by Francis Hodsoll and Melody S. Gee
Melody S. Gee is a business and technical writer in St. Louis, MO.
At the 2019 SolSmart Virginia Local Government Solar Procurement Meeting on June 17, Francis Hodsoll joined five other presenters for a workshop focused on learning, sharing, and discussing solar procurement opportunities for local governments. Topics included green tariffs, non-utility procurement options, the market dynamics and the drivers of solar generation’s extraordinary growth, and examples of successful local government procurement.
In his presentation, Hodsoll spoke to local governments eager to learn about the Virginia solar energy market, opportunities to explore sustainable practices like procuring clean energy, and sustainable energy procurement options.
The following is a brief recap of Hodsoll’s presentation, which provided an in-depth and expert look at the supply and demand of solar in the state, along with pros and cons of various procurement options officials might consider.
Sustainability is in High Demand
Overall, sustainable practices—one of which includes sourcing renewable energy—are in high demand from local governments. What’s driving the demand? Three factors:
One, businesses have spoken with their public commitments to running their operations with renewable energy. Industry giants like Facebook, Microsoft, Amazon, and Apple have pledged to hit ambitious sustainability targets, and are rapidly seeking to source those commitments.
Two, state actions provide the foundations for effective markets and help to remove barriers created by an obsolete regulatory paradigm. The Virginia legislature passed with an overwhelming majority the sweeping Grid Transformation and Security Act – setting goals and creating budgets for significant change. The legislature has also passed numerous incremental adjustments to our energy and tax policies that support solar energy. The Governor’s Energy Plan set ambitious targets and identifies executive action that advances clean, sustainable energy.
Three, military budget allocations and a new 100-acre solar site named Oceana demonstrate the military’s commitment and validate renewable energy’s efficacy.
The Virginia Market is Ready
In response to inspiring demand growth, Virginia is poised to become a key player in the sustainable energy market. SolUnesco is currently in the process of developing thirteen solar energy facilities (in twelve different counties) throughout the state. To date, solar energy powers over 82,000 homes in the Commonwealth, and the solar industry employs nearly four-thousand jobs. The solar industry has invested a billion dollars – a very conservative estimate, in our opinion – in Virginia.
Over the next five years, the state is projected to have a capacity for over 2,666 MW of solar energy, ranking Virginia in the top eight states for solar energy. This market explosion has all happened within the last few years – the first utility-scale solar facility achieved operation in late 2016.
Procurement Options and Hurdles
Despite multiple options, local governments face hurdles when it comes to procurement, including complex contracting structures, finding ways to integrate clean energy procurement into existing supply contracts, and convincing stakeholders (facility managers, elected officials, etc.) to change SOPs.
Local legislators often wonder about their options when it comes to procurement. In brief, they can choose between five methods:
Ownership means that governments assume all the ownership risks and locational price risks for the possibility of the least cost option, though maximizing the value of the tax benefits requires complex financing structures. Ownership provides the owner the Renewable Energy Credit (REC) – the environmental attributes of the generated renewable energy.
Leasing may minimize those ownership risks but can also come with complex lease agreements, in order to provide for third-party financed federal tax credits third. Today, in Virginia, the lease arrangement would apply to an onsite resource. The Lessee typically retains the REC but the Lessor can keep the RECs passing the value through in the lease rate.
Power Purchase Agreements (PPAs), whether physical or virtual, utilize third-party financed federal tax credits while eliminating the risks of direct ownership including insulating the customer from the facility specific performance risks. The PPA provider may retain the REC or sell the REC bundled with the electricity to the customer.
Practically, only the regulated utilities can source renewable energy sleeved through retail services for their customers. However, several efforts are underway to liberalize Virginia’s electricity service. In deregulated markets, competitive suppliers provide a full-requirements retail service that includes renewable energy and allows for aggregation across multiple offsite resources to meet the customer’s needs. (For very large electricity users, Virginia is a hybrid between fully regulated and a deregulated market).
Utilities utilize Green Tariffs to provide customers renewable energy. Green Tariffs aggregate both renewable and non-renewable resources to match the electricity load in real-time service but may set the renewable energy capacity to offset one hundred percent of the customer’s annual demand. Typically, the Green Tariff provides the customer the Renewable Energy Credit (REC) – the environmental attributes of the generated renewable energy.
REC-only purchases allow the customer to offset their electricity procured through the traditional paradigm with environmental attributes. However, not all RECs are equal. Green-e® Energy certifies the source is renewable, and a new source created the REC. The Green-e® Energy requires participants to submit to an annual audit.
How Nearby Governments Handle Procurement
We might look to our neighbors for some insights into procurement procedures, pain points, and useful strategies.
The DC Department of General Services entered into two solar Power Purchase Agreements to provide between 11 and 12 MW of electricity to the District through onsite solar photovoltaic and net-metered systems located on District-owned roofs and parking lots. These two solar PPAs make up the largest municipal on-site solar project in the U.S., and are expected to:
- Supply an additional 3.5% to 4% of the District’s government electricity needs
- Save District taxpayers over $300 million
- Catalyze $25 million in local spending
- Create over 190 construction jobs
- Guard against energy price increases and volatility
- Increase solar production in the District by over 50%
Montgomery County has participated in numerous projects and seeks to maximize clean energy generation and reduce the environmental impact of government operations. These projects include installing solar panels on libraries, recreation centers, childcare centers, correctional facilities, offices, and other buildings. Through grants and power purchase agreements, Montgomery County has installed 7.6 MW of solar to date, and benefits from clean and renewable solar energy with no upfront costs. In addition to creating jobs, reducing greenhouse gas emissions, and lowering utility bills, the initiative will stabilize the utility grid by generating extra power on hot days when energy demands are especially high.
Sustainable Growth in Virginia
One way for interested officials to explore their best options is to be sure to work with developers who bring deep industry experience and wisdom, especially when it comes to navigating the complex variations of individual counties and municipalities. As Virginia’s solar industry advances and provides for more and better sustainable practices, experienced solar developers will support local governments to identify those options that best meet their needs.