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Exhibit CC 11-16-2010 No. 25 Solar Power Purchase Agreement E ary I , Solar Power Purchase Agreement Proposal City Council Presentation November 16, 2010 Pir Environmental Affairs Division //11 CUPERTINO GREEN 611 k . 1 Agenda ¢ x CUPERTINO GREEN -'', •_ NVhy a PPA? f , Power Purchase Agreement? x��� �d chat s involved in the Santa £ f unr Regional PPA -/ , rative • la C upe rtino's Role r ire tie project's next steps? k r sa is Tonight we bring to Council an opportunity to review in concept an alternative financing mechanism to install solar carport structures a three City facilities. To create a complete picture of this opportunity, we'll: 'Review currently available options for financing solar 'Clearly define what is a Power Purchase Agreement and what it means for our City 'Introduce the benefits of the regional collaborative that was created tos advance this work •AND end with a narrowed picture on the project scope proposed for Cupertino 2 ,, z £x f Background CUPERTINO GREEN / r .' s dYious Solar Opportunities: 'rchase requires large upfront capital costs Analyses yielded uneconomical return Detailed Energy Audit: Proposed 105KW City Hall t Pro - 46.2 Year Simple Payback d yet... benefits of solar remain clear: edge against risk of rising utility costs Create localized renewable generation source ry'pecrease GHG from municipal operations 0= 'Elevate commitment to the environment brough visible public infrastructure Council is no stranger to solar project proposals by staff, however, all previous opportunities have been halted due to the large upfront capital cost required to purchase and install the systems. Despite the challenge to create a business case for previous projects, Council and numerous Commissions have expressed a goal of advancing renewables in our city. Solar has been explored for our City for the same reasons that our local high school district, community colleges, and high tech companies have made the decision to install solar arrays on their carports and rooftops, in that these projects would allow the city to: Protect the general fund *Hedge against unpredictable, yet rising utility costs *Install and utilize a localized renewable generation source *Decrease our reliance on fossil fuel - generated energy, thereby decreasing GHG from our facilities — which currently account for 40% of our total GHG from municipal operations *All the while establishing a tangible and highly visible environmental commitment on behalf of the city through this public infrastructure This proposed project will accomplish these goals without a general fund or CIP commitment. 3 SPPA Definition CUPERTINO GREEN • A financial arrangement �rf • Third -party developer constructs, owns, operates, & maintains the photovoltaic (PV) system vc H ). =1. Agrees Customer to site a system (Cupertino on its property 2 Purchases system's electric output for a predetermined price & period. Three options for financing a solar project: 1. Capital Outlay 2. Lease to Buy 3. PPA Here tonight to discuss a PPA option: SPPA Definition: A financial arrangement • Third -party vendor constructs, owns, operates, & maintains the photovoltaic (PV) system • Host Customer (Cupertino): 1. Agrees to site a system on its property 2. Purchases system's electric output for a predetermined price & period 4 PPA Approach - ,. 0A- . CUPERTINO GREEN • 70 site procurement effort convened by c 11140 . .■ JVSV Public Sector t O IL p. • • Task Force in 2007 Nt • Collaboration among � - 9 jurisdictions Y 7 i . A > h f • Multiple Site Types: verse t r w o Carports o Rooftops Largest collaborative multi -site project in the USA r o Ground mounted Not surprisingly, our City was not alone in evaluating the solar opportunities available for our organization, which led to formation of a regional working group to advance deployment of renewable energy throughout our County. Participating in the group are 9 agencies, representing 70 sites with the potential to install 14MW of solar power enough for 2700 homes, equivalent to planting 2800 acres of trees — nearly the full size of our City. Participating agency benefits • Could not easily or cost - effectively pursue this project without collaboration • Much better outcome and can leverage regional expertise (Optony) Provide additional benefits on subsequent slides. 5 ' = C ollaborative Procurement Benefits CUPERTINO GRE *•G up : Purchasing Benefits i' *D sco site surveys pup contract negotiation support 'PPA p acing 10 -14 %lower due to group purchase of ftE pr , nyqualified ven ders and competitive bidding �S lier individual sit u sually do not receive PPA offers 'to er adinin and transaction costs than going alone avollable Term & Con di t ions i � •over & under - production guarantees c m buyout options It §'Movi qu ickly captured additional CSI reba tax benefits P iil dep endent onsu Consultant Expertise ssmerit &bund avoided common problems t 'P ocurement process achieved benefits for a participa an epen de nt s ystem design review, financial review, contract `e gotiati n So why tea up to procure and install solar with adjacent jurisdict ' Purchasing Bene •PPA pr i c ing 10 -14% lowe due to group purchase •Many qualified vendors and competitive bidding •Smaller individual sites usually do not receive PPA offers •Lower legal, admin and transaction costs than going alone 'joint- negotiation for contracting terms led to Favorable Terms & Conditions *Over & under- production guarantees •Competitive buyout options 'moving quickly captured additional CSI rebates and tax benefits •Independent Consultant Expertise *Assess &bundling avoided common problems •Procurement process achieved benefits for all participan •Independent system design review, financial review, contract negotiation 6 , 1 , - . M aximi z ing Solar Energy Savin REEN . c r r .l l a i, 1 4E P ?,t 1 , t 4 h r he ri p i asifl er ur ifig of '. e at m i r low ra ., Can ge to nearly $0 electric Time of use Rates - bill w i t h ^'70% energy offset >a_ _ , � — Current rate structures do not easily monetize : x �� ` „over- product l "1 €E:ki, a — Bills and regulations in process n I i G Ill ll l llllll,'i� €le t o improve economics of larger a a • a b > a ..c ,+ � +. +a a "re +axr unN M w. Otr system sizes Sum mer patt {Ma - October) Installing solar means transitioning to a " solaar preferred rate schedule" which peak 7 du the d to enable overproduction and sale to PG &E at a hig rate — around 42 cents per kwh —and then purchase of pow when needed during off - peak (i.e. evening) times a 10 cents per kwh. Solar systems are sized accordi — to offset over 70% of usage but a larger percentage of the customer's cost bill, ideally 100% as is proposed for Cupertino. 7 „- PG &E Growth Rate Forecasting CUPERTINO GREEN CafMenia Ekw Rama '.',. 1870 -2006 - _.. yr •ero tee nn nu 13* +eao ”" "<" "" zone • { ' `� .... _ :10lle RateCha ge** ' Rate Sd edele * .., 2" ; 2°10 T6tai CAGR . CPUC Ratepayer Sm/Med Commeedal- Bundled 0.102 0. 169 73.7% 52% , LgCommercial/lnd- Bundled ,... 0 0.126 773% 5.9% Data 10-Year Rate Change** Rate Schedule* Jan -2001 June -2010 Taal CAGR A -1 TOG Summer 0.15870 Peak 0.22456 41.5% g- PG &E Rate A-6 TOU Peak 0.24258 Peak 0.45331 869% 7.606 Schedules A -10 IOU Summer 0.09915 Peak(P ) 0.15391 55.2% 5.3% E -19 IOU Peak 0.09773 Peak (F.) 0.15217 55.7% 5.3% In understanding the transition in rate schedule, it is also important to review the projected rate increases for the alternative rates, as are outlined here. We see when looking at the long -term trend for PG &E rates overall , projections are between 5 — 7% Compound Annual Growth Rate — representing between 40 and 87% increase over pricing 10 years prior, which presents a significant increase in cost for a City already paying $1.3M for utilities each year. 8 Ensuring Project Success CUPERTINO GREEN *yni Jw.,'gaW 4 ;" ° 0 a ki V 1 e S v ¢ a 9 , t a : A ' Financial Benefits - Ensure that CSI milestones are met with rebates & deposits. transferred — Verify that system installation and production meet contracted levels - Confirm rate schedule changes and projected savings calculations • Community Leadership — Positive impact on government operations — Evaluating add -on opportunities for residential and commercial systems — Integration with overall city -wide education and outreach programs Though this approach is new, the city and all participating agencies will be supported by solar consultant Optony to ensure that PV project advances uses industry best practices throughout the project lifecycle including design, engineering and construction. Optony will also work to verify system performance and work as a liason with PG &E to ensure that rate schedules have been adjusted. Lastly by pursuing this opportunity, this regional collaboration can be expanded beyond municipal facilities to the residential and commercial sectors likely through lease -to -own options offered by the proposed vendors. Similar programs have recently been initiated in San Francisco through its Solar America Cities program San Jose, where employees were offered volume discounted purchasing options through a local credit union. We would propose a similar type of program for residents and businesses in our City. 9 ,;,� = . PPA Contract Terms CUPERTINO GREEN P'"`e "+ C J s ' ��� e � Y� � � ; ` F Co Prices are p kwh w fixed 4'% annual increases — REC ownership for less than $0.01 /kwh — Rate schedule changes approve and financial impact will be reviewed • Construction Issues — Structural and des requirements specified in contract — Construction p lans must be pre- — All permittin and construction standards must be followed ao — Warranties on all e • ui • ment and workmanshi •for minimum 10 ears A qu ick breakdown of the contract terms, as are currently being negotiated through the collaborative. Summarized, this PPA offers predictability in utility pricing — a 4% annual increase —fora 20 year period, w a buyout option after 6 years at Fair Market Value. The system is warranted for a minimum of 10 years, the PPA provider is responsible fo system /property damage and system removal at the close of the contract. It should be noted that these terms are considered highly favorable, representative of the leverage achieved due to the scale of the total project rather than that proposed for our small city. See also page 525 of the Agenda. 10 - ` How is Cupertino involved? CUPERTINO GREEN ?, • • Conducted solar site survey of three sites to install carport structures, which were included in the RFP: Facility Annual kWh Generated Average Annual kWh °o Met by System by PV System Used at Site City Hall 4 -5.005 524.650 91% Quinlan 140.564 495.595 28% Community Center Corporation Yard 450.503 143.595 314% • Working with selected vendors to: Develop financial models for each site — Jointly negotiate the terms of the Power Purchase Agreement .Navigate City permitting/Design Review Committee /CEQA process {if directed by Council tt >advance the pioject) 4 t r s 4 s ^' . r as L k toy - � R 4s . . o sedre tantin eff So what does this mean for our City? Proposed tonight for Council review are three sites: the Civic Center, Quinlan Community Center and the Corporation Yard. These were the three original sites listed in the MOU approved by Council in February. This MOU entered the sites into a competitive RFP process and selection of qualified vendors. Vendors were selected for our projects by group of public agency representatives and independent 3rd party experts Optony and the Department of Energy (DOE). Following confirmation of qualified vendors — the team has been working to develop detailed financial models for each site, jointly negotiate the terms of the PPA and determine the planning and building steps required to advance the process. As part of this process, two independent consultants confirmed that the solar carport system would be categorically exempt through CEQA. Staff also worked with the City's arborist to perform a tree inventory and define a mitigation and replacement plan for those 55 trees shading the proposed carport structures. Within the sites reviewed, none of the trees were considered "protected" under the City Code and the majority of trees were deeded moderate to low suitability for preservation. Further details were provided in the staff report Attachment B. 11 How is Cupertino involved? ' 4 . ,` Potential Site: Civic Center CUPERTINO GREEN € ®a � •F•� .. °' `..' ... ... ws.... ROM S° SOLAR — No . .. ._._m, flallEIRMILI ..... Ilia lo t ,1 '� r; , F , i , , :i .. - � w .. ... _ _ \\_i "'S"'"'. nEVUW • PV 0.1 Preliminary schematics provided by one of the proposed vendors for the Civic Center and Corporation Yard. Quinlan has yet to be fully vetted by the alternative vendor — who is proposing a slower timeline to advance the project, whereas the potential developer for these sites would like to take advantage of the Federal Business Energy Investment Tax Credit, available through December 31St 2010. This essentially offers the developer to capture the tax credit as a grant equal to 30% of expenditures, thereby reducing the cost of capital. This is a corporate tax credit not available to public agencies. This coupled with a private entities ability to establish an accelerated depreciation schedule creates a near -50% project cost offset, where savings are passed down to the City that would not be achievable if we were to finance the project on our own. 12 • « : How is Cupertino involved? riv ;1- Potential Site: Corporation Yard CUPERTINO GREEN f I • 1. nesuamitt 211111,11111111. afithiailifaila ■ . ii r . . - *11/6 ... j J OW MSIR o 1i raac +�r ..ti/•+.y x. t. I (; x Ott .s L t , t I. , I • • . J r I _ • 13 How is Cupertino involved? Potential Infrastructure: Carports CUPERTINO GREEN 4 Sk. - • , Slide offers a glimpse of the design attributes that are under review for the City's sites as initial concepts. These are simple structures, and the vendor is flexible to propose alternatives — keeping in mind that the greater the cost of infrastructure the narrower the savings window is for the power purchase agreement. 14 Project Next Steps CUPERTINO GREEN � directed to continue, staff will: r plete contract: negotiations with vendor uate replanting opportunities with arborist g' rn °to Council for contract authorization • d arice project through DRC } replete CEQA compliance Prepare for and complete construction . Monitor and report on system production iff 15 CUPERTINO GREEN Thankyou. } Environmental Affairs Division City of Cupertino 16