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City snags cheapest-ever solar-power contract

Falling solar prices brighten Palo Alto's energy outlook

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.

Comments

17 people like this
Posted by Crescent moon
a resident of Crescent Park
on Feb 18, 2016 at 7:46 pm

If the price of solar is dropping substantially -- this article says the solar price now is half what it was just a few years ago -- why is PA agreeing to a 25 year deal? What seems cheap now may seem expensive in a few years when the price drops even more.


23 people like this
Posted by Mike
a resident of University South
on Feb 18, 2016 at 8:44 pm

Didn't the Utilities Department announce their prices were going up? Substantially?


4 people like this
Posted by Sequoia
a resident of Ventura
on Feb 18, 2016 at 9:20 pm

Sequoia is a registered user.

Great news to hear Palo Alto is adding more solar power to our supply and at such a low price!

Our electric rates have always been much lower than PG&E's and we haven't seen a rate increase in 6 years. Not surprised they need to raise the rates this year.


1 person likes this
Posted by An Engineer
a resident of Duveneck/St. Francis
on Feb 18, 2016 at 9:27 pm

Last I looked, Palmdale is right by LA, and much closer to San Diego than the Bay Area. Does anybody know how much of our celebrated sunjuice will go right to those nearby consumers, and what small fraction will take the much longer trip all the way up here? Or have our power mavens run an extension cord direct from Palmdale to Palo Alto?


8 people like this
Posted by A *real* engineer
a resident of another community
on Feb 18, 2016 at 9:50 pm

@An Engineer: When power plants generate electricity they dump it on the electric grid and it goes to wherever it's needed. That's how electric grids literally everywhere work. It's physically impossible to track individual electrons from source to sink, and it would be ludicrous to build transmission lines from the City to each of its generators.


16 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Feb 18, 2016 at 10:52 pm

Great that the price is so low for the next 25 years.

Then we won't need the huge electric power increases that city's announced through 2021. I look forward to hearing that city will be cancelling the rate increases they just announced prior to closing this deal.

Remember, the PA Utility has already generated $17,000,000 in surpluses for the general fund.


6 people like this
Posted by An Engineef
a resident of Duveneck/St. Francis
on Feb 18, 2016 at 11:05 pm

@A *real* engineer:

Both of us are correct. The energy indeed goes everywhere on the grid.

But because the transmission lines are lossy, they and the various loads (i.e., the local distribution systems) form a network that tends to taper off the consumption of energy from a particular generator at loads progressively farther from the source.

We cannot directly determine which Watt-second went where but, by building a model grid on SPICE (being careful to scale the various impedances per the corresponding line voltages), one can estimate the relative contributions of the network's sources to a given load by varying that load incrementally. This shows that the nearest generators contribute more to a given load than those successively more distant on the network. Try it for yourself.

Palo Alto is much further downgrid from Palmdale than LA or San Diego Web Link .

An aside. Electrons in AC circuits go nowhere. Surprisingly, their velocities in metals are on the order of only a meter per hour - a snail can easily outrun them. Google electron velocity. It is the electromagnetic wave they support that travels fast.


12 people like this
Posted by Prop 13 is Dead
a resident of Crescent Park
on Feb 19, 2016 at 6:48 pm

The City of Palo Alto, through its overcharges to residents, has effectively come up with a way to circumvent the will of the people as expressed in Proposition 13.

Now, they don't have to raise property taxes to increase city revenue and taxes. They just squeeze us with utility rate increases instead. The juice is just so sweet.

And the city council laughs all the way to the general fund.

What a ripoff!


10 people like this
Posted by jerry99
a resident of Barron Park
on Feb 20, 2016 at 11:21 am

Another waste of time and money, like all renewables. Natural gas is one of its lowest costs in 20 years, let's use that instead. Also the city why is the city increasing gas rates and electric rates anyway? A feeble excuse can be made for water rates, but the City Council approves every new apartment building and hotel and new business that add people and crowd the city. No more new development.


Like this comment
Posted by An Engineer
a resident of Duveneck/St. Francis
on Feb 20, 2016 at 1:10 pm

"Another waste of time and money, like all renewables."

Curiously, you might be wrong for an arcane and fortunate reason. The key is how does the wholesale cost of this sunjuice compare with what our city pays its other energy suppliers?

Our electric power comes from the grid, so we get the same electricity that everyone in the Bay Area gets (with minor adjustments for local rooftop solar). It is therefore possible we're using relatively expensive power but paying only 3.676 cents per kilowatt-hour for it. Someone else is making up the difference. I don't have the actual numbers; maybe some enterprising researcher will look them up.

Nevertheless, what comes out of our outlets is not the 100% renewables the city mistakenly (more likely naively) touts. It is the same electricity as everyone else in the Bay Area uses.


4 people like this
Posted by Justin
a resident of Mountain View
on Feb 22, 2016 at 10:37 pm

This is why net metering is such a ridiculous proposition. Palo Alto can contract solar for under $0.04 per KWh but is forced to buy home solar generation at $0.17.


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