California’s solar market, with the help of the industry and solar-friendly policies, is fostering megawatt-scale projects for some of the most remote and disadvantaged communities and organizations in the state. Entities no longer need to have capital to spend up-front, nor hire expensive consultants to help with the RFP process.
My team of California solar project developers has heard from the leadership of many public institutions that they didn’t realize how easy it is to go solar now and that the biggest reason they haven’t done so already is because of a lack of resources. It’s clear from all the discussions we’ve had with city managers, mayors, public works directors, community college administrators, water agency plant managers, and others that the assumption that solar is somehow “out of reach” is prolific.
Fortunately, it’s not true.
For example, Borrego Solar recently helped the small irrigation district of Tranquillity, just west of Fresno, contract its 1.8 megawatt solar project without any upfront capital expenditure or a formal RFP process. What’s more, they used the RES-BCT program (explained below) to offset energy at multiple municipal sites, increasing their savings. Once the project was defined and terms were agreed upon, we were able to complete contracts within 30 days.
Here are the top three reasons public agencies give for not going solar yet—and the solutions that can enable them to get solar installed cost effectively.
1. “Our Facilities are Too Small.”
It’s true that the “low-hanging fruit” for developers and investors has been the larger public entities with massive energy demand at a single site. Those projects are the easiest to build, finance, and design. Unfortunately, most of those projects are completed or already underway.
To incent our industry toward more complex projects, the California Public Utilities Commission (CPUC) rolled out the RES-BCT program (Renewable Energy Self-Generation Bill Credit Transfer). It allows public entities to aggregate their utility meters at multiple sites and bundle them under one solar installation. Before RES-BCT, the solar array could be no larger than what was needed to generate enough energy to meet the demand on site.
Now, a single array can be built in one location and the energy credits can be applied to the public entity’s various other meters. If you have a small library, police station, fire department, and town hall, those sites can now all receive energy credits from a single solar installation. RES-BCT is a relatively new way to model solar installations, so it’s best to work with a solar company that has some experience with these types of deals.
- PG&E Information on RES-BCT
- SDG&E Information on RES-BCT
- Southern California Edison Information on RES-BCT
2. “We Don’t Have the Capital.”
There’s money available to make your solar project a reality, so don’t let access to capital prevent you from implementing a 21st century energy management strategy that will lower your operating costs and protect you from utility rate volatility moving forward.
The town of Tranquillity’s irrigation district is using a power purchase agreement (PPA) to pay for its installation, which will enable the district to save a net $10 million over the 25-year term. With PPAs, a third-party investor takes on all finance, design, installation, and ownership and maintenance (O&M) costs while the customer agrees to buy the power back at a predetermined rate. With a PPA, third-party investors can monetize federal tax incentives that come with buying a solar system, including a 30% investment tax credit and accelerated depreciation. Since public agencies are tax-exempt, they cannot take advantage of these federal tax benefits, but they can still benefit from the PPA in the form of a guaranteed cheaper price per kilowatt-hour of electricity.
At one point, PPAs were practically the only third-party financing option for municipalities, but only entities with investment-grade credit would qualify for them. But now that confidence in solar has improved, the credit rating threshold has declined. There is more interest from Wall Street in investing in solar and banks have developed creative ways to finance projects. In addition to PPAs, municipalities are using municipal leases from major banking institutions, such as Bank of America, Merrill Lynch, and Wells Fargo.
Public entities can also use a variety of funding sources and incentives to pay for their solar projects, such as Clean Renewable Energy Bonds (CREBs) and California Energy Commission (CEC) low interest loans.
3. “The Public Procurement Process is too Cumbersome and Time-Consuming.”
Issuing an RFP is great if you have all the time and internal resources needed. Unfortunately, energy rates are only expected to continue to increase and the caps for the current net metering (NEM) program are expected to be reached in PG&E and SDG&E in the spring/summer of 2016. There’s also a good chance a formal RFI/RFQ/RFP process would totally consume your staff. Even if the project’s economics could afford the cost of a consultant to come in and run an RFP, it will likely push the project out several months, if not more.
Fortunately, there is a clause within California code 42-17 (42-17.18) that provides public entities with a workaround to a formal RFI/RFQ/RFP process, while still complying with public procurement requirements.
Since solar qualifies as an energy purchasing decision, as long as the contract shows net-savings, the project does not have to go out to public bid. Working with a single solar developer with a solid track record, or receiving bids from a few EPCs that have experience building similar projects is a great way to avoid the lengthy public procurement process. Your project can get in the construction queue within weeks instead of months.
By taking advantage of the RES-BCT program, various financing structures and the 42-17.18 clause, smaller public entities with limited internal resources can get solar projects online and quickly begin saving money on energy costs.