Implementing On-Site Renewable Energy Projects with Innovative Private Financing

August 28, 2007

Are you looking for funding to complete renewable energy projects at your site? Several federal agencies are in the process of developing on-site photovoltaic (PV) projects utilizing an innovative business model that may offer a solution. Under this model, a private entity finances the PV equipment and installation and provides operations and maintenance (O&M) for the term of the contract. The PV system is privately owned, and the federal site purchases the electricity through a long-term power purchase agreement (PPA). While the examples in this article involve PV systems, this contractual arrangement may also be used for other types of renewable projects.

This is an attractive business model for several reasons. The primary benefit is that a private entity is eligible for various tax and other incentives that may not be available to a federal agency. In addition, the site does not have to provide up-front capital for the system. Finally, the long-term electricity contract helps federal agencies stabilize a portion of their electricity costs — an important benefit given energy market volatility.

Photo of PV project
Nellis Air Force Base PV project

There are several important issues to consider during initial project development; including contract length, contracting methodology and land use agreement. There are three example projects in various phases of development — Nellis Air Force Base (AFB), a General Services Administration (GSA) facility in Sacramento, and Fort Carson. Each uses a slightly different contractual methodology.

SunPower Corporation is developing a 15 megawatt (MW) PV project on Nellis AFB that will be the largest PV system in North America. Nellis will purchase the electricity from SunPower Corporation using a FAR 41 (Acquisition of Utility Services) utility contract with an indefinite term and a 12-month termination provision. SunPower Corporation was granted access to the land through a 20-year ground lease, in conjunction with an operating agreement with security and other site access provisions. The leasing authority is 10 USC 2667. The groundbreaking ceremony was held on April 23, 2007 and construction is expected to be complete by the end of 2007. The PV project will supply over 25 percent of Nellis' electricity requirements and will save approximately $1 million per year, even after accounting for standby charges. The renewable energy certificates (RECs) are being sold to Nevada Power for the state renewable portfolio standard solar set-aside requirement.

In November 2006, GSA awarded a 10-year contract for electricity from a 1 MW PV project to Deliddo & Associates dba DEERS, from Ripon, California. The PV system will be installed on the roof of the Federal Building at 2800 Cottage Way in Sacramento. GSA utilized modified FAR Part 41 clauses, as well as Part 12 (Acquisition of Commercial Items), for the contract. DEERS was granted a license for use of the roof for the PV system. A utility rebate and federal incentives (30 percent investment tax credit and accelerated depreciation) will offset approximately half the cost of the system. Electricity production is expected to be approximately 1,350 megawatt-hours per year, supplying an estimated one-third of the building's annual power use. Installation is expected to begin this fall. DEERS retains rights to the RECs.

3-Phases Energy Services is developing a 2 MW PV project on Fort Carson land. Western Area Power Administration (Western) is the contracting agent and will purchase the electricity, estimated at 3,200 MWh/year, on behalf of Fort Carson through a 17-year contract (this is the remaining time under the current Western-Fort Carson power allocation contract). The RECs will be sold to Xcel Energy and used to meet the solar requirement of the state renewable energy standard. The ground-mounted, thin film PV system will cover nearly 15 acres on an old Fort Carson landfill. Construction is expected to be completed in November 2007. SunTechnics Inc. will design and construct the project. The PV panels carry a 25-year warranty.

FEMP is exploring the possibility of utilizing Western as the contracting agent for other on-site renewable projects at federal sites within Western's service territory. The short-term focus will be on the California market due to the attractive PV incentives that allow the site to retain the RECs.

Cost-effective renewable opportunities depend upon a number of factors, including the utility rate and rate structure, available incentives, and whether there is a solar set-aside as part of the state renewable portfolio standard (thus creating a solar REC market). A site will need to consult with their serving utility to determine if the PPA model is allowable. While a federal agency can also utilize appropriations, when available, to develop a renewable project, third-party financing will facilitate the widespread development of renewable energy throughout the federal government.

Federal agencies interested in developing an on-site renewable project utilizing this innovative business model should contact Chandra Shah at 303-384-7557. Project-specific questions may be directed to Jim Snook (850-283-6295) or Steve Dumont (757-764-2569) for Nellis AFB, Mark Levi (415-522-3374) for GSA Sacramento, and Vince Guthrie (719-526-2927) for Fort Carson.