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May 27, 2011 > Solar power purchase agreement

Solar power purchase agreement

By Abraham Cruz

The California Solar Initiative program encourages solar energy installations as financially feasible energy sources for public agencies. On February 16, 2010, Milpitas City Council elected to participate in a nine-agency Silicon Valley collaborative Power Purchase Agreement (PPA) to purchase solar energy at a reasonable cost. The PPA financing model is a "third party" ownership model that requires a separate, taxable entity (solar power provider) to provide financing, design, construction, installation, operations and maintenance of the solar panels on public agency facilities. The PPA is a long-term contract under which 100 percent of the electricity generated by solar panel installations is purchased from the solar power provider.

A decision to utilize solar energy is partly due to PG&E's power rates which have long-term trend averages of between five and seven percent annual increases. Financial benefits of installing solar panels are: $48,125 first-year energy savings, $140,581 by the fifth year, $228,522 by the tenth year, and $3.9M in energy-cost savings over the life of the PPA contract. Perhaps most attractive is that the PPA will have zero cost to the city.

Some of PPA contract's key terms and conditions are: solar panels maintained and operated by the solar provider for 20 years; minimum solar power production guaranteed of at least 80 percent with first option to purchase additional power (110 percent maximum); buyout option for the city to purchase the solar installations after 10 years for fair market value; prices charged per kilowatt with capped, three-percent annual increases; and assurance the solar provider will remove all equipment at the end of the term. The City will also own the Renewable Energy Credits, valued at less than $0.01/khw, which will increase over time.

A request for proposals seeking solar power providers was issued. Borrego Solar and Ecoplexus, Inc. were selected for medium and small installation categories. Milpitas submitted a list of 16 facilities as potential installation of solar panels and entered into negotiations with Borrego Solar on December 7, 2010; however, Borrego and the city did not agree final financial terms.

Ecoplexus has completed its site engineering, construction cost estimates and financial analysis for the same sites that Borrego considered. City staff is negotiating the final cost terms with Ecoplexus.

There are also some provisions in the contract that would protect the city from loss. If solar-panel performance does not meet expectations, Ecoplexus would remove the panels at no cost to the city. Furthermore, Ecoplexus will reimburse the city if energy production is less than 80 percent. Independent consultant Optomy, Inc. advised all the PPA stakeholders and checked the operational and performance data submitted by the solar-panel manufacturers.

Three types of solar panels will be used for the project: carport, roof-mounted and ground-mounted. The PPA has approved roof-mounted solar panels for the Milpitas Library garage and the Gibraltar Water Pump Station. Areas with insufficient space are excluded from consideration. City Hall, some fire stations and pump stations are excluded because there is not enough roof space to meet the buildings' power demands. Additional sites under negotiation are the Main Sewage Pump Station and Corp Yard, Milpitas Sports Center, Senior Center, Community Center, Public Works/Police Department and Fire Station Number One.

Council authorized the City Manager to execute a solar power purchase agreement, as of May 17, 2011. Construction and commissioning is set to begin by September 1, 2011, and the system should be on line by March 30, 2012.

For more information, or contact City Engineer and Public Works Director Greg Armendariz at (408) 586-3317.

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