by Paul Fenn Local Power has made formal presentations to the world solar industry, city agencies and the San Francisco Board of Supervisors Rules Committee in recent weeks, to provide its view on how the City should proceed with its new revenue bond authority to build renewable energy and conservation facilities under Propositions H and B.
What to Build Local Power's testimony comes following the first major meeting of the solar industry with city and state officials hosted this past Friday by the San Francisco Public Utilities Commission. Local Power's proposal to the PUC, Department of the Environment, and assembled solar industry representatives was the following:
The Board of Supervisors should combine the 50 MW promised by Prop H proponents (Board President Ammiano, Local Power) with the 10MW of solar power promised by Prop B supporters (Supervisor Leno, David Hochschild) into a new 60 MW solicitation financed by its new chartered revenue bond authority under Proposition H that aggregates government buildings, residents and businesses in a performance contract outlined in Board President Ammiano's Solar Power Facility proposal last May.
This proposal was enthusiastically received by the California Power Authority at last Friday's meeting in its basic (Design, Build, Operate, Maintain & Transfer) structure, and confidence was expressed by the nation's leading solar minds that 60 MW is extremely doable in the near term by the world solar industry given its recent expansion of manufacturing capacity. The California Energy Commission requested, and Local Power has already submitted proposals for modifications in its Emerging Technologies buy-down program design to accommodate the San Francisco Solar Power Facility's massive subsidy application.
What Not to Build Local Power emphasized that it is not necessarily wise to build solar on government facilities (as proposed by PUC Assistant General Manager Ed Smeloff) for some astoundingly simple reasons. First, under state law, installing solar power on San Francisco's government facilities using Proposition B will cost at least twice as much as installations on private facilities because they qualify for neither the critical 50% state subsidies nor for federal tax breaks. Local Power emphasized that it would be unwise for the City to start installing solar on government buildings as if to target optimal locations, when these locations actually will cost twice as much to build as private sector facilities.
A basic principle proposed by Local Power in its testimony is that the city should seek to minimize the cost of the solar power systems built in San Francisco. "When the bids come in next Fall, we want the bid prices as low as possible." This was said in respose to the The PUC's consultant, HMH Resources, which predicted that under Proposition B's government facilities approach bids would come in above 30 cents per kilowatt hour. "This is the result of sub-optimal economic modeling, not any inherent cost of solar power," according to Local Power. "Clearly, it is unacceptable if we wish to call this project a success five years from now."
"A basic rule of municipal aggregation is to maximize the volume of a purchase to intensify competition for its provision and reduce the cost of a product or service," said Local Power. "Economies of scale dictate against any artificial separation or segmentation of San Francisco government, residential and business customers. Size matters: larger buyers get a lower price than smaller buyers, period. This is as true for buying solar panels as it is for purchasing transportation fleets, gasoline or office paper."
A good example of the benefits of aggregation is to be found under Ohio's Community Choice law, where in 2001 600,000 customers switched as a community from its utility's nuclear and coal power mix to Green Mountain Power's natural gas/renewable energy mix, at a guaranteed lower price. How? Traditionally, it has been assumed that consumers must pay more for clean power; but with aggregation of customer loads into contracts worth billions of dollars, the per-unit price was lowered.
"You can build a bridge well, or you can build it poorly," said Local Power director Paul Fenn. "No detail must be neglected to make certain we design and draft a solicitation document to build this bridge well. If there is a way to draw a state or federal subsidy, we should draw it. If there is a way to cut the cost of a solar panel, the City should be vigilant to cut that cost. We are proposing to spend hundreds of millions of dollars on an urban community's local power system; any stone of cost-effectiveness left unturned reflects gross negligence because it puts the program at risk of sub-optimal efficiency and cost-effectiveness. Not by merely building solar, but by building it well, will this City establish any 'model' for other cities to emulate."
Local Power also said that in addition to the 60 MW commitment, the Department of the Environment and Public Utilities Commission should prepare parameters for a correlating energy efficiency and conservation component on a comparable scale. "If coordinated, there are known synergistic benefits to combined rooftop solar and energy conservation processes that in effect dramatically lower the cost of the solar systems, whether for the public or private sectors."
When to Build it Since the Spring of 2001, when Local Power estimated that 50 MW could be manufactured and installed over a maximum seven year period, the world solar industry has ramped up its manufacturing capacity significantly, meaning the system could be built in a much shorter time - say three to five years - if the rates of installation can be accelerated.
Local Power sought to establish that there is no basis for 'starting small' and working up to the full build-out later. In fact, Local Power maintained, starting small with government facilities separately from the community at large will dramatically raise the cost of installed systems and place unnecessary restrictions on the future use of power from such facilities.
Local Power has prepared a presentation on the basic structure of our proposal that is available on request.
Which Revenue Bond Authority to Use At the January 17 Rules Committee hearing of Proposition B, Local Power sought to persuade the Board of Supervisors and city agencies to set aside Prop B as a funding instrument, and to employ the standard, unlimited revenue bond authority provided the Board of Supervisors by Proposition H.
"Prop B is a severely restricted revenue bond authority, not only in terms of the $100 million dollar cap on its authority, but in its restricted bond repayment mechanism and restricted use of energy facilities to City government agencies only. Proposition B is inadvisable given that the same facilities would generate power without such limitations if financed by Proposition H," said Fenn.
· Like Prop B, Prop H can be used to install renewable energy and conservation facilities on government properties;
· Unlike Prop B, Prop H can be used to aggregate public and private contracts, resulting in lower prices for both;
· Unlike Prop B, whose facilities built on government properties would be restricted to selling to government agencies, Prop H facilities built on government properties would not be restricted to selling power to government agencies, but could be sold according to the best use;
· Unlike Prop B, Prop H can finance combined public sector-private sector facilities, meaning that;
· Unlike Prop B, Prop H-financed facilities can qualify for the state's 50% buy-down subsidy (re-confirmed by the California Energy Commission's representative at last Friday's meeting), as well as federal tax incentives;
· Finally but no less important, unlike Prop B, Prop H does not restrict its bond repayment mechanism to funds collected from energy bill reductions, which would artificially restrict the City's minimum-cost options for repaying systems.
Given the simultaneous voter approval of Proposition H, Local Power recommended that the city incorporate "the spirit of B but not its mechanism. There is no basis in public policy to use a restricted financial authority (Prop B) when the Board of Supervisors also has an unlimited financial authority at its disposal (Prop H). The Board would be unwise to accept unnecessary restrictions that impose arbitrary, a priori limitations and distort program design (of which the 10MW government first proposal is an example) from the outset.
Proponents of a separate government contract for solar suggested that the City could combine Proposition B's promised 10 MW of solar with other on-site energy efficiency measures in order to bring the "bundled" price of power below the current price of retail electricity. "This misses the point entirely," said Fenn. "Combining solar with efficiency measures could and should be done to lower the price of any solar power built in San Francisco irrespective of how it is financed or whether it is public or private. The systems as proposed will still be twice as expensive as they would have been if properly designed under Prop H," repeating that Prop B's restrictions in effect will significantly raise the price of its facilities compared to facilities built by Prop H.
Finally, in respose to proposals from Prop B proponents that city agency electric bills be increased in order to make the solar panels artificially cost-effective, Local Power pointed out that this only demonstrates the fallacy of its method.
Second, Fenn said that any facility, whether solar, wind, fuel cells, conservation, etc. that is financed by Prop B will be forever limited to consumption by city government agencies. "Just like Hetch Hetchy, Prop B-financed facilities are prohibited from serving non-government customers. There is no reason to limit the facilities built by the City of San Francisco to use by public agencies when we do not have to. We are talking about building Distributed Generation, whose basic principle is the networking of small local power sources for the most efficient use across the city's wires: the near-term future of electricity. It is imperative that the City should reserve the right to deploy the solar, wind, or conservation facilities it pays for according to the best future public use, whether a city agency, a resident or a business." Fenn pointed out that the alternative would be like building a separate internet from The Internet and forbidding any connection between them, just for city buildings. Given the availability of Proposition H's unlimited revenue bond instrument, Fenn said that using Prop B would amount to "a senseless Kafkaesque barrier to the long-term development of distributed generation in San Francisco."
"Local Power recommends that the city should use the unlimited authority of Proposition H to build the combined visions of Supervisors Ammiano and Leno by moving forward with a full 60 Megawatt solicitation. We have proposed that the 'Community Power' system be bid under a full-turnkey Design-Build-Operate-Maintain-Transfer RFP with all equipment, construction costs, engineering risks, and performance guarantees consolidated under the signature of a single Master Developer: and received confirmation from the California Power Authority on Friday that this model is 'exactly the kind of model we are interested in supporting.' We are eager to work with the Board of Supervisors, the Public Utilities Commission, the Department of the Environment and state agencies to forge a Request for Proposals over the next six months for the full 60MW RFP according to these basic parameters.
"The Board of Supervisors should call on the Public Utilities Commission and the Department of the Environment to commit to a schedule for publication of an solicitation document by July 2001 with industry responses in September and a winner chosen by October, with groundbreaking in Spring, 2003," he said.
Copyright 2002 by Local Power.