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Home My WebLink About05.b. Review draft Position Paper to authorize Amendment 2 to Central San's Power Purchase Agreement with RED Solar Page 1 of 7 Item 5.b. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER DRAFT MEETING DATE: JUNE 15, 2022 SUBJECT: REVIEW DRAFT POSITION PAPER TO AUTHORIZE THE GENERAL MANAGER TO EXECUTE AMENDMENT 2 TO CENTRAL SAN'S POWER PURCHASE AGREEMENT WITH REC SOLAR TO INCREASE THE SOLAR POWER COST FROM $0.0857 TO $0.09128 PER KILOWATT-HOUR (KWH) FOR ADDITIONAL COSTS RELATED TO THE PROJECT'S STEEL SUPPORTS SUBMITTED BY: INITIATING DEPARTMENT: MELODY LABELLA, RESOURCE RECOVERY ENGINEERING AND TECHNICAL SERVICES- PROGRAM MANAGER RESOURCE RECOVERY REVIEWED BY: JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES ROGER S. BAILEY, GENERAL MANAGER ISSUE Board of Directors (Board) authorization is required to amend an existing Power Purchase Agreement (PPA). BACKGROUND At its January 13, 2022 Special meeting, the Board continued and closed a public hearing, adopted a mitigated negative declaration under the California Environmental Quality Act (CEQA), and approved Central San's Solar Project on the Lagiss property. At the following Board meeting on February 3, 2022, staff returned to the Board to request approval of the creation of a $600,000 capital project to fund the direct payment of the project's PG&E interconnection fee and the near-term CEQA mitigation costs associated with the project, which are Central San's responsibility per the terms of the P PA. At that Board meeting, staff also requested authorization for the General Manager to incorporate the new, resulting solar power pricing into PPA Amendment 1, which was approved at the January Board meeting. Amendment 1 was fully executed on May 2, 2022 for a new solar rate of$0.0857/kWh. On May 23, 2022, staff received a request from REC Solar for Amendment 2 to reflect a new solar power price of $0.09128/kWh to account for an approximately$300,000 increase in the project's steel supports for the solar arrays. This increased cost is due to two factors: June 15, 2022 REEP Committee Meeting Agenda Packet- Page 24 of 39 Page 2 of 7 1)As recommended by the solar consultant, Central San requested a change in the orientation of the solar arrays from facing southeast to facing southwest, in order to produce more power in the most valuable solar production times and increase the value of the credits generated on the project. This change in orientation resulted in a greater cost for some of the foundations of the steel supports that hold the solar panels. 2) Due to impacts from the pandemic and the resulting supply chain issues, the price of steel has increased. Central San has seen this issue on many of its capitals projects. In addition, Central San's solar consultant, ARC Alternatives, has shared that other public agency clients are also facing this same issue on PPA projects that have not yet completed construction. In addition to raising the solar power price, Amendment 2 would also update the cost schedules for Central San's early termination of the PPA and early buyout of the system at years 10, 15 and 20. The only outstanding aspect on the project that may result in a future request by REC Solar to increase Central San's solar rate is the cost for the fire access road. This is a result of contractors not being willing to guarantee pricing for road construction that will begin in September 2022. Once REC Solar is able to obtain their final best pricing on the access road, staff may return to the Board for a final request to adjust the solar power price. ALTERNATIVES/CONSIDERATIONS The Board could choose not to approve Amendment 2, but this is not recommended as the project would not likely move forward to construction and, according to the advise of Central San's solar consultant, rebidding the project now would result in a higher solar power rice. FINANCIAL IMPACTS If the Board authorizes the General Manager to execute Amendment 2, Central San's overall power savings are estimated to be nearly$5.7 million (net present value) over the 25-year term of the PPA, modeled at a PG&E's utility escalation rate of 4.5% per year. This would result in a positive cashflow at year five, which complies with the cashflow requirement for PPAs in Central San's Board Energy Policy, even though Central San is cash financing a portion of the project (the PG&E interconnection cost of approximately$515,000). COMMITTEE RECOMMENDATION The Real Estate, Environmental and Planning Committee reviewed this matter at its June 15, 2022 meeting and recommended RECOMMENDED BOARD ACTION Authorize the General Manager to execute Amendment 2 to Central San's Power Purchase Agreement with REC Solar to increase the solar power cost from $0.0857 to $0.09128 per kWh for additional costs related to the project's steel supports. June 15, 2022 REEP Committee Meeting Agenda Packet- Page 25 of 39 Page 3 of 7 Strategic Plan Tie-In GOAL TWO:Environmental Stewardship Strategy 4- Reduce reliance on non-renewable energy ATTACHMENTS: 1. Presentation June 15, 2022 REEP Committee Meeting Agenda Packet- Page 26 of 39 Page 4 of 7 CENTRAL SAN SOLAR PROJECT ON THE LAGISS PROPERTY - POWER PURCHASE AGREEMENT AMENDMENT #2 Melody LaBella, P.E. - Resource Recovery Program Manager Real Estate, Environmental & Planning Committee Meeting June 15, 2022 SOLAR PROJECT CHRONOLOGY June 2020: Request for Proposals issued for a Power Purchase Agreement (PPA) for a 1 .75 megawatt solar photovoltaic array on Central San's Lagiss property November 2020: Board awarded a PPA to REC Solar with a solar price of $0.0866 per kilowatt-hour (kWh) July 2021 : Project design sufficient to complete environmental review January 2022: Board adopted a mitigated negative declaration and approved the project and PPAAmendment #1 with a new solar price of $0.10 per kWh February 2022: Board approved a new capital project and authorized direct payment of PG&E's interconnection fee and incorporation of a new solar price of $0.0857 per kWh into PPAAmendment #1 IZ June 15, 2022 REEP Committee Meeting Agenda Packet- Page 27 of 39 1 Page 5 of 7 UPDATE ON ENVIRONMENTAL MITIGATION As part of Central San's adopted mitigated negative declaration's Mitigation Monitoring and Reporting Program, Central San committed to hiring an expert to conduct four burrowing owl surveys during burrowing owl nesting season (Feb. 1 —Aug. 30). Two surveys have been completed by Albion Environmental, Inc. so far and no burrowing owls/evidence of burrowing owls have/has been found. 13 REC SOLAR'S REQUEST FOR PPA AMENDMENT #2 On May 23, 2022, REC Solar submitted a request for PPA Amendment #2 to increase Central San's solar price by $0.00558 per kWh to account for an $300,000 increase in the steel supports for the project's solar arrays. This cost increase is due to two factors: The increased cost for some of the steel support foundations due to the change in solar array orientation from southeast to southwest to achieve higher PG&E credits, and The increased cost in the price of steel due to COVID-19 supply chain disruptions. l4 CFNTPAISAN June 15, 2022 REEP Committee Meeting Agenda Packet- Page 28 of 39 2 Page 6 of 7 FINANCIAL ANALYSIS Using an escalation rate of 4.5% for PG&E power, the increase from $0.0857 to $0.09128 per kWh for solar power will still result in Central San saving nearly $5.7 million (net present value) over the 25-year PPA term. This results in a positive cashflow in year 5, which complies with Central San's Board Energy Policy for PPAs, even though Central San is cash financing a portion of the project (the PG&E interconnection fee of $515,000). IS RECOMMENDED BOARD ACTION Authorize the General Manager to execute Amendment #2 to Central San's Power Purchase Agreement with REC Solar to increase the solar power cost from $0.0857 to $0.09128 per kWh for additional costs related to the project's steel supports 16 CFNTPAISAN June 15, 2022 REEP Committee Meeting Agenda Packet- Page 29 of 39 3 Page 7 of 7 QUESTIONS? CFNTPAI SAN June 15, 2022 REEP Committee Meeting Agenda Packet- Page 30 of 39 4