finance emerging renewable technologies david mcandrew federal energy management program

Finance

Emerging Renewable Technologies

David McAndrewFederal Energy Management Program

2 | FEDERAL ENERGY MANAGEMENT PROGRAM femp.energy.gov

Regulation Produce, Use, or Both

Requirement Level

Energy Policy Act (EPAct) of 2005*†

Use, Electric • 3% FY 2007-2009• 5% FY 2010-2012• 7.5% FY 2013…

Executive Order (E.O.) 13423 Use, All RE 50% EPAct 2005 Goal must come from “new” sources (1999 and newer)

E.O. 13514 (Section 9) Use, All RE Individual GHG agency goals 28% average reduction

President Obama’s Climate Action Plan

Electric Use 20% by 2020

* Defines “renewable energy” as electric energy generated from solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project.

† A double counting bonus exists for renewable projects on Federal or Native American land.

The Federal Angle:Why We’re Motivated


Unlike the Private Sector, Federal Agencies are constrained by the statutory and regulatory framework within which we operate.– Competition in Contracting Act – unless an exception applies, the Government

must always openly compete contracts– 40 USC 591, FAR Part 41 - 10 year contract max for Civilian Agencies

• Federal Acquisition Regulation (FAR) Part 41 prescribes the acquisition process.

– 10 USC 2922a DOD authority – 30 year authority only recently construed by OSD to apply to all types of energy generation (few examples)

– Environmental regulations (NEPA).– Anti-Deficiency Act (Gov’t can’t spend money before it’s appropriated—criminal

penalties apply).– Misc. Receipts Act (31 U.S.C. § 3302(b)) (Government must return income to

Treasury—can’t augment appropriations.)– Government may always Terminate for Convenience (T4C).– Agencies unable/unwilling to pay premium for renewable electricity.– 40 USC 591 – Agencies must buy electricity in compliance with state law– Office of Management and Budget (OMB) review of projects.

The Federal Angle: Why We’re Different


Agreements PPA: Federal Site, DESC or Western, and Developer Land Use Agreement: Federal Site and Developer (not shown on diagram) Interconnection/Net Metering Agreement: RE Developer (or Federal Site) and Utility

Possible Additional Agreements• Interagency Agreement (IAA): Western and Federal Site• REC Contract: Developer and Utility• Excess Electricity Contract: Developer and Power Purchaser

Utility (or other for REC sale)

Federal AgencyRenewableDeveloper

REC Payment

RE

Cs

Power Payment($)

Electricity (MWh)

Federal tax and other incentives

Interco

nn

ection

/Net M

etering

Ag

reemen

t

Excess Electricity (if

any)

Utility or other Excess Electricity

Purchaser

Power Payment ($)

DESC, Western or

Other Contracting

Agent

IAA(for Western only) PPA

It’s Complicated…

Western Area Power Administration’s Renewable Resources for

Federal Agencies (RRFA) Via Inter-Agency Agreement, Western acts as Agency’s agent and contracts

to purchase renewable energy from the developer’s project on Agency host’s land. Agency then buys the renewable power from Western.


Private entity installs, owns, operates and maintains customer-sited renewable equipment and the Site purchases electricity through a PPA.• Pros

– RE developer (or partner) eligible for tax incentives, accelerated depreciation – No agency up-front capital required/Minimal risk to government– RE developer provides O&M– Known long term electricity price for portion of site load – Eligible for EPAct 2005 Section 203 double bonus towards RE goal

• Cons– Transaction costs– 10-year Civilian Contracting Authority (DOD can contract up to 30 years)– Limited Federal Sector experience, but expanding rapidly

Federal On-Site Renewable PPA Basic Structure

Site hosts third party owned and operated

RE resource and purchases RE.

Developer constructs RE resource on Federal land/building and sells

energy to Site.

RENEWABLE ENERGY

$ per kilowatt hour


Private entity installs, owns, operates and maintains customer-sited renewable equipment. Western Area Power Administration (Western) contracts with the developer for the purchase of the electricity on behalf of the Federal facility. (Site must be within Western’s service territory.)• All PPA Pros plus:

– Long-Term Contracting Authority (up to 25 years)

Federal On-Site Renewable PPA Partnering with Western

Western purchases RE from developer on

behalf of the Agency.


RE resource.

Developer constructs RE resource on Federal

land/building and generates RE.RENEWABLE ENERGY

RENEWABLE ENERGY


Federal On-Site Renewable PPAPartnering to Respond to Utility Call for RECs

Utility issues call for RECs, Site responds with RFP for industry partners. Site competitively selects industry partner. Industry partner and agency submit joint bid to utility Renewable Portfolio Standard RFP. Industry partner constructs resource on host Agency’s land and sells RECs and/or Power to the utility. Agency gets cheap power or other “consideration for the use of the land.

*Every large-scale solar project at a Federal site has involved the local utility.• Examples: NREL, Brookhaven, Ft. Carson• Cons

– Tough to predict timing of utility requirements – Have Site team ready to spring into action– Need good state incentives

Utility issues call for RECs.


RE resource.

Developer constructs RE resource on Federal land/building and sells

RECs to utility.RECs


Other Deal Structures

• ESPC – New OMB position (Oct 2012) Government must take title to equipment– Energy savings from efficiency measures may buy down RE cost– Tax credits and grants not available– Biomass CHP projects are good candidates

• UESC – Energy savings from efficiency measures may buy down RE cost– Term 25 years Civilian, 30 years DOD/2922a, DOD must own Equip

• Partnering with local utility company– Utility constructs, owns, and operates array on Federal land and sells

electricity to the host Agency but retains RECs. Same term issues as other PPAs

– Utility constructs, owns, and operates the array on Federal land, incorporates it into rate base and takes the power and RECs to meet system needs, provides agency consideration


• Contract structure considerations– Is the PPA model legal in the state/utility service territory?– Is the renewable developer subject to Commission oversight?– Commission approval requirements (for REC sale or other)?– Will RE project affect facilities status at NERC/FERC– 40 USC 591: Electricity purchases must abide by state law

• Coordination with the local utility– Utility rate impacts – possible tariff change, standby charges,

etc.– Demand Charge impacts if project goes down – Interconnection requirements – application, cost, study

requirements and timeframe– Renewable system tie-in options – Net Metering (and Feed-In Tariff if applicable) rules

Key Issues


Mechanism

Agency Tenor Authority Link

3rd Party PPA

Civilian 10 Years40 U.S.C. §501

40 USC 591http://www.law.cornell.edu/uscode/40/501.htmlhttp://www.law.cornell.edu/uscode/text/40/591

WAPA 20+ Years 43 U.S.C. 485h(c) http://www.law.cornell.edu/uscode/43/485h.html

DoD 30 Years 10 U.S.C. 2922a http://www.law.cornell.edu/uscode/10/2922a.html

ESPC All 25 years42 U.S.C. 8287

42 USC 8259 –ECM defhttp://www.law.cornell.edu/uscode/42/8287.html

UESC

Civilian 25 years 42 U.S.C. 8256 http://www.law.cornell.edu/uscode/42/8256.html

DOD 30 years10 U.S.C. 2913,10 U.S.C. 2922a

http://www.law.cornell.edu/uscode/text/10/2913

EUL

DOD5 yrs or unlt’d

w/Sec Def appvl

10 U.S.C. § 2667 http://www.law.cornell.edu/uscode/text/10/2667

VA 75 years 38 U.S.C. §§ 8161 et seq. May be expired

NASA unlimited 51 U.S.C. § 20145

DOE 20 years 42 U.S.C. § 7256 Never used

http://www.law.cornell.edu/uscode/40/501.html




http://www.law.cornell.edu/uscode/43/485h.html

http://www.law.cornell.edu/uscode/43/485h.html

http://www.law.cornell.edu/uscode/10/2922a.html

http://www.law.cornell.edu/uscode/10/2922a.html










Example Projects


• 2 MW, 3200 MWh in first year (~2% of Ft. Carson’s load)

• Fixed, non-escalating energy rate• 17-year contract, with 3 year option

(utilizing Western)• No cost 20 year lease (using 10 USC

2667 lease authority – DOD only)• RECs sold to Xcel Energy (20 year

contract)• Ground-mounted, fixed system

covering 12 acre former landfill• First Solar thin film, 25 year warranty • Came on-line December 2007

Fort Carson PV Project in CO


• 855 kW ground-mounted, fixed PV on slightly less than 4 acres• PPA price is 13¢/kWh in the first year, with 3.5% annual escalation • One year contract with 24 one year renewal options• Irrevocable 25 year license

USCG Petaluma PV Project in CA

• Developer receives 25¢/kWh California Solar Initiative (CSI) performance based incentive (PBI) payments for first 5 years

• Site retains RECs• Construction completed

October 2009


• BNL served has array host• BP Solar Project Developer• 20-year contract between LISF and National Grid for

purchase of 100% of output and RECS• 20-year easement between BNL and LISF• Largest array in North America when energized• Peak capacity 32 MW (AC)• Annual Energy Output 44,000,000 kWh• 200 acres of land, ~160,000 panels• Ground mounted crystalline solar PV modules• Energize date ~ November 2011

Long Island Solar Farm


Contacts and Questions

David McAndrew

Federal Energy Management

Program

202-586-7722

[email protected]

finance emerging renewable technologies david mcandrew federal energy management program

Documents

federal angle

renewable energy

federal agencies rrfa

renewable electricity

federal site rec contract

renewable power

electricity mwh federal

electric energy