Vermont public power utilities net savings on solar with federal bonds, other steps
Originally published January 4, 2017
Working together, two Vermont public power utilities discovered that it is possible to achieve lower energy costs by owning their solar installations, rather than using third-party arrangements, and making use of federal Clean Renewable Energy Bonds.
The small towns of Stowe and Hyde Park jointly developed two community solar projects, one in each town, which recently began operating. The installations, 1.4 MW for Stowe and 1.4 MW for Hyde Park, generate power at a cost per kWh below the market rates for projects of a similar size that operate under purchase-power agreements (PPA).
The third-party PPA is a popular way to secure solar. It avoids upfront costs and leaves a third party with project risk and responsibility for owning and operating the facility. The real cost advantage, though, comes from a 30-percent investment tax credit that a for-profit provider can use, but a public power utility cannot.
But Stowe and Hyde Park said they beat PPA pricing through use of Clean Renewable Energy Bonds, made available through the U.S. Treasury to public power, government entities and Indian tribes. The result for the utilities was financing at an interest rate under one percent.
The cost advantage occurs immediately under some scenarios and in others occurs over time, according to an analysis by the utilities’ consultant, Energy New England. For example, in Stowe the starting cost is 12 cents/kWh. Considering the cost of debt service, a PPA would likely begin at 15 cents/kWh, or possibly at 12-13 cents/kWh. But the PPA would escalate at a much higher rate, about 2-3% annually compared with Stowe’s 1.1%.
Once the debt is paid off, Stowe’s cost falls to 3 cents/kWh, reflecting only the land lease and operation and maintenance. Even if a PPA provides a price break after the debt is paid off, it will not drop as low as 3 cents/kWh, according to the consultant.
And finally, the Stowe project is able to accrue any local benefits from its solar project – they do not go to a third party as they would with a PPA. These benefits, which include peak shaving, amount to almost 7 cents/kWh.
The Energy Policy Act of 2005 established Clean Energy Renewable Bonds as a financing mechanism for public sector renewable energy projects. Clean Renewable Energy Bonds differ from traditional tax-exempt bonds in that the tax credits issued through Clean Renewable Energy Bonds are treated as taxable income for the bondholder. The tax credit may be taken each year the bondholder has a tax liability as long as the credit amount does not exceed the limits established by the Energy Policy Act of 2005.
The utilities further drove down costs through economies of scale achieved by sharing resources and information and building the solar farms concurrently.
“It is important to know that teamwork with Stowe Electric was critical to our mutual success,” said Carol Robertson, general manager of Hyde Park Electric.
Both towns also are using the solar generation to meet the state’s renewable portfolio standards, so that they can avoid or minimize making alternative compliance payments to the state.
For Hyde Park, the solar project puts it above its state RPS obligation, meaning it can sell the excess renewable energy credits elsewhere.
“The 30-year impact of REC sales and the much greater value of avoiding compliance payments is a net benefit of about $2.6 million,” said Robertson.
Hyde Park, with a population of about 500, placed its ground-mounted solar panels adjacent to a manufacturing facility.
Stowe, a town of about 4,000 people, has installed its ground-mounted solar array on a reclaimed portion of a town-owned gravel pit.
The solar plants will generate enough electricity to supply about 230 homes in each town.
As advantageous as the financing was, it came with some challenges, among them a requirement that the projects be shovel ready within six-months.
“For us it was a challenging project because up here in Vermont we are heavily regulated,” Ellen Burt, general manager of the Stowe Electric Department, said. “We had to hold a lot of informational meetings, hold two town votes and go to Montpelier (the state seat) to attain approval from the regulators. It was a big lift for a utility of our size.”
In addition to its solar project, Stowe installed ten electric vehicle charging sites, including a fast charger at the Alchemist Brewery. The brewery installation charges electric vehicles in 30 minutes or less.
Vermont is pushing electric vehicles as part of a plan to make 10% of its transportation powered by renewable energy by 2025. Stowe also sees the chargers as an economic play -- electric vehicle owners are likely to shop in local stores while waiting for their cars to charge.
“Those coming to stay, shop, recreate, and work in the area can rest easier knowing that some of the energy they use is coming from local renewable sources, and they will have many locations to charge their plug-in vehicles,” said Gov. Peter Shumlin in a news release.
The state had about 130 public charging stations as of September, and 1,200 plug-in vehicles as of July, a 33 percent rise over last year, according to the news release.
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