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Power Purchase Agreements 2009 Federal Environmental Symposium - West 2 -4 June 2009 Chandra Power Purchase Agreements 2009 Federal Environmental Symposium - West 2 -4 June 2009 Chandra Shah, NREL 303 -384 -7557 [email protected] gov Amy Solana, PNNL 503 -417 -7568 amy. [email protected] gov

Overview § § § Why Do a PPA? PPA Options Key PPA issues Project Overview § § § Why Do a PPA? PPA Options Key PPA issues Project process Project examples

Why Do a PPA? • Provides physical power instead of a REC • Purchase Why Do a PPA? • Provides physical power instead of a REC • Purchase can earn “double credits” if on Federal or Indian land • Contract price provides budget certainty • On-site project can provide energy security • Purchase from off-site can increase regional reliability through fuel diversity

Progress on EPAct Renewable Goal • Preliminary data • High reliance on short-term purchases Progress on EPAct Renewable Goal • Preliminary data • High reliance on short-term purchases (especially RECs) • Self-generated declined due to REC retention requirement and restrictions on existing projects • Hard to recover this much by FY 2010 Note: 2007 and 2008 data is preliminary, pending review and concurrence on annual Federal Renewable Energy Report to Congress and Federal Annual Energy Report.

Customer-Sited PPA § § Private entity installs, owns, operates, and maintains customer-sited (behind the Customer-Sited PPA § § Private entity installs, owns, operates, and maintains customer-sited (behind the meter) renewable equipment Pros • Private entity eligible for tax incentives (unlike ESPC/UESC) • • § Tax credits Tax exemptions Depreciation and other deductions No agency up-front capital required Developer provides O&M Contract directly with developer - minimizes overhead/profit costs No transmission costs May be able to partner with utility that wants RECs but not the power Cons • • • Generally requires long-term contract Government never owns the assets, just pays and pays New process, limited federal sector experience Some renewables (e. g. , solar and wind) not “firm” so need to procure make-up power for reliability Utility can say “no” in some states Utility can impose back-up charges

Purchase from Off-site Project • Third party owns/operates project. Could be utility, government agency/tribe, Purchase from Off-site Project • Third party owns/operates project. Could be utility, government agency/tribe, not-for-profit, or independent power provider. Power is provided through regional power grid or “over the fence. ” • Pros – Off-site sources often better and cheaper than those on-site – Transmission access from project to customer governed by utility regulations and tariffs. But, can be costly and may be illegal. – May be able to partner with utility that wants RECs but not the power • Cons – – Similar to on-site projects Requires utility okay or deregulated status Faces transmission costs/congestion fees May require two suppliers: one renewable, one for make-up power

Key PPA Issues § PPA contract length • Long-term best – at least 10 Key PPA Issues § PPA contract length • Long-term best – at least 10 years, preferably 20 (DOD only at present) • Evaluating authorities and options ü FAR Part 41 – Utility Services ü FAR Part 12 – Acquisition of Commercial Items ü FAR Part 15 – Contracting by Negotiation ü DOD 30 -year authority (2922 A) – requires Secretary of Defense approval ü Other

Key PPA Issues (On-Site Projects) § Land use agreement – lease, easement, license, other Key PPA Issues (On-Site Projects) § Land use agreement – lease, easement, license, other • Separate contract • Contract length limitations likely (agency authorities vary) • May include site access, environment, safety, security provisions • Investigate options early § National Environmental Policy Act (NEPA) requirements • Crucial to investigate requirements early in process • Check state/local environmental requirements also

Key PPA Issues § Renewable energy certificate (REC) ownership • Ensure that PPA contract Key PPA Issues § Renewable energy certificate (REC) ownership • Ensure that PPA contract explicitly spells out REC ownership • Solar RECs may be very valuable (see states with RPS solar setasides) ü “REC swap” option for credit towards EPACT RE goal and get double bonus (sell valuable RECs, purchase cheaper national RECs) ü Federal Renewable Guidance http: //www 1. eere. energy. gov/femp/pdfs/epact 05_fedrenewenergyguid. pdf ü REC monthly price report http: //www. evomarkets. com/resources/index. php? xp 1=1&type=mmu § PPA Electricity Price • • Fixed price Tied to utility rate Price with escalation factor (usually 1 -3%) Evaluate price and escalation factors carefully

Key PPA Issues § Utility interconnection issues § Size matters - small projects (up Key PPA Issues § Utility interconnection issues § Size matters - small projects (up to 10 -20 MW) can be exempted, but large projects almost always have to go through utility § Expensive and time consuming § Metering issues § Particularly for rooftop solar § Where is it metered and by whom? § Utility-metered or “net” metered behind their meter? § Does the customer need to have own metering for billing tenants? § Legal issues – only legal in deregulated states or where utility is cooperative per 40 USC 591 § Incentives (see http: //www. dsireusa. org/)

Western Area Power Administration (WAPA) Option § Long-term contract authority – up to 20 Western Area Power Administration (WAPA) Option § Long-term contract authority – up to 20 years § Federal agencies in WAPA’s service territory can use WAPA as the contracting agent § Bring renewable developer to WAPA (they will not do RFP) § Examples: NREL, Fort Carson § Nominal fee for WAPA’s services

Sample PPA “Wiring Diagram” Federal Agency (WAPA POSSIBLE INTERMEDIARY IN POWER PURCHASE) Utility REC Sample PPA “Wiring Diagram” Federal Agency (WAPA POSSIBLE INTERMEDIARY IN POWER PURCHASE) Utility REC PAYMENT REBATE RECS Interconnection Agreements • PPA: Federal Site (or WAPA) Developer • Land Use Agreement: Federal Site – Developer • Interconnection Agreement: Federal Site (or Developer) and Utility • REC Contract: Developer - Utility • Interagency Agreement (IAA): WAPA – Federal Site POWER PURCHASE ($) POWER (MWH) Renewable Developer FEDERAL TAX INCENTIVES

Project Process - Phase 1 § Form project team – decision-maker, energy manager, facilities, Project Process - Phase 1 § Form project team – decision-maker, energy manager, facilities, real estate, environmental/sustainability manager, contracting officer, attorney, other § Assess renewable options • Select project option(s) - renewable type, project location(s), estimated size • Larger projects best (private sector unlikely to be interested in small projects) § Investigate NEPA and other environmental requirements § Explore land use agreement options Note: FEMP assistance available throughout process

Project Process - Phase 2 § Choose contracting agency • Site or other agency Project Process - Phase 2 § Choose contracting agency • Site or other agency contracting staff? • Defense Energy Support Center (DESC)? • Note: Western Area Power Administration only signs contract, they do not issue RFPs (site chooses developer, then goes to WAPA) § § § § Request for Information (RFI)? Develop Request for Proposal (RFP) Issue RFP and distribute widely Site visit and/or pre-proposal meeting Evaluate bids, award contract Project construction Publicity

Nellis AFB PV Project § 15 MW on ~140 acres including closed landfill § Nellis AFB PV Project § 15 MW on ~140 acres including closed landfill § Estimated $1 million electricity savings/year § FAR Part 41 utility service contract, indefinite term § One year termination notice on PPA § 20 -year ground lease § Ribbon cutting event December 2007 § RECs sold to Nevada Power (for state RPS)

Fort Carson PV Project § 2 MW, 3200 MWh in first year (~2% of Fort Carson PV Project § 2 MW, 3200 MWh in first year (~2% of Ft. Carson’s load) § Fixed, non-escalating energy rate § WAPA is contracting agent § 17 -year contract, with 3 -year option § No-cost lease (using 10 USC 2667 lease authority) § Developer sells RECs to Xcel Energy for RPS solar set-aside (20 -year contract) § Ground-mounted, fixed system covering 12 -acre former landfill § First Solar thin film, 25 -year warranty § Came on-line December 2007

NREL PV Project § § § § 750 k. W (1200 MWh) single-axis tracking, NREL PV Project § § § § 750 k. W (1200 MWh) single-axis tracking, ~ 5 acres WAPA is contracting agent 20 -year contract DOE/NREL provides 20 -year easement / access agreement Developer sells RECs to Xcel Energy for RPS solar set-aside (20 -year contract) Electricity price to DOE/NREL is equal to or less than utility electricity prices (based on EIA projections) Phase 1 completed August 2008 Phase 2 – Two projects, 1. 5 MW total

GSA Sacramento PV Project § 0. 5 MW roof-top PV (thin film) § 10 GSA Sacramento PV Project § 0. 5 MW roof-top PV (thin film) § 10 -year contract § Price matched to energy rate, with price floor § Utility rebate and federal incentives (30% tax credit & accelerated depreciation) pay for approximately 1/2 cost § License for use of roof § Renewable developer retains RECs § Came on-line March 2008

Project Summary Nellis Size 15 MW Contract Length Fort Carson GSA 0. 75 MW Project Summary Nellis Size 15 MW Contract Length Fort Carson GSA 0. 75 MW 0. 5 MW Indefinite with 1 -year 17 termination 20 10 Land Use Agreement Lease Easement License Contracting Agent Site WAPA Site Sold to utility Retained by renewable developer RECs Sold to utility 2 MW NREL Sold to utility

Lessons Learned (so far) § RFPs for large projects that export power to the Lessons Learned (so far) § RFPs for large projects that export power to the grid are highly dependent on factors outside agency control – transmission access, utility needs for RPS, tax incentives § Best fit is a project tailored to meet available utility/state incentives in terms of source (wind, solar, etc. ) and size (generally small) § A State RPS requirement isn’t sufficient to earn utility cooperation, so the local utility may still oppose a PPA (see 40 USC 591). Using WAPA doesn’t solve that problem. § Contracting for make-up power to firm wind/solar is very complicated and if the utility imposes a back-up fee it can make projects uneconomic. These possibilities need to be included in the economic analysis before contract award.

Resources § Chandra Shah, National Renewable Energy Laboratory (NREL) chandra_shah@nrel. gov, 303 -384 -7557 Resources § Chandra Shah, National Renewable Energy Laboratory (NREL) [email protected] gov, 303 -384 -7557 § Rich Brown, Lawrence Berkeley National Laboratory (LBNL) [email protected] gov, 510 -486 -5896 § Mike Warwick, Pacific Northwest National Laboratory (PNNL) mike. [email protected] gov, 503 -417 -7555 (for DOD) § FEMP Focus article (Fall 2007) http: //www 1. eere. energy. gov/femp/newsevents/fempfocus_article. cfm/news_id=11218