Bright Savings

April 4, 2013
Solar power cuts water districts’ energy costs

About the author: Steve Birndorf is project developer for Borrego Solar. Birndorf can be reached at [email protected] or 510.496.8701.

The costliest factor confronting water agencies, authorities, districts and resource boards is the high energy usage required to run plants to filter, treat, clean and distribute water. As such, many are “going solar” to reduce operation costs and protect against rising electricity costs. 

For those in the industry looking to keep down taxpayer rates for water, these savings effectively trickle down to ratepayers. Combining water conservation with clean energy generation also offers a solution to community leaders looking for ways to protect natural resources. The abundant amount of unused rooftops, land or parking lots on water facility properties is apt for productive, energy-generating use via solar energy. 

Power Purchase Agreements

Despite the aid of federal and local incentives, and the decrease in material and installation costs over time, the initial upfront investment for a solar energy system is still a considerable hurdle for water districts trying to achieve these significant long-term savings. Instead of paying the upfront cost, many organizations have chosen to go the route of a power purchase agreement (PPA) to finance solar energy projects.

Under a PPA, a third-party investor takes on all finance, design, installation, and ownership and maintenance (O&M) costs; and the water district, or host customer, agrees to buy the power back at a predetermined, economical rate. Water districts enjoy the immediate cost savings and environmental benefits without paying a dime upfront, while third-party investors bear all financial risk associated with the system. At the end of the contract, the water district has the opportunity to renew its contract, purchase the system outright at fair market value or have it removed at no charge.

In the Field

A number of solar energy projects were financed and executed with a PPA through Borrego Solar, a national financier, designer and installer of solar energy systems with a history of working with water districts and municipalities. As part of these individual agreements, Borrego Solar will continue to maintain, operate and repair the systems as needed and sell the clean renewable power they produce back to the respective host customers at predetermined rates over the typical 15- to 20-year PPA term.

City of Kerman. In central California, just outside of Fresno, the city of Kerman found that a solar PPA was the solution to a major problem. State regulators found the Kerman wastewater treatment plant (WWTP) to be at capacity and unable to meet the needs of the growing community. City officials were faced with two options: upgrade and expand the WWTP’s capacity and bring the facility up to current state standards, or face a moratorium on all future building permits, which would essentially halt community growth by preventing any new construction. Kerman bit the bullet and spent $6 million to increase the capacity

Solving one problem created another: The additional equipment of the renovated WWTP required almost double the power of the original plant. The city turned to solar as a way of reducing energy costs at the new facility. Using 3.37 acres of land adjacent to the plant, it built a 487-kW single-axis tracking solar power installation that will offset about 95% of the energy consumption on site. Under a 20-year PPA, without a capital investment upfront, the city of Kerman is offsetting its current energy needs with 945,000 kWh of clean energy and saving $62,000 in year one, and almost $3 million over the life of the system. The progressive, no-money-down PPA financing helped keep Kerman growing, and the energy savings will offset half the cost of upgrading the WWTP.

San Diego County Water Authority. California’s San Diego County Water Authority (SDCWA) will save $1.7 million in energy costs, thanks to the almost 2 MW of solar energy capacity spread out among three sites: one on the roof of its Kearny Mesa headquarters, two smaller ground-mounted systems in the parking lot of its operations center in Escondido and the system atop its storage structures at its Twin Oaks Valley Water Treatment Plant. SDCWA, a public agency serving the San Diego region as a wholesale water supplier, works through its 24 member agencies to provide a reliable water supply to support the region’s $186-billion economy and the quality of life of 3.1 million residents.

To streamline the vendor selection process for itself and some of its member districts, SDCWA issued a single request for proposals, incorporating the site specifications and energy consumption from 10 different member water districts and treatment facilities across the county. By administering the public procurement process on behalf of itself and the other districts, SDCWA was in the position to negotiate the best possible price per kWh (PPA rate) and select a single preferred vendor. Once SDCWA announced a winner, each of the individual water districts were able to quickly sign PPA contracts and move into the construction phase of installing solar energy systems on their water tanks, operation centers and storage facilities

Without the support of the larger collective, many of the individual water districts would have lacked the resources necessary to properly vet and contract a solar provider. Two membership water agencies—Helix Water District and Vista Irrigation District—were able to ratify contracts with Borrego Solar for another 1/2 MW of photovoltaics, knowing the feasibility studies and contract negotiations had already been performed and vetted. 

Zone 7 Water Agency. Within California’s Livermore-Amador Valley, Zone 7 Water Agency supplies drinking water to retailers serving more than 200,000 people and agricultural water to 3,500 acres of land, and also provides flood protection to 425 sq miles. Zone 7 had previously explored options of installing solar power at its Del Valle Water Treatment Plant in Livermore, Calif., and had been in contract with a solar developer that had yet to complete the project in nearly three years. At that point, Borrego Solar stepped in to finish the project.

The solar market is incredibly dependent on and driven by local, state and federal incentives. Because this project had been in contract and in the process of getting built for years, there were some rebates reserved at the state level that were about to expire. As such, Borrego Solar efficiently completed the 348-kW single-axis tracking system within seven weeks and worked closely with Zone 7 and Pacific Gas & Electric Co., the region’s electric utility, to take advantage of the rebates before they expired. The system, which produces one-third of the energy Zone 7 uses in operations at the Del Valle plant, saved the district $50,000 in its first year and is expected to save it more than $800,000 in energy costs over the course of the 20-year term of its PPA with Borrego Solar.

Smart Financing

Access to financing is easier than it has ever been. PPAs have become a popular way for large public and private entities with investment-grade credit to go solar for no money down, and the investment community has progressed to the point at which it is comfortable with the tax equity and debt structures of these deals.

For some customers, however, ownership of the solar energy asset is a significant concern. But now, more and more general obligation (G.O.) bonds are popping up across the country. This form of municipal bond is considered more secure than revenue bonds, as it is backed by the taxing power of the municipality. Every state and many local governments offer G.O. bonds, and the money from these bonds can be used to pay for large capital projects such as buildings, facilities, renewable energy projects and renovations. 

The key difference between G.O. bonds and PPAs is that residents pay back the bond rather than the agency that is benefiting from the solar installation. That means 100% of the energy savings and rebates (on the commercial scale, this is often in the millions) go directly to the host’s general fund. Operations and maintenance costs can also be included in the bond, eliminating any long-term costs associated with going solar. 

The variety of solar financing solutions makes going solar more feasible than ever before. These solutions, coupled with the cost savings that a solar energy system generates, make solar a lucrative investment for both public and private water agencies. 

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About the Author

Steve Birndorf

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