Can you afford green power?
In May, Thousand Oaks, Calif., opened a 584-kilowatt solar array at its Hill Canyon Wastewater Treatment Plant that is expected to move the utility closer to its goal of energy self-sufficiency. The city acquired a $1.5 million grant from the California Public Utilities Commission to fund the solar array’s installation, but its financial responsibility for the project ended there, says Chuck Rogers, the utility’s wastewater superintendent.
The city’s grant went to San Jose, Calif.-based SunPower, the designer of the solar array, and Baltimore-based Renewable Ventures MMA, the financing agent and owner, Rogers says. “I joke in speeches that the only financial transactions that have occurred between SunPower and the city of Thousand Oaks is, I bought the project manager lunch one time and he bought me lunch one time,” he says. “And yet, literally millions of dollars worth of facilities have been constructed here.”
As energy prices soar along with concerns about climate change, and traditional energy sources decline, some local governments are investigating renewable energy sources, such as photovoltaic solar panel arrays and wind turbines, to meet electricity needs while cutting carbon emissions. But, energy production facilities can be costly to build, and with tax revenues dwindling, local officials are seeking creative ways to finance their efforts.
Lining up third parties
In 2007, 50 percent of the growth in the commercial and institutional solar power market in the United States used third-party financier arrangements, compared to 10 percent the year before, according to “Solar Photovoltaic Financing: Deployment on Public Property by State and Local Governments,” a report released in May by the Golden, Colo.-based National Renewable Energy Laboratory. In the arrangements, governments provide the property on which the facilities are built, project developers design the systems and arrange financing, while third-party investors own the facilities for the 20- to 30-year life of a contract with the host government. As a result, governments can benefit indirectly from tax breaks available only to private companies, pay low upfront costs and a set price for electricity for up to 30 years, and avoid operation and maintenance costs, according to the report.
Thousand Oaks contracted with private companies for all aspects of the project because it never wanted the responsibility of building and maintaining its solar array, Rogers says. “We just simply wanted to buy the power from the array,” he says. “We run an advanced, tertiary wastewater treatment plant. We wanted to focus our activity on that, not necessarily on power generation.”
The wastewater treatment plant now buys about 15 percent of its daytime power from Renewable Ventures’ solar array, which is equivalent to 150 kilowatts. The usually clear California weather means the array can provide that power fairly regularly, Rogers says.
In a separate project, the plant buys more than 50 percent of its power from a co-generation facility located onsite that converts methane and other gases from the plant’s anaerobic digester into electricity. The co-generation facility, which was installed in April 2007, is owned and operated by Scottsdale, Ariz.-based U.S. Energy. “We’re in a position where, at times, we put a little [power] back into the [Southern California Edison] grid, which we get credit for,” Rogers says.
Hill Canyon still is working on becoming completely energy self-sufficient, Rogers says, but, eventually, the solar array and co-generation facility will help the plant surpass that goal. “We know that we can become an exporter of energy to the grid, [possibly in the next two to three years],” he says. “That’s all renewable energy.”
In other words, the $150 million wastewater treatment plant can become a major asset to the city, not just a function that it has to provide. “We have just scraped the surface of what we can do here,” Rogers says. “This is a very realistic goal.”
Power purchase agreements such as Thousand Oaks’ are very enticing to cities, Rogers says. “Most cities don’t have any money in capital to go out and do these types of [projects], so it’s wonderful for them,” he says. “At the end of our contract with [Renewable Ventures] 20 years from now, the panels become ours, or we can simply say, ‘Please remove everything you put on site, we want to put in new technology.’ That is such an awesome deal, because we didn’t put in one red penny out of our pockets to make these renewable energy projects come to life, and we’re saving money with them.”
Cooking with CREBs
For governments and agencies willing to own their renewable energy facilities, the federal government provides some very specific incentives. Two years ago, the PORTA School District, which serves 1,250 students in five communities in Menard, Sangmon and Cass counties in Illinois, began assembling a collection of renewable energy and energy-saving projects for four school buildings. The project includes a 600-kilowattt wind turbine that will power a 100,000-square-foot junior/senior high school building in Petersburg, Ill.
Last summer, the school district began exploring ways to finance the $7.6 million project, and by January, district officials had developed a funding package that included a $1 million Clean Renewable Energy Bond (CREB) from the Internal Revenue Service (IRS) for the wind turbine. CREBs are tax credit bonds created by the Energy Policy Act of 2005 as an incentive for consumer-owned utilities and other qualified borrowers to invest in renewable electricity generation facilities, according to the Washington-based American Public Power Association. CREB holders receive a federal tax credit in lieu of interest paid by the issuer. They can be used to finance wind, biomass, geothermal, solar and hydropower facilities. “The IRS has this bank of money specifically designed to be used for clean, renewable energy projects, like wind generators,” says the district’s Superintendent Matt Brue. The bonds are almost interest free, he says. For example, PORTA was given a 0.68 percent rate on its bond.
The wind turbine will cost $2.3 million, and when completed, it will produce 80 percent of the power for two of the district’s buildings. “Right now, in the junior/senior high school building alone, we spend $25,000 a month on electricity. So, we’re spending $300,000 a year just for this one building,” Brue says. “We’re going to save $240,000 [annually] in this building alone.” The savings rise to $400,000 a year when including the savings from the other building that will use the wind power.
The school district refinanced some existing bonds that were nearing retirement to fund other energy-saving programs, including replacing the school’s 30-year-old, all-electric cooling system with a $3.5 million geothermal system. Using bonds will prevent the city from raising dedicated real estate tax that provides most of the district’s funds. While the geothermal system will require a lot of infrastructure, Brue says it is much more efficient. “It’s probably going to be our biggest money saver as far as our energy cost,” he says.
Another $1.2 million from the refinanced bonds will fund energy-saving retrofits in the schools, and the district plans to install a small solar array for less than $30,000. The refinanced bonds will be paid by 2013, but the CREB must be paid over a fixed time that will end in 2016, Brue says.
Generating new revenue
Other cities are finding new ways to generate funds for green energy projects. In 2000, Aspen and Pitkin County, Colo., amended their building codes to include a Renewable Energy Mitigation Program that assesses one-time fees to developers for houses larger than 5,000 square feet. Developers can avoid the dollar-per-foot fee by installing on-site renewable energy systems, says Nathan Ratledge, climate coordinator for Aspen and Pitkin County, Colo.’s Community Office for Resource Efficiency (CORE), a non-profit agency that manages fees collected from the program.
The program’s purpose is to reduce the carbon emissions that may otherwise be generated by traditional energy production for residences, he says. The program also assesses a fee for other types of energy consumption, such as snow-melting systems and heated pools.
Many developers choose to simply pay the fees, Ratledge says. The money funds CORE programs, such as yearly rebates to homeowners that use energy-efficient appliances, solar water heaters, geothermal heating and cooling systems, and programmable thermostats. The money also funds grants up to $250,000 for facility retrofits and other energy-saving projects, such as a coal mine methane gas capture project at a mine in Aberdeen, Colo., in 2006. CORE provided $100,000 for the project, which diverts methane gas that would otherwise be released by digging at the mine into pipes for use in heating area homes and producing electricity. “We’re still working on calculating the latest figures, but [the project] can save billions and billions of pounds of CO2,” Ratledge says.
Make the investment
More federal incentives for green power investments may be available soon. Local government associations still are hoping Congress will approve funding for the Energy Efficiency and Conservation Block Grant, which passed last year, but the Climate Security Act, which contains the $4 billion funding, has stalled in the Senate, says Carmel, Ind., Mayor Jim Brainard, co-chairman of the Washington-based U.S. Conference of Mayors’ (USCM) Committee on Climate Protection. USCM and other advocates are “working the appropriation bill through the appropriate channels” in Congress to have the funding included in the next national budget, Brainard says. “It’s our money. It ought to come back to the cities where it’s needed,” he says.
However, Brainard encourages local governments not to wait for more grants and to consider investing their own funds in renewable energy projects. Carmel is exploring the possibility of installing a wind generator at its sewer and wastewater treatment plants to reduce its use of coal-generated power. “We think we’ll save up to $1 million a year, and the wind turbines are going to cost about [$2 million],” Brainard says. “If we can save that much, and that’s what we’re testing now, we get a one-year payback. That’s a pretty good return on investment.”
Also, during high-wind periods, the wind turbine could generate surplus power to sell back to the local grid. The city plans to pay for the wind turbine with the regular utility fees it collects. “We’re building these new plants, anyway. [We will] make that energy [generation] part of the component of building the plant,” he says.
The city will not have to raise rates to pay for the project because it will pay for itself within two years, which is an approach any government can take with many renewable energy projects. “Look for things you’re already doing that make sense from a financial standpoint to do in a green way,” Brainard says.
— Ed Brock is American City & County’s associate editor.