BUSINESS OF THE COUNCIL OF THE CITY OF HALF MOON BAY
AGENDA REPORT
For meeting of: January 16, 2024
TO: Honorable Mayor and City Council
VIA: Matthew Chidester, City Manager
FROM: Maz Bozorginia, Public Works Director/City Engineer Veronika Vostinak, Public Works and Sustainability Programs Manager TITLE: MUNICIPAL ENERGY PROJECTS
______________________________________________________________________________ RECOMMENDATION:
Provide direction to staff on which option to move forward with on the Municipal Energy Projects.
FISCAL IMPACT:
Staff are providing the Council with two options to consider. Each option has certain financial implications, which are detailed in the Staff Report. The exact level of financial impact and cost to the City will be determined by more detailed studies in the future with either option.
STRATEGIC ELEMENT:
This action supports the Infrastructure and Environment and Healthy Communities and Public Safety Elements of the Strategic Plan.
BACKGROUND:
The City Council has expressed interest in installing solar photovoltaic (PV) systems on City Facilities to promote the use of renewable energy and reduce electricity costs. Additionally, the City Council aims to electrify all municipal facilities in order to set an example for the community to reduce greenhouse gas emissions stemming from our City operations. Both goals were formally adopted in the City’s Climate Action and Adaptation Plan (CAAP) Phase 1, in December 2023. Specifically, the goals are as follows:
• ME-1: Employ carbon-free electricity for all municipal operations and increase supply of local, renewable energy supply at municipal facilities. • ME-2: Electrify all municipal facilities by 2025.
• ME-3: Increase the energy efficiency of all municipal facilities and operations. 128
DISCUSSION:
Throughout 2023, staff explored two different potential paths to add additional solar PV to City Facilities. Staff have reached a point that requires City Council direction on which path to pursue, considering the potential benefits and costs to the City.
Staff is presenting two options for the City Council to consider:
(1) Enter into a Power Purchasing Agreement (PPA) as part of the Solar & Storage for Public Buildings Program, or
(2) To own the system outright and complete a more comprehensive project, which includes City Facility electrification and EV charging, complementary goals identified by the City Council and in the City’s CAAP.
Either option would result in more generation of renewable energy on City Facilities, but they differ in capital cost contribution and financial benefits. Details of both options are discussed below. In order to keep the explanation of both options as objective as possible, Staff has removed the names of the entities leading the efforts below.
Option 1: Enter Into a PPA
A PPA is a financial arrangement in which a third-party developer owns, operates, and maintains the PV system, and a host customer agrees to site the system on its property and purchases the system's electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable and o�en low-cost electricity, while the solar services provider or another party acquires valuable financial benefits, such as tax credits and income generated from the sale of electricity. With this business model, the host customer buys the services produced by the PV system rather than the PV system itself.
Under this model, the third-party would own the system for up to 20 years with an option for the City to extend the PPA for an additional 5 years. Final terms are still to be determined, but the City will have the option to pay more per kilowatt hour (kWh) upfront and keep the same rate over the term of the PPA or pay less per kWh to begin with, and energy costs per kWh will increase by 2% each year for the term of the PPA. With either option, the electricity rates in the PPA are expected to be less than those available at retail rates through PG&E/PCE. The California Public Utilities Commission estimates that energy rates will escalate at an average of
3.7% per year through 2030. However, in 2023 PG&E announced an 18% rate increase and 5% annual increases through 2026. Future rates may also be impacted by power capacity constraints, investment in grid infrastructure to support vehicle and building electrification, and grid hardening and undergrounding for wildfire mitigation.
In 2022, Staff collaborated with the Cabrillo Unified School District (CUSD) to explore possibilities of a joint Power Purchase Agreement (PPA). The goal was to leverage both agencies' facilities to create a larger and more attractive investment portfolio for developers.
During this process, CUSD and the City staff discovered that Entity A was offering a program that combined projects with participating public entities within the County. As a result, CUSD and City Staff decided to dedicate their resources to exploring PPA options with Entity A and 129
other projects individually. Both agencies have continued to express support for each other’s projects when possible.
Entity A explored multiple potential sites for solar PV and decided to move forward with interconnection applications and preliminary designs for systems at City Hall and the Sheriff’s Substation. Entity A completed the interconnection applications for both identified PV sites on behalf of the City so it can benefit from Net Energy Metering 2.0 pricing to realize better financial benefits for solar projects at these sites. This remains true whether the City decides to continue with Entity A or any other vendor, as long as construction is completed by April 2026.
Staff has identified that Entity A’s current design at City Hall would require roof replacement prior to installation which has not been budgeted for FY 2023-24, nor has it been included in Option One’s scope. Additionally, the current City Hall design may cause conflict with the historic view corridor from Main Street to the historic jail and may interfere with some of the presented options for a proposed park in the west portion of the City Hall parking lot. City staff alerted Entity A’s staff of these potential issues and they will be further explored once a vendor is selected for engineering, procurement, and construction.
Benefits
• No upfront cost to the City
• Lower and more predictable energy costs compared to retail rates • Utilizes NEM 2.0 pricing structure
Considerations
• City must pay market value for the panels or have PV removed (at no cost) at the end of the 20–25-year term
• Some work must be done prior to installation at the City’s cost:
o Roof repair ($70,000+, not budgeted in FY 2023-24)
o Internet Connectivity ($1,000+, not budgeted in FY 2023-24) • PV-only project
• Entity A retains ownership rights for Renewable Energy Credits (RECs) Sustainability Staff and the City Atorney are reviewing the terms of the preliminary agreement and the final agreement terms are expected to be available in late January. En�ty A will be looking for the City to make a formal agreement to con�nue with the PPA once those terms are available.
Option 2: Own PV System and Combine with Facility Electrification, EV Charging, and Roof Repair
Staff worked with Entity B to scope another option for the City to own the PV systems and complete a more comprehensive project that included related goals that can be completed at the same time. Entity B has worked with staff to conduct a no-cost evaluation of potential projects and to provide preliminary cost estimates for this holistic project option. 130
The scope for Option 2 proposal includes PV installation at the City Hall and Sheriff Substation parking lots, Public/City EV charging at City Hall, electrification of City Hall, Ted Adcock Community Center, Train Depot, Corporation Yard, and the Emergency Operations Center, and City Hall roof repairs. This comprehensive approach enables the City to take advantage of more incentives and energy savings by combining various components into a single project. As a result, the City can leverage the greatest number of incentives and accomplish these related goals at once, and much quicker than if the City were to undertake the projects individually.
With this project approach, the City would retain ownership of the PV systems and realize their full financial benefits, including the lowest energy costs and ownership of RECs. Due to size and shading constraints, the PV system would offset about 88% of energy costs at both City Hall and the Sheriff Substation.
Entity B has presented three financing options that utilize PCE's 1% and TELP's 4.97% loans for the full scope. Option 2A would allow for the entire project to be financed using no upfront capital investment, Option 2B utilizes Capital Improvement Funds for City Hall HVAC Replacement budgeted for FY 2023-24 and a grant available through PCE’s GovBE program, and Option 2C would require an upfront capital investment where the cost savings from the project cover the financing cost. Options 2B and 2C are anticipated to realize net positive financial benefit over the 30-year estimated life of the PV system whereas 2A results in a negative cost to the City over the life of the system.
Benefits:
• Lowest energy cost
• Holistic project that includes facility electrification, EV charging, and needed roof repair along with PV system installation
• Captures over $620,000 in project incentives
• City retains RECs
• Can leverage interconnection applications to realize NEM 2.0 benefits Considerations:
• Multiple financing options:
o Option 2A has no upfront cost to the City but does not realize net positive financial benefits
o Option 2B leverages funds from a FY 2023-24 budgeted project and expected grant from PCE’s GovBE program and results in net positive financial benefit at year 23
o Option 2C requires upfront capital investment but realizes net positive financial benefit at year 18
To date, Entity B has completed its preliminary assessment at its own expense. However, to proceed with a more detailed audit and scoping, Entity B requests that the City agrees to help recover the costs, up to $30,000, in case the City decides not to move forward with a final 131
project. On the other hand, if the City decides to proceed with the project with Entity B after the more detailed scoping, the costs incurred will be included in the overall project scope.
Next Steps
Based on the Council’s direction, staff will continue to work with the selected entity and will provide Council updates at critical milestones for their information and ultimate approval. 132