The City of Kerman, California has just achieved one of our favorite bottom line and sustainability twofers, by using land at its wastewater treatment plant to host a 500-kilowatt solar system. Aside from shaving about 40 percent off the plant’s electricity costs, the solar array also offsets an energy-intensive expansion and upgrade of the treatment process.
The solar system was built by Borrego Solar under a solar PPA (Power Purchase Agreement) with ConEdison Solutions of Valhalla, NY, which means that Kerman taxpayers paid no money up front to get the savings and the clean energy while expanding and improving operations at their treatment plant. That’s a nifty little demonstration of having your cake and eating it, too. The question is, how does it apply to the private sector?
Scale and Motivation
Before we turn to the private sector, let’s take a look at Borrego’s business model. The company has been focusing on large scale partners, including the U.S. military, and its work with solar arrays for water agencies provides some insight into the factors that make power purchase agreements a good bet.
Among those factors are the large scale of the operation’s energy requirements and the availability of unused space (rooftops, open space or parking lots).
Motivation is also an important factor, as water agencies are searching for strategies to keep rates and taxes low, while community stakeholders are pushing for improved environmental protections.
Another factor that Borrego considers critical is the availability of engineering staff, often in-house, who are familiar with solar technology and can assist in the development process.
In addition to Borrego Solar, you can also see those factors at work in other companies such as Siemens, which recently engaged in a wind PPA for the Pantex nuclear facility in Texas, which will be the largest project of its kind ever undertaken by a federal agency.
The Kerman solar system
Taking these factors into consideration, the Kerman solar system is practically a no-brainer. The $6.7 million expansion and upgrades to the plant’s treatment process were financed with a federal Recovery Act grant and state funding, but it left the city on the hook for a significant increase in electricity costs, from only $3,500 monthly to more than $10,000.
With the power purchase agreement, the city expects to save almost $100,000 per year.
As for the system itself, it will generate about 940,000 kilowatt hours of electricity from 1,680 solar panels, manufactured by Yingli Solar.
The end result of all this is that the city’s cost of electricity for the plant, and its related carbon footprint, barely budged even though the capacity of the plant has nearly doubled.
The improvements also cut the amount of nitrates released from the plant.
The bottom line for power purchase agreements
For businesses that share the built-in advantages of the public entities courted by Borrego, PPAs have some obvious advantages over purchasing and installing a system outright.
However, the U.S. Environmental Protection Agency notes some factors that should send up a red flag for companies that may not be prepared for a PPA.
Some of these relate to real estate turnover issues that are rare in the public sector, but frequently occur in the private sector.
Namely, there is the potential for an increase in property taxes consequent on a reassessment, and the terms of the lease may impose restrictions on use of the property.
EPA also notes that PPAs often involve more complex negotiations than an outright purchase, contributing to potentially higher transaction costs. For PPA installations that do not cover the entire demand of the host facility, companies should also anticipate administrative costs related to paying two different electricity bills.
Companies are also advised to consider the advantages and disadvantages of renewable energy credits.
While these considerations may lead some companies to consider other options, for many others PPAs present an ideal opportunity to expand and upgrade their facilities while building support among community stakeholders.
[Image (cropped): Courtesy of Borrego Solar]