HomeMy WebLinkAboutMemo - Mail Packet - 10/30/2018 - Memorandum From John Phelan Re: Utility Owned Rooftop Solar Business ModelUtilities
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222 Laporte Avenue
PO Box 580
Fort Collins, CO 80522
970.212.2900
utilities@fcgov.com
fcgov.com/utilities
M E M O R A N D U M
DATE: October 25, 2018
TO: Mayor Troxell and Councilmembers
FROM: John Phelan, Energy Services, Senior Manager
THROUGH: Darin Atteberry, City Manager
Jeff Mihelich, Deputy City Manager
Kevin R. Gertig, Utilities Executive Director
RE: Utility Owned Rooftop Solar Business Model
The purpose of this memo is to provide further detail on the utility owned rooftop solar business model
based on the May 8, 2018 City Council Work Session, and to address the letters City Council received
from members of Community for Sustainable Energy (attachment 2).
Staff is seeking clarification from Council if utility owned rooftop solar should be accelerated separately
from the business model solar analysis being managed as part of the Energy Policy, Climate Action Plan
and Integrated Resources Plan updates, anticipated to be completed in 2020.
Summary
In the fall of 2017, Councilmembers requested more information regarding solar business models,
including utility owned rooftop solar. Staff reviewed recent presentations from other utilities, completed
an economic analysis, and had discussions with several utilities who had implemented different types of
solar programs that included utility owned rooftop solar demonstration projects. The May 8
presentation was an overview of a range of solar business models for a comparative summary, that
included a financial analysis. The results of the solar business model review were also presented to the
Energy Board at the July 12, 2018 meeting.
Utilities staff supports continuing the review of all business solar models as part of the upcoming Energy
Policy and Climate Action Plan updates, in concert with the Platte River Power Authority Integrated
Resource Plan, in order to present Council recommendations.
Utility Owned Rooftop Solar Results
Economics
The economic analysis results showed that lifecycle costs of utility owned rooftop solar were the most
expensive of the multiple options analyzed (see table 1 from the May 8 agenda item attachment). The
analysis incorporated a 20% reduction in up-front capital costs for the utility owned rooftop approach;
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however, the roof lease payments and operations and maintenance costs diminished this savings over
time. In addition, Utilities is not able to take advantage of the tax credits and accelerated depreciation
available to private parties. The lifetime net present value to Fort Collins Utilities (e.g. all customers)
was a negative 6 cents.
Budget/capital
The utility owned rooftop model would be a capital-intensive approach, as Utilities would be
responsible for 100% of the investment. This would require an evaluation of the impact to budget and
rates to support a program. Currently, Utilities does not have the reserves or rate revenue to support this
level of funding in the near future. In comparison, customer owned generation leverages over 90% of the
necessary capital from private parties.
Demonstration projects
Several utilities have completed, or are pursuing, demonstration projects for utility owned distributed
generation. Staff interviewed two utilities with the most experience and found that they have concluded
their demonstrations and operational learning objectives and are not planning to move ahead with this as
an ongoing program.
Recent experience with local solar projects
There is substantial local data available regarding recent solar projects which also suggests some current
challenges for utility owned rooftop solar. The Solar Power Purchase Program (SP3) shares some of the
characteristics of the utility owned approach but is based on a public-private partnership. In this
program, a solar vendor will lease space from a commercial entity and install solar with a 20-year power
purchase agreement from Utilities. During 2017-2018, Utilities was accepting bids for solar projects
and solar vendors were seeking available lease locations. It was generally found that building owners
were reluctant to commit to the program, as they see Fort Collins buildings and parking areas as future
development opportunities. As these projects are functionally similar to utility scale power purchase
agreements, it is also of note that the pricing is approximately two to four times the cost of utility scale
projects in development.
Recommendation
Staff’s recommends the utility owned rooftop solar business model remain on the broad list of
renewable energy options to be reviewed as part of the Energy Policy and Climate Action Plan updates,
which will include the development of local distributed generation goals and business case analysis for
consideration as policy updates and budget offers.
Attachments
May 8 Agenda Item Summary with highlighted sections
City of Fort Collins customer letter regarding utility owned rooftop
cc: Lisa Rosintoski, Deputy Director Utilities Customer Connections
Tim McCollough, Deputy Director Utilities Light & Power Operations
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May 8, 2018 Agenda Item Summary Solar Business Models
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Staff is seeking general feedback on the topic of local solar and distributed generation, in addition to the
following specific question:
1. Does Council support the development of a distributed energy resources roadmap in conjunction with
an update to the Energy Policy?
BACKGROUND / DISCUSSION
General Topic
The purpose of this work session is to provide an update on the adoption of local solar generation, to
present information regarding the opportunities and challenges on increasing levels of local solar and to
seek feedback from Council on the development of future goals and policies. While the discussion herein
is focused on solar photovoltaic systems installed within Fort Collins Utilities service area, similar concepts
and issues apply to distributed energy resources technologies in general (solar, batteries, demand
response, etc.). For the purposes of this work session, the terms local solar and distributed energy
resources can be considered interchangeable.
Solar Adoption Trends
Fort Collins has seen rapid growth in the installed capacity of local solar. Through April 2018, there are over
1,100 operational systems with a total capacity of 11.1 megawatts; generating over 1% of the community’s
electricity, enough to serve over 2,000 typical Fort Collins homes. The rate of installations has also
increased, with over one fourth of the current systems installed in the last twelve months.
Fort Collins Energy Policy, adopted in 2015, includes a renewable electricity target of 20% by 2020, with
2% coming from resources installed on the distribution system (local). In 2017, the community reached 16%
overall renewable electricity, with 1% from local solar. To reach the 2020 Energy Policy target,
approximately 10 megawatts of additional solar needs to be installed from 2018 through 2020. This will
effectively double the amount of solar in Fort Collins compared to today’s levels. Looking forward to 2030,
a reasonable forecast of solar adoption results in 50 megawatts or more of local solar capacity.
Benefits of Local Solar
Fort Collins has supported local solar through programs, net metering, interconnection standards and
rebates which have encouraged innovators and early adopters to invest in solar. These tools and resources
demonstrate the values expressed by City leadership and Utilities. The benefits of local solar include
(Attachment 1):
• Energy and peak demand reductions. Similar to energy efficiency, solar reduces the community’s
electricity loads, which in turn reduce future requirements for investment in new supply resources.
• Customer satisfaction. Customers expect Utilities to provide programs and services for both
efficiency and renewable energy. Utilities customer satisfaction surveys consistently show strong
support for programs (Attachment 2).
• Leveraged investment and local economy. The capital requirements for installing solar, while
declining, remain substantial. In 2017, the residential rebates were leveraged at an over 9:1 ratio.
This investment and related services support employment and secondary local economic benefits.
• System benefits. Local solar has the potential to provide distribution system benefits, especially
when paired with pending storage technologies. It’s also important to note that there is the potential
for additional distribution system investment required by localized high saturation of solar.
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• Resiliency. Similarly, local solar has the potential to provide resiliency benefits when paired with
pending storage technologies.
• Air quality. Solar is a zero emissions resource, supporting continued efforts to reduce local air
pollution.
• Climate and Energy Policy objectives. Local solar targets are included in the Energy Policy, and
each solar kilowatt-hour comes with associated carbon emissions reductions.
Challenges of Local Solar
As local solar grows over time, it also presents a number challenges to Fort Collins Utilities ability to serve
all customers in an equitable fashion. The very strategies and tactics which support the growing adoption
of solar may, in the future, present risks to the viability of the distribution grid as a community asset. The
grid is the asset which makes it possible to accommodate local solar, while also providing the vital daily
services we depend upon from the use of electricity. It is essential to note that Fort Collins electric systems
are not at risk with the current low levels of solar penetration. It is the purpose of this work session to identify
this future risk and suggest the development of plans to create a sustainable business model to continue
the growth of solar.
Opportunities for Sustainable Solar
There are several key reasons why Fort Collins is very well positioned to address the future challenges of
additional solar. These include:
• Advanced metering infrastructure. The AMI meters deployed in Fort Collins measure and record
the net electricity consumption or net electricity export every 15 minutes. This provides an elegant
metering solution for solar, with solar energy consumed within the home reducing bills by the retail
rate, while net export energy is metered and credited as a separate item on the bill.
• Time of Day rates. The TOD rate structure going into effect in October 2018 also provides the
foundation for future solar value pricing. The adopted rates vary by time of day, season of the year,
and for consumption and export.
• Tools and timing to adjust. Fort Collins current low penetration (< 3.0% of residential customers)
and energy production (just over 1% of electricity) means that there is time to adjust in a gradual
and predictable path towards a more sustainable business model.
Solar Business Models
Solar systems and associated programs have many different structures and characteristics, resulting in
many possibilities for both customers and utilities. Fort Collins current solar programs are described in
Attachment 3. However, the most basic solar model differentiation is defined by the location of the solar
system relative to the electric meter. These two approaches and basic characteristics are described below:
• Behind the meter. Behind the meter systems are the most common structure and is also known
as “net metering” or “net energy metering”. Behind the meter systems incorporate the solar
generation value into the electric bill of the host building. Approximately 70% of the current solar
capacity in Fort Collins is behind the meter.
Historically, this approach utilized traditional mechanical electric meters, creating the terminology
of solar systems making the meter “spin backwards.” Without advanced meters, this approach
generally creates a bank of credits in the summer which are carried forward to be used in winter
months.
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May 8, 2018 Agenda Item Summary Solar Business Models
As noted above, Fort Collins advanced meters measure and record the net electricity consumption
or net electricity export every 15 minutes. The balance of charges and credits which result are
resolved for the customer on a monthly basis.
• In front of the meter. In front of the meter systems connect the output of the solar system through
a separate meter directly to the distribution system. This approach is also known as a feed-in tariff,
and in Fort Collins as the Solar Power Purchase Program (SP3). While more common in Europe
and Asia, there are few examples in the United States of a feed-in tariff. Approximately 30% of the
current solar capacity in Fort Collins is in front of the meter.
This approach provides a financial payment via a power purchase agreement for generated
electricity, while the host building’s electric usage and associated bill is not affected. Electricity
generated from this approach serves all customers and becomes part of the resource mix for the
community. The SP3 program is described in more detail in Attachment 3, and is currently only
offered at commercial scale in Fort Collins.
There are many factors which influence the details of how these two fundamental solar models are
implemented. These include legislative, regulatory and legal as well as utility specific programmatic and
rate differences. A representative list of these factors includes:
• Up front cost
• Source of capital
• Utility ownership
• Scale and location
• Customer segment and rate structure
• Rebates
• Procurement options
• Self-consumption credits
• Export production payments
• Avoided wholesale costs
• All requirements agreements
• Buy-sell agreements
• Value of solar electricity
• Roof lease payments
• Solar operations and maintenance
• Net metering definitions
• Base rate charges
• Solar standby charges
• Sizing requirements
• Tax credits
• Power purchase agreements
• Renewable energy credit accounting
• Carbon accounting
Utility Owned Rooftop Solar Program Examples
There are a few utility-owned rooftop (aka distributed) solar programs which provide examples. The most
well-known are two pilot programs in Arizona. These and two other examples are summarized below:
• Solar Partner Program from Arizona Public Service (APS). APS operated a pilot program offering
customers a $30 per month rooftop “lease” payment in exchange for the utility installing solar panels
on the home. The electricity generated from the system was “in front of the meter” and did not
change the customer’s bill. APS used a bulk purchase approach with local solar vendors to contract
for the installation and subsequent maintenance. The program installed 1,670 systems as a
research and demonstration pilot focused on utility control of smart inverters. While APS has
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May 8, 2018 Agenda Item Summary Solar Business Models
published a number of reports on the lessons learned from the project, the program is closed to
new installations.
• Tucson Electric Power (TEP) Residential Solar Program. The TEP-Owned Rooftop Solar program
was approved as a pilot by the Arizona Corporation Commission in December 2014. The program
has a $10 million budget to install an estimated 600 rooftop systems, each with an average capacity
of about 6 kilowatts. The program is full subscribed and is now closed. Customers would pay $250
to sign up and agree to a flat charge of $16.50 per kilowatt, fixed for 25 years. This creates a flat
bill for customers for this time period.
• Alectra PowerHouse Pilot. Alectra is the second largest municipally owned utility in North America,
serving over 1 million customers in Ontario, Canada. The PowerHouse pilot will install utility owned
solar, batteries and energy management systems in 20 homes. The results of the pilot may lead to
additional scaling and investment.
• Georgetown Utilities Virtual Power Plant. Georgetown, Texas is participating in the Bloomberg
Mayors Challenge as a Champion City. Their proposed idea is to develop a virtual power plant
serving their community with solar systems and battery storage. The project is currently under
feasibility studies as part of the Bloomberg competition.
Solar Financial Analysis
With the many variables noted above, the best way to illustrate the financial impacts of local solar is through
a simplified example for the two basic structures.
Behind the meter:
• Non-solar customer. For a non-solar residential customer in Fort Collins, Utilities purchases a
kilowatt-hour (kWh) from Platte River Power Authority for 6 cents and sells that kWh to the customer
for 9 cents. The net impact of this transaction is 3 cents of revenue, which funds the distribution
system and associated services of Utilities.
• Behind the meter solar customer. When a customer makes the investment to install solar on their
home, Utilities purchases (or provides a credit) for the solar kilowatt-hour (kWh) for 9 cents and
sells that kWh to the same or different customer for 9 cents. The net impact of this transaction is
zero revenue.
• The net effect of this transition to solar is known as lost revenue, and in Fort Collins case is
approximately 3 cents per kWh. The analysis is different for commercial customers, due to
differences in the rate structures.
• At current levels of net metered solar, this lost revenue is over $300,000 annually, representing
0.25% of total electricity revenue and approximately 0.8% of the revenue for the Light & Power
utility operations and services.
• The funding requirements for the distribution system come from the remaining ratepayers over
time, creating a disconnect whereby solar customers are not contributing an equitable share to the
ongoing requirements to maintain the grid.
• Based on typical solar system production and home consumption, the installation of behind the
meter solar in 2018 (2 megawatts) will add approximately $60,000 to the annual budget for
purchased energy from net exports in future years.
In front of the meter:
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May 8, 2018 Agenda Item Summary Solar Business Models
• Host customer. Commercial customers who are hosting an in front of the meter solar system pay
the same electricity bill, based on their usage, load profile and rate structure. In some cases the
host customer is also the solar developer.
• Solar PPA. Utilities contracts with the solar developer for a pay for performance PPA at an agreed
upon price. Agreements in progress this year are approximately 12 cents per kWh, fixed for 20
years for systems larger than 100 kilowatts.
• The net effect of this higher cost resource is a small increase in the overall retail cost of electricity
to all customers. Under current agreements for the SP3 program, this equates to approximately 1%
of the electric price, or rate, for the output from 4.5 megawatts of local solar.
Another factor with regards to local solar is Fort Collins contractual relationship with Platte River Power
Authority (of which Fort Collins is also one of four member-owner communities). The All Requirements
Agreement between Fort Collins and Platte River does not restrict customer-owned behind the meter
generation. The same agreement does limit Fort Collins from owning more than one percent of peak
generation (currently equivalent to approximately three megawatts). While this could be a limiting factor in
deployment of expanded in-front of the meter options, Fort Collins and Platte River have a Solar
Memorandum of Understanding which accommodates the SP3 program while also meeting the All
Requirements agreement.
Table 1 summarizes specific metrics for four representative business models with assumptions of current
costs, rate structures and policies. For each business model, the table also notes the tactics available to
Utilities to change or influence the financial outcomes.
• Behind the meter residential. This example is for typical home solar, representative of
approximately 50% of the solar capacity in Fort Collins.
• Behind the meter commercial. This example is for typical commercial solar, representative of
approximately 15% of the solar capacity in Fort Collins. The primary difference is the rate structures
for commercial customers and the characteristic that the solar electricity is consumed within the
host building.
• In front of the meter SP3. This example is for 2018 proposed SP3 projects.
• In front of the meter utility owned rooftop. This example is not currently offered in Fort Collins. It is
similar in approach to the SP3, with the procurement, installation and ownership being under
Utilities. There are several utilities in North America who have pilot or demonstration programs with
this model (attachment 4). This model also has the potential to be directed at traditionally “hard to
reach” segments in the community.
For the behind the meter and SP3 cases, adjustments in a range of tactics can result in the solar systems
being neutral or better from the utilities (and other ratepayers) perspectives. The next section discusses
recommendations for developing a predictable path forward to create a sustainable solar financial model.
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Table 1: Comparison of Four Representative Solar Business Models
Description Behind the
Meter
Residential
Behind the
Meter
Commercial
In Front of
Meter SP3
In Front of
Meter Utility
Owned Rooftop
Current average cost ($ per watt) $3.50 $2.50 $2.50 $2.75
Capital source (Private:Utility) 90:10 80:20 100:0 0:100
Lifetime utility value (NPV cents
per kWh)
-$0.05 -$0.03 -$0.02 -$0.06
Tactics available to change • Rebate
• Export
pricing
• Fixed
charges
• Rebate
• Rate
structure
• PPA price • Bulk purchase
• Capital
availability
• Program costs
• O&M costs
Recommendations
Fort Collins customers’ increasing adoption of solar energy systems provides long-term opportunities and
challenges for Utilities, for all customers and for the community’s climate and energy goals. Due to the early
phase of Fort Collins location on a typical adoption curve, the current program structures are not financially
sustainable if continued indefinitely. It is reasonable to expect an increase of approximately five times the
solar capacity by 2030.
The timing is excellent for a planning process to create a predictable path for local solar, and distributed
energy resources, out to 2030 and beyond. Between now and 2020, updates to three key policy and
planning initiatives will be underway; these initiatives are the Fort Collins Energy Policy, the Climate Action
Plan Framework and Platte River Power Authority’s Integrated Resource Plan. There will not be a single
approach which achieves the desired outcomes, instead what will be necessary is an optimized mix of
strategies, tactics and business models to achieve community goals and customer expectations
Staff recommends that a distributed energy resources roadmap project be initiated, in coordination with the
Energy Board and community stakeholders. The Energy Board’s 2018 work plan includes:
• Light & Power’s finances are being challenged by its transition to a more distributed and renewable
smart grid as well as by using electricity revenues to administer energy conservation measures that
reduce electricity revenues or that affect the consumption of energy other than electricity. The
Energy Board will study and make recommendations for the development of a sustainable
business plan for Light & Power.
The scope of the initiative would be to review the goals, targets, rates, pricing, policies and business models
for solar and distributed energy resources. The objectives for the effort would be to establish, a sustainable
financial model for distributed energy resources and a predictable path and timeline for customers and
trade allies which recognizes the value of both the distribution grid system and individual assets to create
Fort Collins energy future.
Next Steps
Pending Council feedback, staff will coordinate a work plan and schedule for the development of a
distributed energy resources roadmap with the Energy Board and community stakeholders. The work plan
will maintain alignment with proposed updates to the Energy Policy, Climate Action Plan Framework and
Platte River Integrated Resources Plan.
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