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Finance Emerging Renewable Technologies David McAndrew Federal Energy Management Program.

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1 Finance Emerging Renewable Technologies David McAndrew Federal Energy Management Program

2 2 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov RegulationProduce, Use, or Both Requirement Level Energy Policy Act (EPAct) of 2005* † Use, Electric3% FY % FY % FY 2013… Executive Order (E.O.) 13423Use, All RE50% EPAct 2005 Goal must come from “new” sources (1999 and newer) E.O (Section 9)Use, All REIndividual GHG agency goals 28% average reduction President Obama’s Climate Action Plan Electric Use20% by 2020 * Defines “renewable energy” as electric energy generated from solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project. † A double counting bonus exists for renewable projects on Federal or Native American land. The Federal Angle: Why We’re Motivated

3 3 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Unlike the Private Sector, Federal Agencies are constrained by the statutory and regulatory framework within which we operate. –Competition in Contracting Act – unless an exception applies, the Government must always openly compete contracts –40 USC 591, FAR Part year contract max for Civilian Agencies Federal Acquisition Regulation (FAR) Part 41 prescribes the acquisition process. –10 USC 2922a DOD authority – 30 year authority only recently construed by OSD to apply to all types of energy generation (few examples) –Environmental regulations (NEPA). –Anti-Deficiency Act (Gov’t can’t spend money before it’s appropriated—criminal penalties apply). –Misc. Receipts Act (31 U.S.C. § 3302(b)) (Government must return income to Treasury—can’t augment appropriations.) –Government may always Terminate for Convenience (T4C). –Agencies unable/unwilling to pay premium for renewable electricity. –40 USC 591 – Agencies must buy electricity in compliance with state law –Office of Management and Budget (OMB) review of projects. The Federal Angle: Why We’re Different

4 4 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Agreements  PPA: Federal Site, DESC or Western, and Developer  Land Use Agreement: Federal Site and Developer (not shown on diagram)  Interconnection/Net Metering Agreement: RE Developer (or Federal Site) and Utility Possible Additional Agreements Interagency Agreement (IAA): Western and Federal Site REC Contract: Developer and Utility Excess Electricity Contract: Developer and Power Purchaser Utility (or other for REC sale) Federal Agency Renewable Developer REC Payment RECs Power Payment($) Electricity (MWh) Federal tax and other incentives Interconnection/Net Metering Agreement Excess Electricity (if any) Utility or other Excess Electricity Purchaser Power Payment ($) DESC, Western or Other Contracting Agent IAA (for Western only) PPA It’s Complicated… Western Area Power Administration’s Renewable Resources for Federal Agencies (RRFA)  Via Inter-Agency Agreement, Western acts as Agency’s agent and contracts to purchase renewable energy from the developer’s project on Agency host’s land. Agency then buys the renewable power from Western.

5 5 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Private entity installs, owns, operates and maintains customer-sited renewable equipment and the Site purchases electricity through a PPA. Pros –RE developer (or partner) eligible for tax incentives, accelerated depreciation –No agency up-front capital required/Minimal risk to government –RE developer provides O&M –Known long term electricity price for portion of site load –Eligible for EPAct 2005 Section 203 double bonus towards RE goal Cons –Transaction costs –10-year Civilian Contracting Authority (DOD can contract up to 30 years) –Limited Federal Sector experience, but expanding rapidly Federal On-Site Renewable PPA Basic Structure Site hosts third party owned and operated RE resource and purchases RE. Developer constructs RE resource on Federal land/building and sells energy to Site. RENEWABLE ENERGY $ per kilowatt hour

6 6 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Private entity installs, owns, operates and maintains customer-sited renewable equipment. Western Area Power Administration (Western) contracts with the developer for the purchase of the electricity on behalf of the Federal facility. (Site must be within Western’s service territory.) All PPA Pros plus: –Long-Term Contracting Authority (up to 25 years) Federal On-Site Renewable PPA Partnering with Western Western purchases RE from developer on behalf of the Agency. Site hosts third party owned and operated RE resource. Developer constructs RE resource on Federal land/building and generates RE. RENEWABLE ENERGY

7 7 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Federal On-Site Renewable PPA Partnering to Respond to Utility Call for RECs Utility issues call for RECs, Site responds with RFP for industry partners. Site competitively selects industry partner. Industry partner and agency submit joint bid to utility Renewable Portfolio Standard RFP. Industry partner constructs resource on host Agency’s land and sells RECs and/or Power to the utility. Agency gets cheap power or other “consideration for the use of the land. *Every large-scale solar project at a Federal site has involved the local utility. Examples: NREL, Brookhaven, Ft. Carson Cons –Tough to predict timing of utility requirements –Have Site team ready to spring into action –Need good state incentives Utility issues call for RECs. Site hosts third party owned and operated RE resource. Developer constructs RE resource on Federal land/building and sells RECs to utility. RECs

8 8 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Other Deal Structures ESPC –New OMB position (Oct 2012) Government must take title to equipment –Energy savings from efficiency measures may buy down RE cost –Tax credits and grants not available –Biomass CHP projects are good candidates UESC –Energy savings from efficiency measures may buy down RE cost –Term 25 years Civilian, 30 years DOD/2922a, DOD must own Equip Partnering with local utility company –Utility constructs, owns, and operates array on Federal land and sells electricity to the host Agency but retains RECs. Same term issues as other PPAs –Utility constructs, owns, and operates the array on Federal land, incorporates it into rate base and takes the power and RECs to meet system needs, provides agency consideration

9 9 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Contract structure considerations –Is the PPA model legal in the state/utility service territory? –Is the renewable developer subject to Commission oversight? –Commission approval requirements (for REC sale or other)? –Will RE project affect facilities status at NERC/FERC –40 USC 591: Electricity purchases must abide by state law Coordination with the local utility –Utility rate impacts – possible tariff change, standby charges, etc. –Demand Charge impacts if project goes down –Interconnection requirements – application, cost, study requirements and timeframe –Renewable system tie-in options –Net Metering (and Feed-In Tariff if applicable) rules Key Issues

10 10 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Mecha nism AgencyTenorAuthorityLink 3 rd Party PPA Civilian 10 Years 40 U.S.C. § USC 591 ode/40/501.html ode/text/40/591 WAPA20+ Years43 U.S.C. 485h(c) ode/43/485h.html DoD30 Years10 U.S.C. 2922a ode/10/2922a.html ESPCAll25 years 42 U.S.C USC 8259 –ECM def ode/42/8287.html UESC Civilian25 years42 U.S.C ode/42/8256.html DOD30 years 10U.S.C. 2913, 10 U.S.C. 2922a ode/text/10/2913 EUL DOD 5 yrs or unlt’d w/Sec Def appvl 10 U.S.C. § ode/text/10/2667 VA75 years38 U.S.C. §§ 8161 et seq.May be expired NASAunlimited51 U.S.C. § DOE20 years42 U.S.C. § 7256Never used

11 11 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Example Projects

12 12 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov 2 MW, 3200 MWh in first year (~2% of Ft. Carson’s load) Fixed, non-escalating energy rate 17-year contract, with 3 year option (utilizing Western) No cost 20 year lease (using 10 USC 2667 lease authority – DOD only) RECs sold to Xcel Energy (20 year contract) Ground-mounted, fixed system covering 12 acre former landfill First Solar thin film, 25 year warranty Came on-line December 2007 Fort Carson PV Project in CO

13 13 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov 855 kW ground-mounted, fixed PV on slightly less than 4 acres PPA price is 13¢/kWh in the first year, with 3.5% annual escalation One year contract with 24 one year renewal options Irrevocable 25 year license USCG Petaluma PV Project in CA Developer receives 25¢/kWh California Solar Initiative (CSI) performance based incentive (PBI) payments for first 5 years Site retains RECs Construction completed October 2009

14 14 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov BNL served has array host BP Solar Project Developer 20-year contract between LISF and National Grid for purchase of 100% of output and RECS 20-year easement between BNL and LISF Largest array in North America when energized Peak capacity 32 MW (AC) Annual Energy Output 44,000,000 kWh 200 acres of land, ~160,000 panels Ground mounted crystalline solar PV modules Energize date ~ November 2011 Long Island Solar Farm

15 15 | FEDERAL ENERGY MANAGEMENT PROGRAMfemp.energy.gov Contacts and Questions David McAndrew Federal Energy Management Program


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