Power Purchase Agreements 2009 Federal Environmental Symposium —

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 process Project examples

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 (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 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, 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 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 • 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 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 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 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 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, 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 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 § 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 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, ~ 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 -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 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 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) [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