Power Up and Save $$$!

ARTICLE | Feb 28, 2014

The City of Casa Grande’s unique financing method has allowed it to be the first government agency to construct and own its first ever solar photovoltaic project. Completed in October 2013, the $3.3 million project will lead to an annual savings around $250,000 and provide solar covered parking at five City facilities.  The City produces power that will offset the costs of the structures within 18 years.

Traditionally, cities and other government agencies have obtained solar energy through the use of power purchase agreements (PPA) with third-party providers.  Under that procurement method, panels are typically installed on a site, and are owned by a third-party provider.  The entity then purchases the power produced by the third-party provider at a set rate.  Upon completion of the agreement, the entities are given an opportunity to purchase the solar panels.  Unlike a PPA, the City of Casa Grande owns the system starting on day one, and will not have any additional cost upon the conclusion of the financing.

Ameresco, the City’s consultant on the project, has said that the project represents the first time that a City has been able to purchase a solar system under the Guaranteed Energy Cost Savings program.  Under a Guaranteed Energy Cost Savings contract, when a consultant installs a measure to reduce energy usage, they must provide a written guarantee that the measure will reduce the entity’s energy usage by a stated amount.  If the cost savings measure does not reduce energy usage by the stated amount, the consultant is then required to reimburse the entity for any shortfall.

“The investment we’re making here will definitely pay off in the future in the form of energy savings,” says Mayor Bob Jackson. “We are proud and enthusiastic about this project that will provide a significant reduction in energy costs over the years.”

The combined 1.0 megawatt project consists of over 3400 photovoltaic panels, which will help the City reduce its electricity usage by over one million kilowatt hours per year, which is roughly the amount required to power 114 homes. The resulting carbon dioxide offset of 1.9 million pounds is equivalent to preventing the annual emissions from 158 cars.

The true benefits of procuring the panels through a Guaranteed Energy Cost Savings contract are numerous.  First, if the panels do not produce the amount of energy required to meet the goals of the financial pro forma, our contractor (Ameresco) would be required to pay us the difference.  This eliminates a lot of the risk that would traditionally exist under a direct procurement scenario.

Secondly, a Guaranteed Energy Cost Savings contract provides budgetary certainty for a large portion of utility costs.  Without this project there could be great price fluctuation.  By reducing our dependency on a utility provider, we reduce the impact that potential rate increases would have on the City’s budget.

Because the City owns the system, any overproduction that may occur would result in a direct cash flow to the City.  If the production exceeds the conservative expectations of the pro forma, the extra money saved could be used to pay down the project cost faster or to further reduce electricity costs within the City organization.  Under a PPA, the third-party provider reaps any benefit that is obtained if the panels outperform expectations.

Because of the established relationship with the contractor, the City was able to build the cost of extended warranty coverage for all components of the project into the project cost.  These warranties will ensure that all vital parts of the system will function under manufacturer specifications for a length of time to exceed the length of financing. The first three years of maintenance and operation costs as well as training for Staff to maintain the panels was also built into the project costs.  Each of these components helped to mitigate the City’s risk in the project.

“Due to a ‘perfect storm’ of positivity involving reductions in system cost and historically low interest rates, Ameresco was able to partner with the City and provide them with a tax exempt lease purchase financed project whose cost is entirely funded by the savings generated,” says Todd Becker, senior business developer for Ameresco. “We believe the municipal solar project might be the first of its kind for a city and credit the vision of Casa Grande’s leaders for their foresight and imagination in deciding to move forward and make the project happen.”

Finally, any generation that occurs after the financing is complete is “free” money to the City. As the City owns the system outright, any production that occurs after financing is complete will result in a direct cash flow to the City, with no need to pay off a capital debt or purchase a system from a PPA.

Learn more about the city of Casa Grande at their website

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