Engineering a win-win
March 12, 2014 —
All around New York State, municipal entities are working out ways to secure the benefits of solar electricity to power their facilities. Onondaga County is installing a solar array at the county’s wastewater management facility. Seneca County will soon power its law enforcement center with solar, and the Schodack Central School District is installing solar panels at four buildings and creating a Science, Technology, Engineering and Math (STEM) academic instruction program around the installation and operation of the arrays. Right here in Sullivan County, several towns are exploring the potential for solar energy, including Tus-ten, which is inviting proposals for a solar installation at the town highway building.
What these projects have in common is that the counties and schools that will benefit from the energy innovations are not laying out the money to build the systems, but rather using a negotiated contract called a Power Purchase Agreement or PPA. In a PPA arrangement, a town, county or school district “hosts” the solar installation by leasing the location—rooftop or land for a ground-mounted system—to the developer who installs the system, and agreeing to purchase the electricity produced. Private investors raise the money to build the system and assume all of the financial risk and responsibility for maintenance. In return, the investors are able to take advantage of tax breaks that towns, counties and non-profit entities cannot claim. The developer can also qualify for state and federal incentives to offset the cost of construction. By balancing these costs and incentives among the various parties to the agreement, PPAs give investors a fair return, and the municipality gets electricity at a stable reduced rate, negotiated for the 20-year initial life of the system. The host’s energy cost savings are usually anywhere from 15% to 30%. At the 20-year mark the host can seek to extend the arrangement or buy the system at its market value.
The PPA option provides local governments with a way to reduce greenhouse gas (GHG) emissions for municipal operations, while shielding the municipality from risk. The systems are grid-tied through interconnection agreements with the local utility, to provide backup delivery of power. Billing mechanisms such as net metering and remote net metering enable local governments to maximize their cost savings by crediting any excess electricity to other facilities owned by the town, even those that are not in close proximity to host site. A PPA can be incorporated into a plan for new construction or as a component of an energy efficiency retrofit.