HomeMy WebLinkAbout13. Authorize a second amendment to the REC Solar Power Purchase Agreement Page 1 of 3
Item 13.
CENTRAL SAN BOARD OF DIRECTORS
POSITION PAPER
MEETING DATE: JULY 7, 2022
SUBJECT: 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 Kenton L. Alm
General Manager District Counsel
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), approved Central
San's Solar Project on the Lagiss property, and approved PPA Amendment 1, which raised the the price
of solar power from $0.0866/kWh to $0.10/kWh. That price increase was the result of a significant
increase in the cost of the project's fire access road and a slight increase in the cost of the project's
PG&E interconnection fee.
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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 PPA. At that Board meeting, staff also requested authorization to
incorporate the new, resulting solar power pricing into PPA Amendment 1, which was fully executed on
May 2, 2022 with a new rate of$0.0857/kW h.
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:
1)As recommended by Central San's solar consultant, after the initial award of the PPA, Central San
requested a design 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 capital projects and Central San's solar
consultant, ARC Alternatives, has shared that their 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 two outstanding elements of the project that may result in a future request to adjust Central
San's solar rate are:
1. The final estimated cost of the fire access road. This unknown is a result of contractors not being willing
to hold pricing on the road construction, which is scheduled to begin in September 2022. REC Solar will
be obtaining updated pricing from multiple contractors closer to the start of construction. If the cost is
substantially higher than what was assumed in PPA Amendment 1, REC Solar will likely request an
appropriate adjustment to Central San's solar power price
2. The final installed cost of the steel support foundations. The current cost estimate and resulting solar
rate reflected in Amendment 2 assumes a specific mix of foundation types needed for the steel supports.
Actual field conditions will dictate which foundations are needed and there will be a cost true-up after that
element of the construction is completed, which could result in a slightly higher or lower solar rate.
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 Central San's solar consultant, rebidding the
project in the current market would result in a higher solar power price.
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 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
July 7, 2022 Regular Board Meeting Agenda Packet- Page 74 of 137
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approximately$515,000).
COMMITTEE RECOMMENDATION
The Real Estate, Environmental and Planning Committee reviewed this matter at its June 15, 2022
meeting and recommended Board approval.
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.
Strategic Plan Tie-In
GOAL TWO: Environmental Stewardship
Strategy 4- Reduce reliance on non-renewable energy
July 7, 2022 Regular Board Meeting Agenda Packet- Page 75 of 137