Title
Adopt a Resolution to Approve and Authorize the City Manager to Execute a Power Purchase Agreement with Ava Community Energy for Solar Power Generated on City Facilities
Staffreport
COUNCIL PRIORITY
• Sustainability & Resiliency
• Fiscal Sustainability and Transparency
SUMMARY
Authorizes the City Manager to negotiate and approve final details of an agreement that will license City property for installation of solar power generation equipment and set the terms for purchase of the power generated by the equipment. Approves and authorizes execution of an agreement substantially in the form presented.
RECOMMENDATIONS
Staff recommends the City Council approve and authorize the City Manager to finalize the agreement, approve the agreement substantially in the form presented, and authorize the City Manager to execute same.
BACKGROUND
East Bay Community Energy (EBCE) became the community choice energy provider for Alameda County, including San Leandro, in 2016. In 2023 EBCE rebranded as Ava Community Energy (Ava). As the community choice energy provider, Ava purchases energy that is transmitted over PG&E infrastructure to residents and businesses who in turn purchase the energy from Ava. In 2021 Ava approached the City with concepts for a proposal to install solar power generation systems with battery backup on City facilities. Ava proposed that the City agree to license space on City facilities for installation of third party (Developer) owned solar equipment and commit to purchase of the power from said equipment. The proposal from Ava was consistent with strategies listed in the City’s 2021 Climate Action Plan to reduce greenhouse gas emissions and to adapt to changing climate conditions. As a result, the City passed a resolution in 2021 committing to pursuit of an agreement with Ava should the cost effectiveness of the project portfolio result in benefits to the budget and service levels.
The City and Ava have developed an agreement for the installation of solar and battery systems at seven City sites. The agreement has a 25-year term during which Developer will supply energy and City will pay for energy at the following sites:
Site Location Description
1 City Hall Rooftop and Carport solar with battery
2 Main Library Carport solar with battery
3 Washington Manor Library Carport solar with battery
4 Marina Community Center Carport solar with battery
5 Public Works Service Center Carport solar with battery
6 Fire Station 10 Carport solar with battery
7 Fire Station 11 Carport solar with battery
These sites currently use power delivered through the utility grid that is purchased from Ava. This project will generate most of the electricity for each location on site; however, each site will remain connected to the utility grid and will draw upon grid power as needed. Diesel powered backup generators will remain operational where they currently exist.
Solar generation has generally been sized to cover the average load of each building. Excess power generated will be delivered to the utility grid. Sites 1 through 5 will be under PG&E net energy metering (NEM) program 2.0, which credits the City for power delivered to the grid. Sites 6 and 7 will be under PG&E NEM 3.0 and there will be no credit given for excess power delivered to the grid. The total energy generated at all seven sites will vary with the weather and the time of year, the average daily production in the first year is estimated at 3,585 kWh per day. Production is expected to degrade by 0.5% per year, so that in the last year of the agreement the expected production is expected to be 87.5% of the first year or 3,178 kWh per day. Ava will pay damages to the City if the amount of energy generated falls below 85% of the expected energy over a three year period.
Batteries will be charged during the day and discharged in the evenings. Use of battery power in the evenings will allow the building to reduce peak period demand charges from PG&E. Batteries will always have a reserve that allows sites to operate for one hour without solar generation or grid supplied electricity. Locations 1, 5, 6, and 7 have backup power generators that will operate only after batteries are discharged. Batteries are expected to degrade by 1.8% per year and are expected to be replaced once during the life of the agreement to maintain performance. Ava will reduce fees for battery storage if the storage capacity falls to less than 90% of nominal. Ava will waive fees for battery storage if the storage capacity falls to less than 70% of nominal.
Upon expiration or termination of the agreement Ava will remove all facilities from each site and restore the site to its original condition. At that time, City has an option to purchase ownership of the facilities if so desired.
Analysis
Fourteen City owned sites were evaluated for inclusion in the agreement. Seven of the sites were not included because either the energy use was too low to make the project economically viable, the cost to construct was too high to make the project viable, or the City could not commit to using the existing building for the full term of the agreement.
The Agreement commits the City to purchasing the energy generated at seven sites for 25 years. The agreement is non-transferable, each site is expected to be in use for this period; however, if the City sells a site or otherwise removes a site from service before the end of the agreement term then the City will be obligated to pay the Developer for lost income.
An analysis of three alternatives is summarized below. The analysis assumes that inflation will average 4% per year, that PG&E will raise rates at an average of 4.5% per year over the life of the agreement, that the City can bond for improvements at 4% per year and that the solar cells will degrade as described above. Additionally, the agreement specifies that Ava will increase rates at 2.5% per year.
On average and including all fees the City currently pays about $0.36/kWh for power from Ava/PG&E. Over 25 years the project will generate 30,825 MW hours of energy. The present value of purchasing this energy from Ava/PG&E is $11,631,000. This cost does not include a value for the benefit derived from battery backup for 1 hour.
The City could bond for the cost of the work, purchase and install the equipment, and then maintain it for 25 years. The upfront costs of this alternative are estimated at $9,664,000, and an additional $2,131,000 will be required in year 12 to replace the batteries. The present value of this option is $10,995,000. Additional costs of about $500,000 are estimated for minor maintenance and end of life removal which bring the total present value of this option to $11,445,000.
The agreement with Ava specifies that the City will pay $0.3229 per kWh for NEM 2.0 projects, $0.4897 per kWh for NEM 3.0 projects, and $10.25/kW per month for battery backup. These are the total costs for energy, there will be no distribution or fees added by PG&E. The battery backup charge is based on storage inverter power, which is proposed at 712 kW dispersed over all seven sites. NEM 2.0 sites are expected to generate 29,192 MWh and NEM 3.0 sites are expected to generate 1,632 MWh over the life of the agreement. The present value of the payments for this energy is $8,471,000, including $42,725 incentive credits received in years 1 through 5 of the agreement. The present value of the payments for battery storage equipment is $1,849,000. This option includes roof top solar at City Hall, the increase in costs for future roof maintenance is estimated at $200,000. The total present value of this option is $10,521,000.
Entering into an agreement with Ava for installation of solar power generation equipment and purchase of the power generated by the equipment is significantly cheaper than continuing to purchase power for these sites from the utility grid. Additionally, battery backup provides for uninterrupted operation during short power outages at sites without diesel generators and reduces the frequency and run time for the generators where they exist. The agreement with Ava is estimated to be 8.5% cheaper than owning the equipment outright. Additionally, partnering with Ava reduces the demand on City staff to manage the design, bid, construction, and maintenance of the equipment, and also allows the project to be delivered quicker.
This agreement is for purchase of power and a license permitting installation of equipment that will be privately owned. This contact is does not qualify as a project under the City’s Community Workforce Agreement. The Community Workforce Agreement applies to construction projects awarded by the City that exceed $1,000,000. Ava will require the Developer to use union labor except when doing so will delay the work or raise costs beyond current estimates.
Construction is noisy and dusty and onsite parking will be negatively impacted during the construction phase of this project. Six sites will have solar panels installed on carports and impacts to the building users will be minimal. City Hall is anticipated to receive solar on both the roof and a carport; there will be noise impacts for staff working in City Hall, particularly on the second floor.
The terms of the agreement are not yet finalized, if approved the resolution will authorize the City Manager to accept minor changes to the language, subject to approval as to form by the City Attorney.
Previous Actions
On May 17, 2021 by Resolution No. 2021-071 Council resolved to pursue an agreement for installation of solar and battery energy systems at City facilities with EBCE.
November 21, 2016 by Resolution No. 2016-160 Council approved an agreement to participate in the East Bay Community Energy Authority JPA for community choice aggregation.
Committee Review and Actions
City Council Facilities and Transportation Committee, June 1, 2022: EBCE presented information about the proposed project. The Committee was supportive of the project.
Applicable General Plan Policies
• General Plan Policy OSC-8.1: Conservation and Energy Efficiency.
Action OSC-8.1A Climate Action Plan Implementation.
Permits and/or Variances Granted
Installation will be done under a Building Permit issued by the City of San Leandro.
Environmental Review
Installation of solar equipment on existing buildings and in existing parking lots is categorically exempt from CEQA per section 15301 Class 1 because it is a minor alteration with no expansion of use. If the City decides to approve the agreement with Ava a notice of exemption will be filed with the County.
Financial Impacts
This agreement will commit the City to purchasing electricity generated on site for 25 years at rates that are lower than those available otherwise. There will be minor City costs to administer the agreement and coordinate the construction of the solar equipment that will be covered by existing budget for Public Works staff. Once operational, the project will reduce general fund expenditures for electricity.
ATTACHMENTS
Attachment A: Draft Reso Solar PPA Ava
Attachment B: Ava Power Purchase Agreement
PREPARED BY: Nick Thom, Assistant Public Works Director, Public Works Dept.