City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: March 18, 2024
Staff Report: 2403-2726
TITLE
Approval of Amended Palo Alto CLEAN Program Rules and Requirements, Handbook, and Power Purchase Agreement; CEQA Status: Not a Project under CEQA Guidelines Sections 15378(a) and (b)
RECOMMENDATION
Staff recommends that the City Council:
1. Approve the attached amended Clean Local Energy Accessible Now (CLEAN) Program Eligibility Rules and Regulations (Attachment A) as follows:
a. Continue the CLEAN Program rate structure for local solar energy resources at 16.5 cents per kilowatt-hour (¢/kWh) until the program reaches 3 MW of solar energy resource capacity, after which the contract rate for solar energy resources reduces to the City’s estimated avoided cost of energy generated by these resources, which is updated to:
i. 9.5 ¢/kWh for a 15-Year Contract Term,
ii. 9.8 ¢/kWh for a 20-Year Contract Term, and
iii. 10.2 ¢/kWh for a 25-Year Contract Term; and
b. Continue the CLEAN Program rate structure for local non-solar eligible renewable resources without any participation cap at a contract price equal to the City’s estimated avoided cost of energy generated by these resources, which is updated to:
i. 9.4 ¢/kWh for a 15-Year Contract Term,
ii. 9.8 ¢/kWh for a 20-Year Contract Term, and
iii. 10.1 ¢/kWh for a 25-Year Contract Term.
2. Approve the attached amended CLEAN Program Handbook (Attachment B) to extend the allowable time to complete a project to three years from the date of execution of the Power Purchase Agreement (PPA) for affordable housing developments.
3. Approve the attached amended Palo Alto CLEAN Program Eligible Renewable Energy Resource PPA (Attachment C) to implement the recommended changes to the CLEAN Program.
EXECUTIVE SUMMARY
The Palo Alto CLEAN program, established in March 2012, aimed to encourage local generation of solar energy by allowing property owners to install solar systems and sell energy to the City under a fixed-rate, long-term contract. Initially priced at 14 ¢/kWh for a 20-year term, the program failed to attract interest. In December 2012, the Council increased the contract price to
16.5 ¢/kWh, which has been maintained since. Despite no applications in the first four years, since 2016 the program has enrolled six currently operating solar projects totaling 2.84 MW of capacity.
Currently, a customer planning an affordable housing development wishes to submit a CLEAN solar project application but requires an extension of the completion deadline from one to three years to align with permitting and construction timelines for housing projects in Palo Alto. This modification, while maintaining the same initial rate and program capacity, would have minimal financial impact on the City. Staff supports the request and has proposed changes to the program rules and contract designed to accommodate the customer's needs as well as the needs of future residential construction developments that satisfy the basic affordable housing requirements.
Council action will also update the avoided costs for CLEAN projects and make conforming changes in the City’s CLEAN Power Purchase Agreement.
BACKGROUND
In March 2012 the Council adopted the Palo Alto CLEAN program (also commonly referred to as a feed-in tariff, or FIT, program). The program was designed to address the City’s objective of enhancing supply reliability through the pursuit of local generation opportunities. Palo Alto CLEAN enabled property owners to build a new solar system on their property and sell the energy to CPAU under a long-term, fixed-rate, standardized contract rather than simply using the energy on-site.
Though solar developers expressed interest in Palo Alto CLEAN in 2012, the initial contract price (14 ¢/kWh for a 20-year term) proved insufficient to attract any program applications. Council increased the Palo Alto CLEAN price to 16.5 ¢/kWh in December 2012, and has maintained it at that level ever since (last reaffirming it in May 2017). In May 2015, Council added a 25-year contract term option, and expanded the program to include non-solar eligible renewable energy resources, setting their contract prices at the avoided cost level. In May 2017, Council added a 15-year contract term option and updated the avoided cost rates. After receiving zero applications in its first four years, since 2016, the CLEAN program has executed contracts for six solar projects that account for about 2.84 MW of capacity.
ANALYSIS
Staff has recently discussed the program structure with a customer who is working on a residential development that consists of 100% affordable housing units and who intends to submit an application for a CLEAN solar project that would consume a significant portion of the remaining 160 kW of solar program capacity available at the 16.5 ¢/kWh rate. In order for this solar project to go forward, the customer requested that the CLEAN program rules be modified to extend the project completion deadline to align with the City’s permitting and construction timeline for housing developments, from the current one-year timeline to up to three years.
Making this modification to the CLEAN program – while maintaining the same contract rate and program capacity available at this rate – would have virtually no financial impact on the City. As such, staff supports the customer’s request, and the proposed program changes are designed to accommodate that request. Council action will also update the avoided costs for CLEAN projects for the first time since 2017. This change would result in no financial impact to the City.
FISCAL/RESOURCE IMPACT
The following table summarizes staff’s estimates of the current cost of buying energy from solar resources outside of Palo Alto (including transmission and capacity) over a 15-year, 20-year, or 25-year term, as well as the annual excess costs of purchasing the output from an additional 160 kW of local solar projects at a contract price of 16.5 ¢/kWh over those terms. (For non-solar renewable energy projects, and for solar capacity that exceeds the 3 MW program cap on the
16.5 ¢/kWh contract rate the excess cost is zero, because the contract rate is set based on the City’s avoided cost for the energy.)
Contract Term Contract Rate Avoided Cost Annual Excess Cost 15 years 9.5 ¢/kWh $24,500
20 years 9.8 ¢/kWh $23,500
25 years
16.5 ¢/kWh
10.2 ¢/kWh $22,000
STAKEHOLDER ENGAGEMENT
In considering the proposal to extend the completion deadline for certain projects in the CLEAN Program, staff has had multiple conversations with the customer who requested this modification about the impact it would have on their affordable housing development as well as the future residents of this development. Utilities staff also consulted with Planning and Development Services staff with regard to the City’s affordable housing standards and the typical timeline for completion of new residential housing developments. Finally, Utilities discussed the CLEAN Program modifications recommended here with the Utilities Advisory Commission (UAC) at their meeting on March 14, 2024. The UAC’s feedback is summarized in a supplemental memo to this report.
ENVIRONMENTAL REVIEW
Adoption of the attached resolution and the associated amendment of the CLEAN Program Eligibility Rules and Requirements and Power Purchase Agreement is not subject to California Environmental Quality Act (CEQA) review these are administrative government activities that will not result in any direct or indirect physical change to the environment as a result (CEQA Guidelines section 15378(b)(5)). Eligible customer projects are subject to CEQA analysis on a project-level basis through the City’s development permitting process.
ATTACHMENTS
Attachment A: Palo Alto CLEAN Program Rules & Requirements (redline) Attachment B: Palo Alto CLEAN Program Handbook (redline) Attachment C: Palo Alto CLEAN Program Power Purchase Agreement (redline) APPROVED BY:
Dean Batchelor, Director of Utilities
Staff: James Stack, Ph.D., Senior Resource Planner