Palo Alto's outlook for expanding its supply of cheap, green energy brightened this week, when a City Council committee enthusiastically approved a new contract that would allow the city to buy solar energy at a rate that Utilities Department officials believe to be lowest ever in state history.
The 25-year contract with Hecate Energy, a Nashville-based firm that develops renewable-energy projects, would allow the city to buy solar power at a price of 3.676 cents per kilowatt-hour, by far the lowest rate the city has ever paid for a renewable contract. James Stack, the contract administrator for the Utilities Department, called this rate an "exceptionally low price" -- the lowest ever for a solar purchaser in California and, possibly in the U.S.
"For reference, it's almost 50 percent lower than the cost of our other solar contracts, which we executed just a few years ago and that we thought were pretty well-priced," Stack said.
Though the project won't be up and running until 2021, once in place it would accommodate about 7.5 percent of the city's electricity needs. The city will also have an option of extending the contract by up to three five-year terms. In addition, Hecate is required by the contract to post a $5.2 million development-assurance deposit to mitigate the risk that the development of the project would be delayed.
The timing of the cheap solar energy could hardly be more fortuitous. California's drought, which is now heading into its fifth year, has dealt a blow to the city's hydroelectric sources, which typically generate about half of the city's total energy, forcing the Utilities Department to buy non-renewable energy in the interim. Largely as a result of the drought, the city expects to raise electricity rates by about 12 percent in July and by roughly 8 percent or more in 2017.
In addition to taking some of the pressure off the city's stressed hydro supplies, the new contract will also help Palo Alto meet its goal of drawing at least 50 percent of its electricity from renewable sources (not including hydro). Currently, the city has nine renewable energy contracts in place and operating: five involving landfill gas, two relying on wind power and two on solar energy.
Now, it looks like solar energy is emerging as the most cost-effective option. In addition to the two solar projects already in place, the city has reached deals with three other solar projects that are expected to begin operating by the end of this year. Altogether, these existing contracts are expected to supply 57.5 percent of the city's energies needs in 2017.
The new contract is also expected to help the city meet its goal of getting all of the city's electricity from carbon-neutral sources, which includes hydroelectric plants. The policy, which was adopted in 2013, currently relies on a mix of hydro, wind, solar and landfill sources, along with purchases of "renewable energy certificates." These certificates allow the city to offset the impacts of emissions from non-renewable energy that the Utilities Department purchases from the wholesale market.
Starting next year, the city plans to achieve carbon neutrality without these certificates, which will require investing in renewable energy contracts. The new contract, part of that effort, will also help the city offset the loss of one of its earliest wind contracts, which is set to expire in 2021.
The contract with Hecate was selected from a pool of 41 proposals that the city received in response to a recent request for renewable-energy proposals. Solar projects dominated the proposals, according to Stack, constituting 32 of the 41 projects, including the 10 with the lowest rates.
The Hecate project will be based in Palmdale, in Los Angeles County, and will provide 75,000 megawatt-hours of electricity per year at a total cost not to exceed $101 million over 40 years (which includes the initial 25-year period and three possible extensions).
The council's Finance Committee happily recommended approval of the project, with Councilman Greg Schmid congratulating Utilities Department staff on obtaining such a good deal and Councilman Cory Wolbach saying that his main concern is that it is "may be too good to be true." Their colleagues, Chair Eric Filseth and Councilwoman Karen Holman agreed, ensuring a unanimous vote of support.
The contract is now expected to be approved by the full City Council.