City of Palo Alto
(ID # 5953)
City Council Staff Report
Report Type: Informational Report
Meeting Date: 8/17/2015
Council Priority: Environmental Sustainability
Summary Title: Community Solar Program Development Update
Title: Redirection of Community Solar Program Development Efforts
From: City Manager
Lead Department: Utilities
Recommendation
This report is provided to the City Council as information only. The report was also provided to
the UAC as an informational item for its July 1, 2015, meeting. No action is requested.
Executive Summary
Through the Council-adopted Local Solar Plan, the City of Palo Alto Utilities (CPAU) is pursuing
diverse strategies to meet 4% of the City’s energy needs from local solar by 2023. One of the
strategies is offering all electric utility customers the opportunity to participate in a community
solar program, which typically enables an electric utility’s customers to buy or lease solar panels
in a centralized solar photovoltaic (PV) array and receive regular credits for electric output from
the PV installation via their utility bills. Community solar programs are growing rapidly across
the U.S. because they enable residents and businesses to experience and derive the benefits
from cost-effective local solar deployment, even if they are unable to install solar at their own
premises, for example because of shading, ownership, structural or financial reasons. In
addition, the cost of developing and installing the centralized solar facilities is expected to be
significantly lower than it would be for smaller systems on individual customer roofs.
In December 2014, staff requested that the UAC recommend that Council establish a
community solar program in line with a design proposed by a third-party vendor selected
through a competitive selection process. The UAC did not recommend that staff proceed with
the design until it understood more about the risks faced by the City and program participants.
Since that time, staff carried out an in-depth risk assessment concurrently with negotiating an
agreement with the selected vendor, and ultimately decided that it is unable to recommend the
program design as described in the December 2014 UAC memorandum. The issue of primary
concern is that a turnkey program offered through a public-private partnership presents unique
transparency and risk mitigation challenges. The City requirements for transparency may be at
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odds with a vendor’s requirement for confidentiality. Furthermore, the vendor may be
reluctant or unwilling to modify terms and conditions to mitigate risk in their turnkey
participation agreements to which the City would not be a party. Staff is currently developing
an alternative program design and intends to return to the UAC with a recommendation by the
end of 2015.
Background
Local Solar Plan
In April 2014, the Council adopted the Local Solar Plan, which set the overarching goal of
meeting 4% of the City’s energy needs from local solar by 2023 (Staff Report 4608, Resolution
9402). As of the end of April 2015, local solar accounts for about 1% of citywide energy
consumption. The Local Solar Plan identified three programmatic initiatives to enable the City
to achieve its aggressive local solar PV deployment targets. In order of priority, the three
programs include:
1. Community Solar Program
2. Solar Donation Program
3. Solar Group-discount Program
The Solar Group-discount Program was originally expected to launch in early 2016 to coincide
with the exhaustion of rebates under the City’s PV Partners program. Since Palo Alto was able
to participate in a large, regional group-buy effort led by Foster City, however, that program
was launched first. An informational report about the regional group-buy program was
provided to the UAC in October 2014 and to City Council in November 2014 (Staff Report 5144).
The program, Peninsula SunShares, is open to all residents in the nine Bay Area counties. The
enrollment deadline for Peninsula SunShares was extended to the end of July 2015. As of May
2015, Palo Alto is leading the region in number of enrollments with more than 46% of the total
participation.
Community solar is defined as “a solar-electric system that, through a voluntary program,
provides power and/or financial benefit to, or is owned by, multiple community members” 1.
Most utility-sponsored community solar programs enable the utility’s customers to buy or lease
solar panels in a centralized solar array and receive regular credits via their utility bills. The
Solar Electric Power Association (SEPA) reported that the number of community solar programs
across the U.S. jumped over 60% since spring 20132. The success of community solar programs
is attributed to the fact that many people in the U.S. want to experience and derive benefit
from solar energy; however, most households and businesses are not able to install solar
systems on-site because of ownership, shading, structural, or financial issues 3. A community
1
“A Guide to Community Solar: Utility, Private, and Non-profit Project Development”, U.S. Department Of Energy
and Solar America Communities Report. http://www.nrel.gov/docs/fy12osti/54570.pdf
2
Solar Electric Power Association’s “Expanding Solar Access through Utility-led Community Solar”.
https://www.solarelectricpower.org/media/214973/Community-Solar-Report-Executive-Summary-ver3.pdf
3
National Renewable Energy Laboratory reports that fewer than half of households and businesses are able to
install an on-site solar photovoltaic (PV) system, after taking into account structural, shading, or ownership issues.
http://www.nrel.gov/docs/fy15osti/63892.pdf
City of Palo Alto
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solar program is one mechanism to widen the solar energy participation pool by providing
options to those unable to install solar on-site. In addition, the cost of developing and installing
the centralized solar facilities is expected to be significantly lower than it would be for smaller
systems on individual customer roofs.
Summary of Request for Proposal Process
In July 2014, staff released a request for proposal (RFP) for a CPAU-branded community solar
program totaling 1 to 3 Megawatts CEC-AC4 in capacity. The objective of the RFP was to select a
vendor to partner with the City to launch a community solar program within certain constraints,
including:
 The City would not develop, own or maintain the solar facility;
 The solar facilities would be sited within City limits;
 The program had to work within the existing constraints of the City’s billing system and
therefore could not use virtual net-metering as the method by which customers
received credits; and
 The vendor had to take on the program administrator role.
In short, staff was seeking a turnkey solution. Beyond the listed constraints, the RFP was openended, allowing vendors to propose alternative solutions. A total of 7 vendors proposed a
variety of different community solar solutions. From the RFP submittal deadline of August 12,
2014 through November 2014, staff carried out an extensive evaluation and legal review
process to arrive at the program design described in the December 2014 UAC report
(Attachment B). Staff selected Clean Energy Collective as the finalist vendor. Staff presented a
proposed program design and associated policy recommendations to the UAC. The UAC
indicated general support for the goals of the program, but requested an in-depth risk
assessment from both the City and the customer perspectives for the proposed program design
prior to recommending that the City Council approve the program.
Discussion
Program Design as Proposed in December 2014 UAC Memorandum
In the program design as proposed in the December 2014 UAC report, a participant would pay a
one-time up-front “participation cost” on a dollars-per-watt basis for a specified amount of
generating capacity. Each month, the value of the energy produced from the participant’s
panel(s) would be added to the participant’s electric utility bill as a monetary bill credit. The
value of the energy would be equivalent to the kilowatt-hours of energy generated from the
participant’s panel(s) multiplied by the power purchase agreement (PPA) rate for the
community solar facilities. Participation would be open to all electric utility customers, including
both residential and commercial customers.
For the proposed design, the City would enter into a PPA with a vendor similar to the Palo Alto
Clean Local Energy Accessible Now (CLEAN) program PPA, for the energy and all output of the
4
The California Energy Commission Alternating Current, or CEC-AC rating is the product of the number of PV
panels, the Practical Test Conditions (PTC) rating per panel and the inverter efficiency.
City of Palo Alto
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community solar facilities, which would be third-party owned, operated, and maintained.
Instead of paying a single entity for the energy and output, however, CPAU would then credit
all of the program participants on their electric utility bills for the energy and output from their
respective portions of the community solar facility. The PPA between the vendor and the City
would cover all responsibilities of the vendor related to program marketing, administration,
enrollment and the integration of the monthly billing credit with the City’s billing system. Each
participant in the program would also enter into one or more participant agreements directly
with the program vendor, to which the City would not be a party. This program design is
summarized in Figure 1.
Figure 1: Program Design as Proposed in the December 2014 UAC Meeting
Risk Assessment of Proposed Program Model
Since the December 2014 UAC meeting through May 2015, staff devoted significant time and
effort on negotiating an agreement with the selected third-party vendor concurrently with
carrying out an in-depth risk assessment. Given that any identified risks had the potential to be
mitigated through specific measures incorporated into the program agreements, the risk
assessment and negotiations were inter-dependent and were carried out in concert.
The risk assessment included a thorough review of six participant agreements and forms
provided by the selected vendor which would be entered into between the vendor and
program participants, agreements to which the City would not be a party. Additionally, the City
evaluated two agreements associated with the operations and maintenance (O&M) of the
community solar facility, agreements to which the City would also not be a party. In total, staff
and an attorney from the City attorneys’ office thoroughly reviewed eight agreements and
forms for the proposed program model.
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The vendor insisted that all agreements and forms remain confidential, including any details
about the underlying program structure that is described in the agreements. Therefore, copies
of the agreements are not included here.
Conclusions and Key Findings
Staff is unable to recommend the program design proposed by this vendor for Palo Alto. In
principle, many of the risks identified during the risk assessment could be mitigated through
provisions incorporated into the agreement between the City and the vendor, and staff
proposed a variety of provisions during the negotiation process to do exactly that. However,
staff made very little progress over the past six months with the vendor in negotiating the
agreements due in part to the vendor’s unwillingness to modify key terms and conditions in
their participant agreements. Furthermore, there was no indication that continued negotiations
with the vendor would lead to a program that staff could recommend for the community. The
issue of primary concern is that a turnkey program offered through a public-private partnership
presents unique transparency and risk mitigation challenges. The City requirements for
transparency may be at odds with a vendor’s requirement for confidentiality. Furthermore, the
vendor may be reluctant or unwilling to modify terms and conditions to mitigate risk in their
turnkey participation agreements to which the City would not be a party. Without greater
transparency and vendor cooperation, the City is unable to effectively mitigate prospective
direct risks to the program participants. Furthermore, since any shortcomings of the program
would damage the City’s reputation and trust within our community, all direct risks to the
participants are in fact indirect risks to the City. If the City were a party to the agreements that
participants are asked to sign, the City’s approval process would serve an oversight function
and should help mitigate program participant risk.
A summary of key findings identified during the risk assessment is included in the table in
Attachment A. The risks identified in this table were compiled specifically for the proposed
program design in Palo Alto, and they may or may not apply to alternative program designs or
other utility service territories. Most general risks associated with solar project development
are not included explicitly in this table but also still apply to any solar project developed for a
community solar program5.
Next Steps
Although the RFP process, risk assessment and negotiations did not ultimately result in a
program that staff could recommend for the community, it was a valuable opportunity to
develop a comprehensive understanding of all of the complexities of developing and delivering
a community solar program. With this understanding as a foundation, staff has already begun
work to formulate an alternative program design. To address the primary issue of transparency
5
General risks of solar project development include, but are not limited to: risk that property damage occurs from
errors during construction and associated liability, risk that the solar installation will be subject to sabotage or
theft, risk that a change in policy may change the profitability of the project, risk that environmental damage
occurs during the construction or operation of the facility and associated liability, and risk that the facility
components generate less energy than expected over time.
City of Palo Alto
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and risk mitigation challenges associated with a fully turnkey solution, the City is looking into
developing a program that is not fully turnkey.
Additionally, utilities across the country are in the process of developing community solar
program models for their diverse service territories. In order to share Palo Alto’s perspective of
and experience with community solar and also to capitalize on the opportunity to learn from
utility peers, CPAU is participating in a project funded by the U.S. Department of Energy’s
SunShot Initiative called the “Community Solar Value Project”, which focuses on developing
ways to promote distributed community solar. As a part of the project, a small group of utility
market leaders meets periodically through the three-year project term with the ultimate goal of
developing and deploying community solar programs that successfully meet both their
customers’ and the utilities’ needs and expectations. The City submitted a participation letter
for the program (Attachment C) and is registered to attend the first workshop in June 2015.
Staff will evaluate other community solar program structures with the objective of providing
solar to Palo Alto residents unable to directly participate in installing solar systems on their roof
tops. Additionally, staff is currently reviewing the Local Solar Plan and may recommend
changes in light of the community solar vendor negotiations, the decline in the funds available
for the PV Partners program, and the need for a successor program to Net Energy Metering as
that program reaches its cap. Staff anticipates returning to the UAC with a full update on the
Local Solar Plan by the end of 2015.
Resource Impact
Staff time associated with ongoing program development is expected to be less than 0.25 fulltime equivalent (FTE) and absorbed by existing staff.
Policy Impact
The development of a community solar program is consistent with the Council-approved Local
Solar Plan and will facilitate achieving the overall Local Solar Plan goal of meeting 4% of the
City's energy needs from local solar by 2023. The community solar program also supports the
City's environmental sustainability goals, including those established in the Council-approved
Long-term Electric Acquisition Plan, the 2011 Utilities Strategic Plan and the City's Climate
Protection Plan. This recommendation is also consistent with the 2011 Utilities Strategic Plan
objective to offer programs to meet the needs of customers and the community.
Environmental Impact
Researching and developing a community solar program does not meet the California
Environmental Quality Act’s (CEQA) definition of “project” under California Public Resources
Code Sec. 21065, thus no environmental review is required.
Attachments:
 Attachment A: Summary of Key Findings from Risk Assessment of Proposed Program
Model in Palo Alto
(PDF)
City of Palo Alto
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

Attachment B: December 10, 2014 UAC Staff Report on the Proposed Community Solar
Program Design
(PDF)
Attachment C: Participation Letter for the Community Solar Value Project (PDF)
City of Palo Alto
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Attachment A: Summary of Key Findings
Summary of Key Findings from Risk Assessment of Proposed Program Model in Palo Alto
Category
Key Findings
Path Forward
1. Maintaining the
City’s requirements
for transparency
when partnering with
vendors
1.1. City requirements for transparency may be at odds with a vendor’s requirement
for confidentiality.
Community solar program models
could range from a fully turnkey to
fully utility designed and executed. A
fully turnkey program is unlikely to be
compatible with the City’s
requirements for transparency. The
City is exploring non-turnkey program
models, which lend themselves to a
greater degree of transparency.
2. Finding a host site
for the solar system
2.1. Sites that have enough space to host a 1-3 MW CEC-AC solar system include large
municipal facilities and other large non-municipal commercial buildings.
1.2. Turnkey program models offered by private companies that have participant
agreements exclusively between the vendor and the participant (and not the City)
present unique challenges for maintaining the City’s requirements for transparency
2.2. Due to the expensive and dynamic property market in Palo Alto, gaining site
control for the community solar system will be a major challenge. Staff was already
aware of this challenge, but it was confirmed repeatedly throughout the program
development process, including from feedback during the pre-proposal bidders call,
the interviews with the RFP finalists, and negotiations with the finalist vendor.
2.3. Commercial property owners can realize a more favorable return-on-investment
from a net-metered solar system compared to a solar system that is interconnected on
the utility side of the meter that receives a Palo Alto CLEAN feed-in tariff or payments
from a site lease for hosting a Community Solar system.
2.4. The total solar system capacity may be distributed among more than one building,
although a fewer number of facilities will result in a more cost-effective installation.
2.5. A solar system that is installed on a municipal building would offer greater
opportunities for community education and outreach. For instance, informational
materials could be installed at multiple locations around a municipal host site; a digital
display could be installed in the building lobby to show real time solar production to
the public; and the solar system on a municipal building would be more symbolic.
1
A clear path to securing a host site is
critical to successfully launch a
community solar program. Staff is
evaluating the option of using
municipal facilities to host the solar
system, which could facilitate the
process of launching the program and
enhance associated education and
outreach efforts
Attachment A: Summary of Key Findings
Summary of Key Findings from Risk Assessment of Proposed Program Model in Palo Alto
Category
Key Findings
Path Forward
3. Program offering
being considered a
security by the
Federal Securities
and Exchange
Commission or the
state counterpart
3. 1. A utility or other entity may submit a no-action request letter to the Federal
Securities and Exchange Commission (SEC) in order to gain clarity on whether a
program would likely be considered a security1.
Unless there is clarity from regulatory
entities in the near future about
whether various community program
models qualify as a security, staff
intends to go through the process of
filing a no-action request with the SEC
for the revised program model. Staff
will also further investigate whether it
is possible to go through a similar
process with the appropriate state
authorities to further mitigate risks
associated with the program offering
being considered a security.
3.2. The motivation of the participant and the perception of participation are key
considerations in determining whether a community solar program offering is
considered a security, which will be strongly influenced by the way in which a program
is communicated and marketed to prospective participants2.
3.3. Turnkey program vendors may offer to indemnify the City if the program is
investigated or later deemed a security, which would ostensibly transfer the risk from
the City to the vendor. However, indemnification does not minimize risk to the City,
since the City’s reputation and trust within the community are at stake if the
participants experience wrong-doing through a City-sponsored program. Therefore, all
direct risks to participants are also in fact indirect risks to the City.
4. Ownership of the
environmental
attributes
4.1. Participant ownership of the environmental attributes was identified by multiple
vendors responding to the RFP and by multiple national organizations as a major value
proposition to participants3. However, it is still unclear if customers in Palo Alto would
find much additional value in owning the environmental attributes from the
community solar program since the electric supply is already carbon-neutral.
4.2. If the environmental attributes from the program are used by the City for the
benefit of the entire community, then the City must market and communicate
program participation very clearly so that participants do not mistakenly believe that
they own the environmental attributes.
4.3. Even if the City communicates the program in a clear and precise way that the
environmental attributes are for the benefit of the entire community, a participant
1
Staff plans to conduct a focus group to
gain a more nuanced understanding of
our customers’ motivations for
participating in the program. With the
results from the focus group and an
understanding of the risk associated
with potential confusion and doublecounting of the solar system’s
environmental benefits, staff will
return with a proposal on ownership
of the environmental attributes, along
with the other program design details.
See the National Renewable Energy Laboratory’s report "Shared Solar: Current Landscape, Market Potential, and the Impact of Federal Securities Regulation",
http://www.nrel.gov/docs/fy15osti/63892.pdf (Accessed 6/3/15)
2
Ibid
3
See, for instance, the American Public Power Associations’ “An Introduction to Community Shared Solar Programs for Public Power Utilities” (2013).
2
Attachment A: Summary of Key Findings
Summary of Key Findings from Risk Assessment of Proposed Program Model in Palo Alto
Category
Key Findings
Path Forward
may still be under the impression that that he/she is receiving some of the
environmental benefits from the project. This could lead to a double-claim, which may
invalidate the environmental attributes associated with the solar system4.
5.Challenges
communicating and
marketing the
program
5.1. Even if a utility utilizes a fully turnkey program model in which the vendor
develops all marketing and communication materials and is interacting directly with
the customers for enrollment, the City will likely be perceived as responsible if the
program is marketed or communicated in a misleading or inaccurate way.
(See 3.2 and 4.2 for additional key findings related to communications and marketing.)
6. Ownership of the
solar system
6.1. In order to take advantage of federal incentives offered to tax-paying entities5 that
can total over 40% of the total solar system costs6, the solar system must be thirdparty owned for the first five years of commercial operation. After that point, the
third-party will have taken advantage of all available incentives and could transfer
ownership of the solar system.
6.2. Given the federal incentives will decrease significantly after December 31, 2016,
solar systems that are placed in service before that deadline will receive substantially
more incentives than those placed in service afterward.
6.3. Community ownership of the solar system was identified by multiple vendors
responding to the RFP and in research by national organizations as a major value
proposition to participants7.
4
Staff will require that any vendor that
takes on a marketing and
communications role seeks staff
approval of the marketing and
communications strategy and all
materials prior to distribution
Staff plans for the solar system to be
third-party owned for at least the first
five (5) years of operation in order to
enable the vendor to capitalize on all
available federal incentives necessary
to incent vendor participation. When
procuring the solar system, in addition
to requesting proposals offering a PPA
for the entire facility lifetime, staff
also plans to evaluate proposal
options for the City to purchase the
system after year five.
See, for instance, the Federal Trade Commission’s “Guides for the Use of Environmental Marketing Claims”, http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&sid=5de11e010afaa51af478dbd337f0cad6&rgn=div5&view=text&node=16:1.0.1.2.24&idno=16. (Accessed 6/3/15)
5
Information about the federal Business Energy Investment Tax Credit (ITC) can be found here: http://programs.dsireusa.org/system/program/detail/658; Information
about the federal Modified Accelerated Cost-Recovery System (aka “accelerated depreciation”) can be found here:
http://programs.dsireusa.org/system/program/detail/676. (Websites accessed 6/3/15)
6
An estimate for the value of federal accelerated depreciation is a 13-15% reduction in total system costs after the federal ITC. See “The Private Net Benefits of
Residential Solar PV: And Who Gets Them”, http://ei.haas.berkeley.edu/research/papers/WP259.pdf. (Accessed 6/3/15)
7
See, for instance, the American Public Power Associations’ “An Introduction to Community Shared Solar Programs for Public Power Utilities” (2013).
3
Attachment A: Summary of Key Findings
Summary of Key Findings from Risk Assessment of Proposed Program Model in Palo Alto
Category
Key Findings
Path Forward
7. Pricing for
participation in the
program
7.1. Program models that require participants pay the entire participation cost upfront are riskier to them, since the participants may lose all or some of their
participation costs and/or expected bill savings given unexpected events.
Staff is in the process of evaluating a
variety of alternative pricing options.
7.2. A low barrier to entry is expected to encourage broader participation.
7.3. A low barrier to entry combined with a low barrier to exit could result in significant
turnover, leading to higher ongoing program management costs.
8. Balance of risk
between the City and
the program
participants
8.1. The City will likely be perceived by the community as endorsing the program, even
if the program is offered through a turnkey vendor. This perception is driven by the
program’s use of the utility bill, the selection of a single vendor, and marketing
through the City’s official marketing channels.
8.2. Any participant risks that remain unmitigated may result in damage to the City’s
reputation within the community; therefore, all risks to participants should be
considered risks to the City. Utilizing a turnkey program would not be effective in
mitigating risks to the City, as may be the case with other types of program offerings.
4
This balance of risk between the City
and the program participants will be
reiterated when staff returns with an
alternative program design.
Participation in the resultant
community solar program may end up
being substantially less risky to a
customer than it would be if a
customer were to install solar on his
or her own roof.
Attachment B
MEMORANDUM
TO:
UTILITIES ADVISORY COMMISSION
FROM:
UTILITIES DEPARTMENT
DATE:
DECEMBER 10, 2014
SUBJECT:
Staff Recommendation that the Utilities Advisory Commission Recommend
that Council Establish a Local Community Solar Program, Including the Use of
the Environmental Attributes Generated via the Program, and the Program’s
Power Purchase Agreement Rate, Capacity and Term
2
RECOMMENDATION
Staff recommends that the Utilities Advisory Commission (UAC) recommend that the City
Council:
1. Establish the voluntary Community Solar Program, which will provide the opportunity
for residential and commercial customers to purchase panels in a centralized solar
installation sited within Palo Alto and receive monthly monetary bill credits on their
electric utility bill that correspond to the value of the output of their portion of the local
solar facility;
2. Approve the use of the environmental attributes of the solar facilities resulting from the
Community Solar Program toward the City’s Renewable Portfolio Standard (RPS) goal;
and,
3. Approve a power purchase agreement (PPA) between the City and the Community Solar
Program vendor, at a rate of 16.5 cents per kilowatt-hour (¢/kWh) fixed for up to 3
megawatts (MW) of capacity with the option for either a 20-year or 25-year term, for all
electricity and output.
EXECUTIVE SUMMARY
Launching the proposed Community Solar Program is another step to implement the Counciladopted Local Solar Plan, which has a goal to meet 4% of the City’s energy needs from local
solar by 2023. Community solar programs are growing rapidly across the U.S. because they
enable residents and businesses to experience and derive the benefits from cost-effective local
solar deployment, even if they are unable to install solar at their own premises, for example
because of shading, ownership, or structural reasons.
1
The proposed Community Solar Program allows participants to purchase solar photovoltaic (PV)
panels in a large, centralized solar installation and in return receive monthly bill credits on their
utility bill corresponding to the value of the output from their portion of the solar facility.
A third-party vendor will administer the program, seek participants, and will execute a PPA with
the City. Staff recommends that the PPA for the community solar facilities have the same rate
as the rate offered for local solar projects eligible for the Palo Alto CLEAN (Clean Local Energy
Accessible Now) program – 16.5 ¢/kWh fixed for either a 20-year or 25-year term, for all energy
and output up to a cap of 3 MW. Staff also proposes that the environmental attributes (i.e.
Renewable Energy Certificates or “RECs”) from the community solar facilities be retained by the
City to meet the City’s RPS goal. This is the same way that RECs will be used for local solar
generated under the Palo Alto CLEAN program.
Palo Alto residents and businesses will benefit from the program by having an option to
participate in community-owned solar even if their own premises are unsuitable for on-site
installation of solar facilities. In addition, the cost of developing and installing the centralized
solar facilities is expected to be lower than it would be for smaller systems on individual
customer roofs. The community solar facilities will contribute to the City’s Local Solar Plan and
RPS goals, and provide additional local benefits as well. The City’s role in the community solar
program is limited to review of program marketing materials and strategy and working with the
vendor to ensure proper monthly billing credits on the participants’ utility bills. The program
enrollment period is planned for Fall 2015, when the first solar facility available for the program
is expected to be completed.
BACKGROUND
The City of Palo Alto Utilities (CPAU) has been a leader in facilitating local solar PV
development. In 1999, CPAU launched the PV Partners program, which provides rebates to
encourage residents and businesses with good solar access to install solar PV systems and use
the energy on-site. In 2006, Palo Alto expanded the PV Partners Program to meet the
requirements set by California’s Million Solar Roofs Bill (Senate Bill 1, or “SB1”). Palo Alto’s
share of the state-wide SB1 goal is 6.5 MW. As of August 2014, all residential PV Partners
rebates funds have been completely reserved. There are currently limited commercial rebate
funds still available. Once the total $16.9 million program budget (including the pre-SB1
program and budget) is depleted and all installations are complete, the PV Partners Program
will have leveraged over 7.4 MW of solar PV system installations throughout Palo Alto.
In March 2012, the Council adopted the Palo Alto Clean Local Energy Accessible Now (CLEAN)
program (Staff Report 2548, Resolution 9235), which was designed to complement PV Partners.
Through the Palo Alto CLEAN program, building owners may lease their roof tops to solar
developers, or develop solar themselves, and sell the energy and renewable attributes directly
to the City at a fixed rate over a 20-year term. Currently, the Palo Alto CLEAN program price is
set to 16.5 ¢/kWh for a 20-year contract for up to 3 MW of generating capacity. Council
approved the Palo Alto CLEAN price in December 2012 (Staff Report 3316, Resolution 9308) and
reaffirmed it in February 2014 (Staff Report 4378, Resolution 9393) upon finding that local
2
renewable energy sources provide additional benefits to the City, the utility and its customers
that justify the CLEAN program price. The current program cap of 3 MW was set in February
2014. To date, there have been no participants in the Palo Alto CLEAN program.
In March 2014, the City released a Request for Proposals (RFP) for the installation and
operation of a solar PV system at one or more of the five City-owned parking structures (Staff
Report 4540). The RFP was structured to solicit projects that could be eligible to participate in
the Palo Alto CLEAN program to help stimulate participation. The City is in the process of
negotiating a site lease with the finalist at the time of writing.
In April 2014, the Council adopted the Local Solar Plan, which set the overarching goal of
meeting 4% of the City’s energy needs from local solar by 2023 (Staff Report 4608, Resolution
9402). For reference, from 1999 through 2013, the PV Partners program resulted in local solar
installations which account for approximately 0.7% of citywide energy consumption. Three
programmatic initiatives were identified within the Local Solar Program to enable the City to
achieve its aggressive local solar PV deployment targets. In priority order, the three programs
include:
1. Community Solar Program
2. Community Solar Donation Program
3. Solar Group-discount Program
The Solar Group-discount Program (aka “group-buy program”) was originally expected to
launch in early 2016 to coincide with the exhaustion of rebates under the City’s PV Partners
program. Staff expedited the development of the group-buy program since Palo Alto was able
to participate in a large, regional group-buy effort led by Foster City. An informational report
about Palo Alto’s participation in the Foster City-led solar group-buy program went to the
Utilities Advisory Commission in October 2014 and to City Council in November 2014 (Staff
Report 5144).
The Community Solar Program is the first programmatic priority. Community solar is defined as
“a solar-electric system that, through a voluntary program, provides power and/or financial
benefit to, or is owned by, multiple community members”1. Most utility-sponsored community
solar programs enable the utility’s customers to buy or lease solar panels in a centralized solar
array and receive regular credits via their utility bill. The Solar Electric Power Association (SEPA)
reported that the number of community solar programs across the U.S. jumped over 60% since
spring 20132. The success of community solar programs is attributed to the fact that many
people in the U.S. want to experience and derive benefit from solar energy; however, the
majority of the population is not able to install solar systems on-site because of ownership,
1
“A Guide to Community Solar: Utility, Private, and Non-profit Project Development”, U.S. DOE and Solar America
Communities Report. http://www.nrel.gov/docs/fy12osti/54570.pdf
2
Solar Electric Power Association’s “Expanding Solar Access through Utility-led Community Solar”.
https://www.solarelectricpower.org/media/214973/Community-Solar-Report-Executive-Summary-ver3.pdf
3
shading, structural, or financial issues3. A community solar program is one mechanism to widen
the solar energy participation pool by providing options to those unable to install solar on-site.
Mirroring the national trend, many Palo Alto residents and businesses are unable to install a
solar system on-site. Palo Alto has a large percentage of renters (42%), a sizable fraction of
residents living in multi-family homes (38%), and an extensive urban tree canopy that shades
numerous residential and commercial rooftops. Each of these groups— and others—would, for
the first time, have the opportunity to “go solar” via a community solar program.
DISCUSSION
Staff is seeking the UAC’s recommendations to the Council on three key policy-related
components of the Community Solar Program:
1. Program design;
2. PPA rate, term and maximum capacity; and
3. Treatment of RECs.
Staff released an RFP in July 2014 for proposals of a CPAU-branded community solar program
totaling 1 to 3 MW CEC-AC4 in capacity. The objective of the RFP was to select a vendor to
partner with the City to launch a community solar program within certain constraints, including:
 The City would not develop, own or maintain the solar facility;
 The solar facilities must be sited within City limits;
 The program had to work within the existing constraints of the City’s billing system and
therefore could not use virtual net-metering as the method by which customers
received credits; and
 The vendor had to take on the program administrator role.
Beyond the listed constraints, the RFP was open-ended, allowing vendors to propose
alternative solutions. A total of 7 vendors proposed a variety of different community solar
solutions. From the RFP submittal deadline of August 12, 2014 through November 2014, staff
carried out an extensive evaluation and legal review process to arrive at the proposed program
design described herein. Staff selected Clean Energy Collective (CEC), as the finalist vendor for
the program.
Program Design
In the proposed community solar program design, a participant pays a one-time up-front
“participation cost” on a dollars-per-watt basis for a specified amount of generating capacity.
Each month, the value of the energy produced from the participant’s panel(s) is added to the
participant’s electric utility bill as a monetary bill credit. The value of the energy is equivalent
3
National Renewable Energy Laboratory reports that only approximately 22-27% of residential rooftop area is
suitable for hosting an on-site solar photovoltaic (PV) system, after taking into account structural, shading, or
ownership issues. http://www.nrel.gov/docs/fy11osti/49930.pdf
4
The California Energy Commission Alternating Current, or CEC-AC rating is the product of the number of PV
panels, the Practical Test Conditions (PTC) rating per panel and the inverter efficiency.
4
to the kilowatt-hours of energy generated from the participant’s panel(s) multiplied by the PPA
rate for the community solar facilities5. Participation is open to both residential and
commercial customers.
With the proposed program design, the City would enter into a PPA with the vendor similar to
the Palo Alto CLEAN program PPA, for the energy and all output of the community solar
facilities, which will be third-party owned, operated, and maintained. Instead of paying a single
entity for the energy and output, CPAU will credit all of the program participants on their
electric utility bills for the energy and output from their respective portions of the community
solar facility. The City will also execute an agreement with the vendor covering program
marketing, administration enrollment and the integration of the monthly billing credit with the
City’s billing system. Each participant in the program will enter into a participation agreement
(subject to City review) directly with the program vendor to formalize the terms of participation
in the program.
Although staff has selected CEC as the vendor and recommends the program design described,
input from the UAC on the three policy components will provide direction to staff as it
negotiates the agreement between the City and CEC.
The City’s Responsibilities
CPAU’s responsibilities in the proposed program are limited to reviewing the program
marketing materials and the vendor’s strategy and plans to administer the program. CPAU
would also coordinate with the vendor to ensure proper billing arrangements for the monthly
bill credits and full subscription in the program. All program administration, marketing, and
operation costs incurred by CEC will be covered by participants.
If the program is not fully subscribed, then the City will pay the PPA rate directly to the owner
of the solar facility for the unsubscribed amount. While large volumes of unsubscribed energy
production are not expected, those volumes would be similar to production from a project
associated with the Palo Alto CLEAN project, whereby CPAU would pay for the energy produced
at the CLEAN rate of 16.5 ¢/kWh and be able to count the energy towards its RPS goal.
With the proposed program design, a participant’s on-site consumption is billed according to
the participant’s normal electricity rate schedule. The monthly bill credits are applied to the
participant’s bill separately, and are entirely independent of the participant’s on-site electricity
consumption. Figure 1 illustrates the relationship between CPAU, the vendor and the
participant.
5
Up to five percent of the value of the energy is diverted from the participant to the project LLC’s trust fund for
operations and maintenance expenses for the lifetime of the solar facilities.
5
Figure 1: Proposed Program Design
PPA Rate, Term and Maximum Capacity
Staff proposes using the Palo Alto CLEAN program rate approved by Council in March 2014 of
16.5 ¢/kWh for all energy and output for a 20-year or 25-year PPA term. Based on feedback
received through the RFP, this is the rate at which participation in a Community Solar Program
is likely to happen. A rate lower than 16.5 ¢/kWh will increase the participation cost, thus
making participation less attractive and the Community Solar Program perhaps not viable. The
Community Solar Program will provide the same benefits cited in the development of the Palo
Alto CLEAN program rate associated with local solar6 and will have the added benefit of
reaching more participants within the community. Staff recommends a cap of 3 MW for the
Community Solar Program to restrict the rate impact to non-participants associated with paying
16.5 ¢/kWh compared to the City’s electric avoided costs (10.3 ¢/kWh for 20-year term and
10.4 ¢/kWh for a 25-yer term). This cap is in addition to the 3 MW cap for the Palo Alto CLEAN
program.
Note that the investor-owned utilities in California are required to develop a “Green Tariff
Shared Renewable Program” under Senate Bill 43 (2013) and the statewide cap is 600MW.
CPAU’s proposed program design with a 3 MW cap is, therefore, in line with current industrywide trends.
Treatment of RECs
Staff proposes that the PPA rate be set to include all energy and output from the community
solar facilities, and that the City retain the environmental attributes (i.e. RECs) for the City’s RPS
goals. The proposed treatment of RECs is the same as with the Palo Alto CLEAN program with
6
In Resolution 9393, the Council found that additional benefits from local solar installations include benefits to the
local economy since electric expenditures stay in the community, reduced need for long distance transmission
lines (and the environmental consequences thereof) when electric supplies are located near demand,
improvements in transmission-constrained regions like the Bay Area, value from shade on rooftops and parking
facilities, and, in combination with storage systems, the potential to provide resiliency to the City's electric
distribution system.
6
the environmental benefits being shared across the community because the RPS goal applies to
the City as a whole.
Impact on Cost to meet RPS Goal
With a Community Solar Program project sized at 3 MW, approximately 5,100 megawatt hours
per year of bundled energy and RECs would be produced to meet the City’s RPS goal at a green
premium of about 0.03 ¢/kWh. The total of this rate impact along with the rate impact from
the City’s other renewable energy purchases is about 0.2 ¢/kWh, well within the 0.5 ¢/kWh rate
impact limit approved by Council when it adopted the RPS goal.
Table 1 summarizes the City’s current renewable energy supplies and their respective
contributions towards the green premium limit of about $4.9 million/year (0.5 ¢/kWh).
Table 1 – Summary of the City’s Current and Proposed Renewable Energy Supplies
Adjusted
Total
Annual Levelized
Green
Delivery
Brown
Green
Generation Price
Premium
Begins
Market Price
Premium
(GWh)
($/MWh)
($/MWh)
($/MWh)
($1000/yr)
Small Hydro
Before 2000
10.0
N/A
N/A
0
0
High Winds
Dec. 2004
48.2
57.6
55.0
2.6
123
Shiloh Wind
June 2006
64.5
63.0
69.5
(6.5)
(419)
1
Santa Cruz LFG
Feb. 2006
9.9
62.3
59.3
3.0
29
Ox Mountain LFG
April 2009
43.9
59.0
67.5
(8.5)
(375)
Keller Canyon LFG Aug. 2009
14.9
70.8
83.9
(13.0)
(194)
Johnson Canyon LFG Mar. 2013
10.4
123.6
67.3
56.3
588
San Joaquin LFG
April 2014
30.3
118.1
75.6
42.4
1,285
EE Kettleman Solar June 2015
53.5
77.0
60.1
16.9
903
Elevation Solar C
Dec. 2016
100.8
68.8
72.7
(4.0)
(399)
W. Antelope Solar Dec. 2016
50.4
68.8
69.2
(0.4)
(22)
Frontier Solar
Dec. 2016
52.5
69.0
67.1
1.9
98
Hayworth Solar
June 2015
60.0
68.7
65.0
3.7
220
Total Committed Projects
549
Total Committed Green Premium
1,840
Community Solar
Fall 2015
5.1
165.0
102.6
62.4
320
Total with 3 MW of Community
Total Green Premium with 3 MW
554
2,1602
Solar
of Community Solar
Notes: 1 LFG refers to a landfill-gas-to-energy project
2 The annual green premium associated with a rate impact of 0.5 ¢/kWh is equal to $4.9 million
so the $2.16 million shown equates to a rate impact of about 0.22 ¢/kWh
Value Proposition to Customers
The value proposition to participants is a primary consideration for creating a successful
community solar program. The estimated participation cost for the proposed Community Solar
Program is approximately $3.38 per Watt-DC, using base case assumptions for interconnection
7
and site lease costs. This estimated participation cost is competitive with the actual price of
solar PV systems installed throughout Palo Alto over time, as shown in Figure 2.
Figure 2: Installed System Costs for Solar PV in Palo Alto through Early 2014
The dotted horizontal line in Figure 2 is the estimated participation cost ($3.38/W-DC, or
approximately $4.23/W CEC-AC) of the proposed Community Solar Program.
With the proposed program model, the value proposition can be calculated up-front. Under
the proposed program design where the RECs are retained by the City, using the estimated
participation rate of $3.38 per Watt-DC, a PPA rate of 16.5 ¢/kWh, and expected output of
1,500 kWh per kW-DC of installed capacity, the resultant simple payback period is within 15
years. Unlike with a customer-sited, net-metered solar installation, the payback period for
community solar program participation with the proposed program design does not depend on
how electricity prices escalate over the lifetime of the solar facility.
Legal Implications
While community solar programs have existed for years and have been carried out successfully
in many communities throughout the country, challenges related to conformance to certain
federal and state securities laws and regulations exist, depending on how the programs are
structured. A key issue is whether participation in a community solar program may be
8
construed as an investment and/or security and therefore subject to certain registration and
disclosure requirements. According to CEC, its program model conforms to federal and state
securities, tax and consumer protection laws. CEC has agreed to indemnify, protect and defend
the City from any investigations, audits, liabilities or lawsuits arising from the proposed
program structure. Additionally, the CEC’s model has strict rules about how participants can
transfer their program participation if they either leave their incumbent utility’s service
territory or desire to terminate participation in the program for any reason.
ALTERNATIVES
Alternative Program Design
Two alternative program designs emerged as the most prominent and viable alternatives from
the initial staff background research and the subsequent RFP evaluation processes.
Alternative Program Design #1: A solar green power program
The first program design alternative is a green power program using exclusively solar energy. In
this program, a participant transitions to a “community solar” rate so that the participant’s
consumption is met with local solar and charged accordingly. This program design is similar to
the former PaloAltoGreen electric program for residential customers except that it would use
bundled RECs from local solar projects instead of unbundled RECs for the program’s green
attributes. Like with the former PaloAltoGreen electric program, participants would opt into the
program and agree to pay for their electricity consumption according to the rate specified in
the community solar rate, which will guarantee that their energy needs are met with local solar
energy. Depending on how the program is structured, the rate could be fixed for a specified
period of time. A notable example of a utility-sponsored community solar program utilizing this
program design is Salt River Project’s program called SRP Community Solar7.
Staff recommends not pursuing this program design alternative for two primary reasons. First,
in June 2014 Council decided to terminate the PaloAltoGreen electric program for residential
customers (Staff Report 4718, Resolution 9422) since, due to the carbon neutral electric supply,
they no longer need to participate in the program in order to eliminate the GHG emissions
associated with their electric usage. In addition, commercial customers can still participate in
the PaloAltoGreen electric program to continue to be qualified for certain sustainability
programs, and the new PaloAltoGreen Gas program will be launched shortly. Pursuing a
program design that is distinct from a green power purchase program will increase the diversity
of CPAU’s program offering to its customers and also reduce the risk of cross-program
confusion and competition.
The second reason why staff recommends not pursuing this program design is that many
successful community solar programs have espoused the tangible connection between the
program participant and the solar installation as a reason for the success of the program, which
more closely matches the tangible connection between a home owner and his/her on-site solar
installation. In some programs, for instance, participants are even allowed to sign their names
7
http://www.srpnet.com/environment/communitysolar/home.aspx
9
on the backs of “their” solar panels. This strong tangible connection between the participants
and specific solar panels is not an attribute of a green power purchase program, especially
when participants can opt in and opt out at any time.
Alternative Program Design #2: Monthly subscription cost combined with virtual net metering
In this alternative, a participant pays a monthly subscription charge on a dollars-per-watt basis
for a specified amount of capacity generated from a local solar facility, and each month the
corresponding energy production from the panels is added as a kilowatt-hour credit to the
participant’s -bill to offset on-site consumption via “virtual net metering”. A notable example of
a utility-sponsored community solar program with this program design is the Sacramento
Municipal Utility District’s (SMUD’s) SolarShares8 program.
Staff does not recommend this alternative since implementing virtual net metering with CPAU’s
current billing system would be prohibitively expensive and require substantial staff resources.
Furthermore, a subscription-based program option would require greater ongoing resources to
administer the program if the commitment period for participants is less than the lifetime of
the solar facility. Given that the proposed program size is small (1-3 MW), the large associated
resource impacts of implementing virtual net metering in the billing system and administering a
subscription program are challenging to justify given other viable program designs.
Alternative Treatments of RECs
Staff recommends that the RECs associated with the solar energy produced from the program
be provided to the City. A potential disadvantage of this program design option is that
participants cannot claim the environmental benefits from the community solar facilities. One
alternative is for the City to retire the RECs on behalf of the program participants, as SMUD
does with its Solar Shares program. In this way, participants can claim the environmental
benefits, the same as home or business owners who install solar systems on their own roofs.
However, if the PPA price paid was still 16.5 ¢/kWh, then the financial impact of the program
on electric ratepayers would be increased compared to staff’s recommendation. This is
because after the RECs are retired on behalf of program participants, CPAU would need to buy
additional unbundled RECs to “green” the power from the project to maintain the carbon
neutrality of the supply portfolio. Unbundled RPS-eligible RECs currently cost approximately
$1.50/MWh.
One way to address that concern is to reduce the PPA price to 16 ¢/kWh, which is the Palo Alto
CLEAN rate minus the cost of solar (non-RPS) RECs estimated at $5/MWh (0.5 ¢/kWh). The
vendor would then retire the RECs on behalf of the program participants, and the participants
would pay for the RECs indirectly through a higher up-front participation cost. As with the
previous alternative, CPAU would still need to buy additional unbundled RECs to “green” the
wholesale brown power to maintain the supply portfolio’s carbon neutrality. This alternative
would decrease the financial impact of the program on electric ratepayers since unbundled
8
https://www.smud.org/en/residential/environment/solar-for-your-home/solarshares/index.htm
10
RECs are cheaper than solar (non-RPS) RECs. However, the higher up-front participation costs
and resultant longer payback periods will make the value proposition to participants less
appealing.
The three REC treatment options and corresponding costs are summarized in Table 2 below.
The annual costs are calculated based on a 3 MW CEC-AC program and a 20-year PPA term.
The avoided cost for procuring renewable energy and delivering it to Palo Alto is estimated to
be 10.3 ¢/kWh for a 20-year term.
Table 2: Annual Cost of REC Treatment Options
Annual Excess
Estimated
Cost
Cost*
Participation
Option
(¢/kWh)
(Rate Impact) Cost ($/W-DC)
1. Staff Recommendation: City pays for
energy and RECs at the Palo Alto CLEAN
price and retains the RECs for the City’s RPS
16.5 ¢/kWh
$320,000
(0.27%)
$3.38 per
Watt-DC
2. City pays for energy and RECs at the CLEAN
16.5 ¢/kWh
$335,000
price and retires them on behalf of all
+ Carbon(0.28%)
program participants
Neutral costs
3. City pays for energy at the CLEAN price
16 ¢/kWh
$295,000
minus the value of a solar REC**; Vendor
+ Carbon(0.25%)
retires RECs on behalf of participants;
Neutral costs
Participants pay for RECs through higher
participation costs
*The cost compared to the cost of buying renewable energy outside of Palo Alto
**Solar (non-RPS) RECs are estimated to cost approximately $5/MWh
$3.38 per
Watt-DC
$3.40 per
Watt-DC
NEXT STEPS
Staff intends to seek Finance Committee recommendation and City Council approval of the
proposed Community Solar Program along with a professional services agreement and PPA in
early 2015. Table 3 is a tentative timeline for the roll-out of the Community Solar Program. As
shown, enrollment of participants does not begin until the solar facility is completed.
Month
Feb. 2015
March 2015
Summer
2015
Fall 2015
Fall 2015
Table 3: Tentative Timeline for the Community Solar Program
Description
 Finance Committee
 Council action
 Development of marketing materials
 Modifications to CPAU billing system to accommodate monthly bill credits
 Solar facility(s) completed
 Participant enrollment
11
RESOURCE IMPACT
Staff estimates the current cost of buying renewable energy outside of Palo Alto is 10.3 C/kWh
(including transmission) for a 20-year contract or 10.4 C/kWh for a 25-year contract.
Purchasing the energy generated from 3 MW of local solar projects at 16.5 C/kWh is expected
to cost about $320,000 per year more than buying the same energy outside of Palo Alto, or $6.4
million over a 20-year term . The increased cost is expected to be about $310,000 per year, or
$7.8 million over a 25-year term. If the program increased costs by $320,000 per year, that
would correspond to a .27% increase in the electric utility's costs, which would increase the
system average electric rate by 0.033 C/kWh. This is equivalent to a bill impact of $2.60 per year
for a customer using 650 kWh/month or $1.60 per year for the median residential customer
using 410 kWh/month.
Staff time associated with program review, marketing, and administration will be minimal and
absorbed by existing staff, as the program will be primarily marketed and administered by the
contracted vendor. Any vendor costs associated with program marketing and administration
costs are passed on to program participants through the up-front participation costs.
POLICY IMPACT
The recommendation to establish a Community Solar Program is consistent with the Councilapproved Local Solar Plan and will facilitate achieving the overall Local Solar Plan goal of
meeting 4% of the City'°s energy needs from local solar by 2023. The Community Solar Program
also supports the City's environmental sustainability goals, including those established in the
Council-approved Long-term Electric Acquisition Plan, the 2011 Utilities Strategic Plan and the
City's Climate Protection Plan . This recommendation is also consistent with the 2011 Utilities
Strategic Plan objective to offer programs to meet the needs of customers and the community.
ENVIRONMENTAL IMACT
The UAC's review of and recommendation regarding this proposal is not subject to California
Environmental Quality Act review because it does not meet the definition of a " project" under
Public Resources Code section 21065.
PREPARED BY:
AIMEE BAILEY, Resource Planner
LINDSAY JOYE, Marketing Engineer
MONICA PADILLA, Senior Resource Planner
REVIEWED BY:
APPROVED BY:
12
Attachment C