Joint Venture: Silicon Valley’s Regional Renewable Energy Procurement

Two of the major challenges regarding public sector adoption of renewable energy include the barrier of high upfront costs associated with the purchase and installation of these technologies, and a history of roadblocks in the development of successful agreements.

Joint Venture: Silicon Valley’s Climate Protection Task Force, which includes representatives from every city, town and county in Silicon Valley, plus several special districts and joint powers authorities, addressed both challenges via regional aggregated renewable energy procurement including power purchase agreement (PPA) financing. 

The Task Force’s purpose is to develop effective, collaborative, solutions for the reduction of greenhouse gas emissions from public agency operations, by providing a neutral forum for city and county government agencies and special districts to learn from each other and from others about climate protection programs.

Goals include accelerating the reduction of greenhouse gas emissions by public agencies, aggregating efforts to conserve public resources, encouraging and supporting the clean technology industry, and providing leadership for the region and world. Part of its plan of action is to form a procurement pool to get the best prices on new technologies, and to identify and evaluation financing options.

Although purchasing a renewable energy system outright is generally considered to be the most cost-effective strategy in the long-term, high capital costs are often prohibitive. An alternative method of financing that allows local agencies to utilize renewable energy and thereby decrease energy costs and aid in the reduction of carbon emissions in compliance with AB32 was sought.

The financial sector and renewable energy providers have developed innovative third party ownership financing structures (power purchase agreements) to take advantage of the tax incentives available to the private sector. However, these financing structures require significant legal, procurement, property management, and engineering expertise to execute and, therefore, have high transaction costs that can present a barrier to local governments.

In order to support the public sector adoption of renewable energy generation and reduce transaction costs, the members of the Task Force suggested a regional collaborative procurement, lead by Santa Clara County. By leveraging the contractual resource investment of the lead agency and creating a procurement pool, all will benefit by reducing or eliminating a barrier to adoption of renewable power.

A regional power purchase agreement (PPA) is now available, providing an opportunity to break down both the upfront capital barriers to direct ownership and the transaction costs associated with third party financing, and move the region forward in municipal renewable energy usage.

By doing an aggregated procurement rather than individual ones for each city, the costs of developing the agreement were reduced significantly for all parties involved. This method conserves funds and also will accelerate the financing process and deployment of renewable energy technologies, promote compliance of AB32, and support local economic development.

Phase I of this project is currently the largest multi-jurisdictional collaborative procurement of renewable energy in the United States. It involves 70 sites at 43 locations, and collaboration across 9 jurisdictions (the County of Santa Clara, cities of Milpitas, Cupertino, Morgan Hill, Pacifica, and Mountain View, Town of Los Gatos, Santa Clara Valley Transportation Authority, and South Bayside Waste Management Authority).

The carport, rooftop, and ground-mounted systems will be located at community centers, city halls, fire stations, police stations, office buildings, senior centers, libraries, clinics, and other publicly-owned facilities.

Vendor selection for Phase I resulted in three vendors being selected, one each for large system bundles, medium system bundles, and small combined and small rooftop bundles.

Phase II will include the addition of more public agencies and solar installation sites. The Task Force is in the process of identifying the participating agencies, and anticipates moving forward with Phase II in late 2010/early 2011.

The Task Force, through Santa Clara County, issued a Request for Information (RFI) to clarify the desired approach to invest in various types of renewable power generation equipment, and provide a basis for preparing a Request for Proposals (RFP). The Task Force sought interested and qualified entities with which to partner on renewable energy projects. These partnerships would be with firms providing solar, fuel cell, hybrid systems, or other alternative energy generating installations on properties owned by local governmental jurisdictions within the Bay Area.

Nineteen vendors responded to the RFI. Most respondents specialized in either solar ground mount or roof top systems. A few firms indicated expertise in two or more technology areas but these firms tended to be very large vendors.

The majority of respondents indicated that the installed cost of power for systems in general was below $0.19 per kWh. Many firms in the lower cost ranges were newer market entrants.

Most respondents indicated that economies of scale exist in collaborative procurement, and that these are around 5% for bundled project packages of 10 MW, 15 % for packages of 20 MW, and 20% for packages of 50 MW. These discounts should be compared to the cost per kWh of PG&E rates and potential increases over the 20-year period.

Program Highlights

Regional aggregated renewable energy procurement including power purchase agreement (PPA) financing:

• Conserves government funds available for capital equipment;
• Reduces greenhouse gas emissions from local government operations;
• Reduces dependence on fossil fuels;
• Stabilizes the cost of electrical energy during a time when prices are expected to rise sharply (hedge against rising and volatile electricity rates);
• Reduces the cost of photovoltaic systems through volume purchasing/ aggregated projects;
• Reduces vendor costs through economics of scale and standardization of purchasing methods;
• Helps smaller cities access technical expertise that they cannot afford to hire;
• Minimizes workload for cities through the use of turnkey installations of solar systems including financing, installation, maintenance, and operation;
• Supports/stimulates the creation of local clean tech jobs; and
• Encourages use of local technologies and resources.

Learn More

• Joint Venture: Silicon Valley project web site
  http://www.jointventure.org/index.php?option=com_content&view=article&id=189&Itemid=287
• Sample PPA for RFP
  http://www.jointventure.org/images/stories/pdf/attachmentc_ppa_3.29.10.pdf
• Request for Information (RFI)
  http://www.jointventure.org/images/stories/pdf/renewable_energy_rfi.pdf

Joint Venture: Silicon Valley

Established in 1993, Joint Venture: Silicon Valley Network provides analysis and action on issues affecting our region's economy and quality of life. The organization brings together established and emerging leaders - from business, government, academia, labor and the broader community - to spotlight issues and work toward innovative solutions.

Joint Venture offers a variety of support and sponsorship opportunities for individuals, corporations, and public sector organizations. We eagerly welcome this support to sustain our projects and initiatives. All Joint Venture affiliates enter into continuing relationships with the organization that support the analytical work and all the projects we undertake.