Locals aren’t buying Palo Alto’s newest green-energy program

August 19, 2012 by  
Filed under Green Energy News

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Palo Alto may be land of the green and home of the tech-savvy, but the city’s latest renewable-energy program has so far failed to achieve even a spark of participation from local customers, forcing officials to go back to the drawing board.

The program, dubbed Palo Alto CLEAN (Clean Local Energy Accessible Now), gives local companies with large rooftops a chance to sell energy generated by solar systems to the city’s Utilities Department. In launching the program in March, the city hoped to get about 4 megawatts of solar energy from local rooftops through this program, enough to power roughly 1,250 homes. At its March 5 meeting, the City Council swiftly and enthusiastically approved the new program, with Councilman Pat Burt calling it a “fulfillment of what is overwhelmingly a desire in our community to have very clean and competitive electricity” and “an excellent example” for other utilities to emulate.

But things haven’t quite panned out as planned. As of this week, not a single company has applied to be the city’s energy supplier, and utilities staff is looking to make changes to the program’s design in hopes of spurring more excitement from developers of solar technology and companies with large rooftops. Staff plans to return to the council this fall with suggestions.

The lack of participation does not indicate a lack of interest in the new program, said Jon Abendschein, a resource planner at the Utilities Department. Twenty to 30 developers and site owners have contacted the city to inquire about the program in recent months. Ultimately, the math just didn’t pencil out for them, he said.

“A number of them felt sure going into the process that they’d make it work,” Abendschein said. “After running the numbers, we started hearing from some that the price just wasn’t sufficient to make the project worthwhile.”

The proposed price for electricity is 14 cents per kilowatt hour for a 20-year contract, 13.2 cents per kilowatt hour for a 15-year contract and 12.4 cents per kilowatt hour for a 10-year contract. The department based the price on how much it would cost the city to buy and transmit renewable energy and added additional 0.45 cent per kilowatt hour as an incentive for local site owners to participate.

In creating Palo Alto CLEAN, the city sought to create a feed-in-tariff program that would have very little or no impact on local electric rates.

At the March 5 meeting, Burt noted that the feed-in-tariff mechanism is common in Europe and said the rate structure in the city’s new program “probably has the lowest rate impact on ratepayers of any feed-in tariff program anywhere.”

But now, it looks like the two goals — keeping rates low and getting companies to sign up — are at odds. Abendschein said other cities have offered much higher rates to companies willing to install solar technology in their territories and to sell it to the utilities. Palo Alto isn’t ready to do that, he said.

“Our goal is to see whether it’s possible to get some of our renewable energy from local sources without paying large incentives,” he said. “We wanted to see if we’re able to do that without ratepayer impact.”

The city’s history has given officials plenty of reasons for optimism. Palo Alto boasts the nation’s top-ranked renewable-energy, PaloAltoGreen, in which participants volunteer to pay extra for renewable energy. Another program, PV Partners, allows any customer to get rebates from the city’s Utilities Department for installing photovoltaic technology. Abendschein said more than 400 customers participate in this program and noted that the city already has more than 3.5 megawatts-worth of solar equipment installed, enough to provide energy to about 1,000 homes.

Then there’s the city’s overall reputation. Palo Alto boasts some of the nation’s leading green companies, including Tesla and Better Place (which specialize in electric vehicles), and a wealth of environmental nonprofits and small startups dedicated to getting people to reduce energy use and support renewable power.

But the new Palo Alto CLEAN program is in some ways more radical and exclusive than the city’s previous offerings. So far, it is only being offered to commercial customers with solar systems on large rooftops (about 25,000 square feet of rooftop space), which excludes the vast majority of potential participants. Last year, Palo Alto had 27 commercial customers with photovoltaic systems of any size, the Utilities Department reported.

Abendschein said one of the things staff will evaluate before it brings the program back to the City Council for modification is whether to expand the eligibility criteria.

“We will be looking to see if there are ways to facilitate participation without raising the rates,” he said.

Craig Lewis, executive director of Clean Coalition, a Palo Alto-based nonprofit organization that helps utilities develop feed-in tariff programs, attributed the lack of participation chiefly to the rate structure and the current market for renewable energy. The developer community is sending a signal to the city that 14 cents is too low a rate at this point in time, Lewis said.

“What the market is telling us now is that the price that’s going to keep the rate neutral is too low for the cost of deploying solar projects today,” Lewis said. “I’m confidant that if the program is in existence for a long enough period of time, say another year, the price will be there.”

Lewis said Palo Alto CLEAN offers a rate that is among the lowest in existence for utilities with feed-in-tariff programs. The new program just launched by the Long Island Power Authority, for example, offers a fixed rate of 22 cents per kilowatt-hour for 20 years.

The Sacramento Municipal Utilities District, meanwhile, unveiled its program with a rate structure similar to Palo Alto’s. Its program filled up immediately, and it currently isn’t accepting applications.

One major difference between Sacramento’s program and Palo Alto’s is the nature of solar technology. While Palo Alto limits its program to roof-top solar panels, Sacramento allows ground-based, “tracking” solar technology, in which solar panels follow the sun and generate about 25 percent more energy than “fixed-tilt” rooftop panels, Lewis said. This suggests that Palo Alto would have to raise solar buy-back rates by about 25 percent to give local developers an incentive that is comparable to the one offered by Sacramento. At the same time, because Palo Alto is relatively small, largely built-out and boasts astronomical real estate rates, building ground-based solar projects isn’t as cost effective here as it is in other parts of the country.

Raising rates would be the easiest way for Palo Alto to spur participation, but it’s not the only one, Lewis said. One idea that his organization is promoting is installing solar equipment at city facilities such as buildings, garages and parking lots. Developers would be invited to install the solar panels on city land and sell energy to the city for 20 years, after which time the city would take ownership of the equipment.

“This essentially allows the third-party developers spaces to build on without having to worry about increased costs that they’d have to pay through lease payments,” Lewis said. “We think the city making its properties available is a really easy way for the city to make the program more attractive.”

Lewis also said his group is committed to helping the city reach out to potential developers. The Clean Coalition is now looking to organize a community meeting to educate property owners about Palo Alto CLEAN.

“At the end of the day, we’re really talking about putting these solar projects on built environments, whether rooftops or parking lots,” Lewis said. “You need to have the property owners participating.”

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