Solar is at grid parity in California, i.e., solar developments are at a levelized cost that is less than or equal to the price of purchasing electricity from the traditional utility’s grid, without subsidies or government support. However, California Assembly Bill 32 (AB32) ‘Cap and Trade’ regulation is projected to escalate grid energy costs in the next few years. AB32, California’s historic law that passed in 2006, set a goal to reduce the state’s greenhouse gas emissions to 1990 levels by 2020 and to 80% below 1990 levels by 2050.
How can we save energy costs? Designing and implementing Energy Efficiency (EE) programs is the easiest way to cut cost. The savings can be used to actually fund energy efficiency projects.
In 2009, the U.S. Department of Energy (DOE) awarded 16 ESCOs (Energy Service COmpany) with DOE energy savings performance contracts (ESPCs), allowing each of the selected ESCO companies to provide federal agencies with up to $5 billion of energy efficiency performance contracts.
Chevron Energy Solutions, an ESCO and a subsidiary of Chevron USA, presented at the Silicon Valley Leadership Group (SVLG)’s annual Energy & Sustainability Summit. Chevron Energy Solutions works with schools, cities and government agencies on reducing energy costs and improving operations, where programs are focused on renewables and energy efficiency. Such energy efficiency programs allow public organizations, businesses and residents to address their energy consumption behavior.
Chevron offers a 4-step approach:
1. Consumer Behavioral change
2. Optimize and run efficiently what u have
3. Maximize mega watts
4. Use renewables for energy use
Financing EE projects is complex and includes several stakeholders: from project developers, to financial entities, technology providers, construction and engineering professionals, to customers (end-users), and, of course, utilities. To this diverse stakeholder interests add scaling challenges, emerging technologies and new improved materials, as well as regulatory and incentive models.
PROCUREMENT AND FINANCING OF ENERGY PROJECTS
Today, there are several finance solutions that are designed to significantly reduce electricity bills, while addressing solar upfront costs, and offering the ability to capture tax incentives, where applicable:
Power Purchase Agreement (PPA)
In past years, these have become common among residential customers, businesses and also utilities in large scale projects. Initially, PPA providers required a minimum size project. However, a new solar PPA model removed the size limit. Advantages include: Solar PPAs have no upfront costs and tax benefits are incorporated into a discounted rate for energy. The solar energy production is heavily metered to ensure the customer pays only for the amount of energy that the solar panels generate. Further, solar PPA’s kWh rate is at lower rate than the grid rates, and all system maintenance is included.
The customer pays for the leasing of the solar system equipment over a period of years or decades (usually 20, but it can be less) and doesn’t pay for the solar energy produced. Similar to car leases, solar lease agreements can be structured in several ways, where customers pay no up-front costs, pay some of the system cost, or purchase the system before the end of the lease term.
Tax exempt models – PACE, TELP
In PACE (Property Assessed Clean Energy) programs, the upfront cost of the solar system is added to a facility owner’s property taxes and paid over 20 years through a special tax assessment. Usually, the annual electricity savings from the solar system is greater than the yearly PACE payments. Payments can be spread over 20 years in installments, where the customer owns the system at the end of the term.
Tax-Exempt Lease (TELP) financing is available to government and non-profit organizations. TELP provides a low interest for obtaining equipment. Interest rates for these models are low because the financier does not pay taxes on the interest income. Typically at the end of a TELP, system ownership is transferred from the lessor to the customer.
Other models include utilities as contractual intermediary, where the third-party owner sells power from the solar system to the utility. Then, the utility sells the power back to the end-user. Another option is solar crowdfunding.
In the San Francisco Bay Area, Chevron is focusing on the public sector with EE initiatives due to the simple metrics that the cost savings are more significant and the return on investment is faster.
Lance Weislak, Director of International Finance at Chevron Energy Solutions, described the project implementation in the City of Livermore, CA: Total cost was $ 12,500. The financing model had no down payment, with 15 years at 2.59% TELP. The project included replacement of over 6200 streetlights, 1.4 megawatts of solar energy, and 21 buildings were retrofitted with LED lighting, and controls were upgraded. As a result, the city saved over $765,000 in the first year and a close to 5,000,000 kWh – a 90% reduction. These numbers are quite impressive in energy savings and carbon emissions reduction and comply with California’s AB32 regulation.
The Livermore project created other benefits: it enabled engagement of stakeholders across the local communities. The implementation caught attention from school districts, private businesses, and other public entities.
1. The Silicon Valley Leadership Group (SVLG) was founded in 1978 by David Packard of Hewlett-Packard. SVLG represents more than 380 of Silicon Valley’s employers on issues, programs and campaigns that affect the economic health and quality of life in Silicon Valley. The areas of public policy include energy, transportation, education, housing, health care, taxation, economic vitality and the environment. Check www.SVLG.org.
SVLG Energy and Sustainability Summit – Click here.
SVLG career opportunities: http://svlg.org/about-us/career
2. Chevron – Click for more information about Chevron’s energy efficiency programs
Careers at Chevron Energy Solutions: http://www.chevronenergy.com/about/careers.aspx
3. UCLA case study: download PDF.
4. California Assembly Bill 32 (AB32) –