system for each generating facility. Meters and all metering activities are to be provided, installed, owned and maintained, programmed and operated at the vendor’s expense and in compliance with of all applicable Transmission Provider Tariffs and the Buyer-PG&E Interconnection Agreement. The aforementioned monitoring system may be provided as a web-based tool or interface to view, collect and store data, in real time, including the energy delivered, greenhouse gas emissions reduced, AC efficiency, peak DC efficiency and total percent of energy used from the system. Roles and Responsibilities A summary of the PPA participants’ roles and responsibilities are outlined below: 1.City of Cupertino: Host Site Agency (Site Owner) Nominate and approve Renewable Power Generating (RPG) sites. Review site-specific proposals, including technical description, qualifications, installation plans, and power prices. Make final acceptance decision on proposed prices. Agree to and make power payments per the terms of the PPA. Execute Site Lease Agreement(s). Execute Power Purchase Agreement(s). rd Review and approve tasks conducted by 3 party relating to each Renewable Power Generation (RPG) System’s due diligence, environmental, design and construction plans and implementation. Facilitate and support the installation of the Renewable Power Generation System. 2.County of Santa Clara: Lead Agency Prepare the RFP, Power Purchase Agreement and Lease Agreement templates. Manage the RFP solicitation Lead the RFP response review process and participate in proposal review panels. Assist Agencies with compilation and posting of site-specific information. Provide program support and assistance. 3.Borrego Solar and Ecoplexus – 3rd Party Renewable Energy Service Providers Determine technical and economic feasibility of Renewable Power Generation System sites (host facilities) prior to PPA award for System. Execute power purchase agreement substantially in the form of the PPA. Execute lease agreement substantially in the form of a Lease. Finance, engineer and construct the Renewable Power Generation System. Comply with all applicable California Building Codes and regulations, as well as any and all Agency requirements. Pay transaction costs as per the RFP and PPA. Install system metering and interconnection to utility grid. Own, maintain, operate and monitor the System. Bill host site for energy produced. Sustainability Impact Consideration of the overall sustainability implications of the generation of renewable energy using city facilities will be incorporated into the broader scope of the Public and Environmental Affairs Division budget and work program. Specific benefits created through this project include: Conserve government funds available for capital projects. Stabilize the cost of electrical energy during a time when prices are expected to rise sharply. Drive down the cost of photovoltaic systems through volume purchasing/aggregated projects. Streamline project implementation and through the use of turnkey installations of solar systems, including financing, installation, maintenance, and operation. Support the creation of local clean tech jobs. Fiscal Impact Full cost recovery is anticipated. Recommended Action Receive report and provide direction to staff. If Council should direct staff to proceed, staff will take the final enabling actions to advance the project scope: th Project Due Diligence – Anticipated November 16 o Complete arborist report for two sites with tree considerations (Civic Center and Quinlan Community Center) o Complete joint contract negotiations to finalize Solar Power Purchase Agreement (contract) with vendors o Return for Council approval of the Solar Power Purchase Agreement nd Design Review Committee – Anticipated December 2 o Complete Community Development Department Pre-Application Form and submit associated fees o Develop and submit Design Review Committee staff report required to obtain (1) CEQA determination (2) architectural and site approval and (3) tree removal permits o Notice the public and host Design Review Committee Public Hearing th CEQA Compliance – Anticipated December 17 o Mail Categorical Exemption Notice to County of Santa Clara o Design Review Committee and County’s appeal/comment period ends o Submit building permit and associated fees o Staff engaged two independent consultants to assess the project proposal under CEQA. In both cases, the consultants confirmed that the solar carport system would be categorically exempt under section 15303. Section 15303(e) consists of construction and location of limited numbers of small new equipment or structures and specifically identifies carports within its provisions. This is consistent with the findings of the California Energy Commission report titled “Distributed Generation: CEQA Review and Permit Streamlining,” which notes that under 15303 “certain types of DG may qualify if they have small footprints and the site’s zoning allows power generation to occur there.” _____________________________________ Prepared by: Erin Cooke, Environmental Affairs Coordinator Rick Kitson, Public and Environmental Affairs Director Reviewed by: Approved for Submission by: David W. Knapp, City Manager Attachments: A: RFP Document, March 2010 B: Critigen Solar Site Analyses, June 2010