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HomeMy WebLinkAboutStaff Report 4608 City of Palo Alto (ID # 4608) City Council Staff Report Report Type: Consent Calendar Meeting Date: 4/21/2014 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Local Solar Plan Title: Finance Committee Recommendation that the City Council Adopt a Resolution Establishing a Local Solar Plan to Provide Four Percent of the City's Total Energy Needs by 2023 From: City Manager Lead Department: Utilities Recommendation Staff, the Utilities Advisory Commission (UAC), and the Finance Committee recommend that the City Council approve a resolution (Attachment A) establishing the Local Solar Plan to increase the installation of local solar photovoltaic facilities in order to provide 4 percent of the City’s total energy needs by 2023. The Finance Committee recommends that the Local Solar Plan prioritize development of a community solar share program over the solar donation program. Recommended Motion Motion that the City Council approve a resolution (Attachment A) establishing the Local Solar Plan to increase the installation of local solar photovoltaic facilities in order to provide 4 percent of the City’s total energy needs by 2023, prioritizing the development of a community solar share program over the solar donation program. Summary The City of Palo Alto desires to be a leading city in sustainability efforts and, as such, has set significant goals to reduce greenhouse gas (GHG) emissions. Individual homeowners and businesses desire to do their part to reduce GHG emissions, want to control the cost of meeting their energy needs, and often look to solar energy as a means to achieve those goals. City of Palo Alto Page 2 Besides being carbon-free, local solar systems achieve many benefits for Palo Alto, including: reducing the amount of remote renewable energy the City must buy for the community, which helps keep everyone’s rates down; avoiding the costs and losses from transmitting and distributing electricity from distant power facilities; and reducing the need to build expensive transmission lines throughout the state, thus improving grid reliability. Local solar generating facilities provide other strategic benefits to the participant and community including improving localized distribution system resiliency and, depending on where the systems are installed, providing rain protection and shade, which can reduce air conditioning costs and increase comfort. The City’s PV Partners program, which provides rebates to electric customers who install rooftop photovoltaic (PV) solar systems, has been very successful, but the remaining program funds are expected to be reserved by the end of 2014. State and national efforts to expand the installation of solar energy systems have grown exponentially. The cost of installing solar on rooftops has fallen and many third-party entities offer creative ways for residents and businesses to install systems. However, the benefits to potential solar owners locally are lower due to Palo Alto’s relatively low electric retail rates. Further, with the adoption of the City’s Carbon Neutral Plan for the electric supply portfolio, installing solar in Palo Alto may be less compelling for some customers than it once was. The proposed Local Solar Plan identifies a set of strategies and initiatives to continue promoting solar in a cost-effective and sustainable manner by accelerating and increasing solar penetration in Palo Alto. Implementing the Local Solar Plan allows the City to continue to be a leading solar community and a leader in environmental sustainability. Background The City has been a leader in local solar development starting in 1980 when it launched a solar hot water heating program. In 1999 the City launched its first solar PV system rebate program to encourage residents and businesses to install solar PV systems. A detailed description of the City’s existing solar programs is presented in Attachment D. Discussion The staff report to the Finance Committee (Attachment C) provides a detailed discussion of proposed Local Solar Plan (Attachment B) and how the goal, objectives and strategies for the plan were developed. City of Palo Alto Page 3 Committee Review and Recommendation At its February 12, 2014 meeting, the UAC unanimously recommended Council approve the proposed Local Solar Plan. The minutes of the UAC’s meeting are provided in Attachment D. At its March 18, 2014 meeting, the Finance Committee discussed the Local Solar Plan and staff’s proposed timeline for designing and launching new solar programs. The staff report to the Finance Committee (Attachment C) contains the tentative timeline of the three new solar programs that are part of the Local Solar Plan shown in Table 1. Table 1: Tentative Review and Approval Timeline for Major Programs Program Development UAC Review Finance Comm. Review Council Review Program Launch 1. Community Solar Donation Program Through May 2014 June 2014 July 2014 Aug. 2014 Oct. 2014 2. Community Solar Share Program July-October 2014 Nov. 2014 Dec. 2014 Jan. 2015 July 2015 3. Solar Group-discount Program Jan-April 2015 May 2015 June 2015 July 2015 Jan. 2016 The Finance Committee expressed concerns over the development of the solar donation program before the community share program, which was considered to have more potential impact. After much discussion, the Finance Committee voted unanimously (4 -0) to recommend that Council approve a resolution adopting the Local Solar Plan and prioritizing the development of a community solar share program over a solar donation program. The final minutes of the Finance Committee’s March 18, 2014 meeting are provided as Attachment E. Next Steps Provided Council approves the proposed Local Solar Plan, staff will develop the programs and will return to the UAC, Finance Committee and Council for recommendations and approval of each specific programs. When it seeks Council approval of individual programs, staff will provide a thorough description of the program, potential participation, benefi ts and costs and identify funding and resource needs for implementation. City of Palo Alto Page 4 Table 2 reflects a new tentative timeline for launching the three solar programs that prioritizes the Community Solar Share Program and speeds up its launch by six months . The timeline is based on staff’s best estimate of the amount of resources needed to design, contract for administrative and marketing services, and gain approval for the individual programs. Staff has determined that it would be advantageous to issue one Request for Proposals (RFP) for marketing and administrative services for both the Community Solar Share Program and the Solar Donation Program. Depending on the results of the RFP and the complexity of each of the programs, staff will work to meet or beat the program launch dates indicated in Table 2. Table 2: Tentative Review and Approval Timeline for Major Programs Program Development UAC Review Finance Comm. Review Council Review Program Launch 1. Community Solar Share Program Through Sept. 2014 Oct. 2014 Nov. 2014 Dec. 2014 Jan. 2015 2. Community Solar Donation Program Through Dec. 2014 Jan. 2015 Feb. 2015 Mar. 2015 July 2015 3. Solar Group-discount Program Jan-April 2015 May 2015 June 2015 July 2015 Jan. 2016 Resource Impacts Approval of the Local Solar Plan will not impact budget resources for fiscal year 2014. Staff resources will be impacted for the programs contained in the plan and as such staff may seek consulting and program administration services to assist with the implementation of the Local Solar Plan. Staff will identify resource impacts and will seek Council approval for funds to implement specific programs, as needed. Policy Impacts Approval of the Local Solar Plan is consistent with existing solar legislative mandates and is in support of the 1) City’s Climate Protection Plan; 2) CPAU’s Long-term Electric Acquisition Plan; and 3) CPAU’s Strategic Plan. Environmental Impacts Approval of the Local Solar Plan does not meet the California Environmental Quality Act’s (CEQA) definition of “project” under California Public Resources Code Sec. 21065, thus no environmental review is required. Construction and installation of individual solar systems on City of Palo Alto Page 5 buildings in the community may be subject to CEQA review and will be addressed as needed, as each of the Local Solar Plan’s individual sub-programs are brought forward. Attachments:  Attachment A: Resolution (PDF)  Attachment B: Local Solar Plan (PDF)  Attachment C: Finance Committee Staff Report ID 4511 Local Solar Plan (without its attachments) (PDF)  Attachment D: Excerpted Final UAC Minutes of February 12, 2014 (PDF)  Attachment E: Excerpted Final FC Minutes of 3-18-14 (PDF)  Attachment F: Description of Current Solar Programs (PDF) Attachment A * NOT YET APPROVED * 140303 dm 6053026 1 Resolution No. _________ Resolution of the Council of the City of Palo Alto Establishing a Local Solar Plan to Provide Four Percent of the City’s Total Energy Needs by 2023 R E C I T A L S A. In an effort to combat climate change, in December 2007 the City of Palo Alto (“City”) adopted the Climate Protection Plan, which set aggressive greenhouse gas (GHG) emission reduction goals to be achieved by the year 2020. B. The City currently offers rebates as required by state law through its “PV Partners” program. The City’s goal under the PV Partners program is to install 6.5 megawatts (“MW”) of solar photovoltaic (“PV”) by 2017 through issuance of $13 million in rebates. As of September 30, 2013, 3.9 MW of solar PV have been installed , representing 0.7% of the City’s annual energy needs. An additional 2.5 MW of new electricity from solar installations funded via PV Partners are pending completion. The funds set aside for PV Partners rebates are expected to be exhausted by the end of 2014. C. The City also offers net energy metering incentives as required by state law, to customers who install solar PV systems on their premises, up to a cap of five percent of the City’s peak annual load. The City expects to meet the cap by 2017. D. The City provides incentives to encourage installation of solar hot water heating systems as required by state law. Adoption of solar hot water heating systems in Palo Alto is low due to high adoption cost. E. Through Palo Alto Clean Local Energy Accessible Now (“Palo Alto CLEAN”) Program, the City offers payment for electricity generated from solar PV systems where the electricity is not used on site but is sold to the City to meet the City’s Renewable Portfolio Standard. To date, Palo Alto CLEAN has had no participation, however 3 MW are expected to be installed by end of 2015. F. Local solar systems achieve many benefits for Palo Alto, including: reducing the amount of renewable energy the City must buy for the community, which helps keep all CPAU customers’ rates down; avoiding the cost of losses from transmitting and distributing electricity from distant power facilities; and reducing the need to build expensive transmission lines throughout the state, thus improving grid reliability. CPAU customers and the community as a whole also realize other strategic benefits when local solar generation facilities are developed, including increased localized distribution system resiliency, and increased rain protection and shade at many solar facility locations. G. The City has been recognized as a leader in promoting solar PV energy in Palo Alto, and desires to continue to promote and facilitate the acceleration of solar in Palo Alto in a Attachment A * NOT YET APPROVED * 140303 dm 6053026 2 cost effective and safe manner in order to capture the financial, environmental and systemic benefits of local solar development. H. Staff presented the Local Solar Plan to the Utilities Advisory Commission (UAC) on February 12, 2014 and the UAC voted unanimously (five in favor and two absent) to recommend that the City adopt the Local Solar Plan. I. On March 18, the Finance Committee voted unanimously (4-0) to recommend that Council approve a resolution adopting the Local Solar Plan and prioritizing the development of a community solar share program over a solar donation program. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The Council hereby adopts the resolution establishing the Local Solar Plan as described in Exhibit A, prioritizing the development of a community solar share program over the solar donation program. SECTION 2. The Council finds that adoption of the Local Solar Plan to increase the penetration of local solar installations from about 0.7% of the City’s total energy needs in 2013 to 4% by 2023 will offer the following benefits for the Palo Alto community: 1. Reduction in participating customers’ utilities bills; 2. Reduction in the amount of renewable energy the City must buy for the community, which helps keep all CPAU customers’ rates down; 3. Avoidance of the cost of line losses from transmitting and distributing electricity from distant power facilities; 4. Reduction in the need to build expensive transmission lines throughout the state , thus reducing transmission costs; 5. Increased localized distribution system resiliency; and 6. Increased rain protection and shade at many solar facility locations, which can reduce air conditioning costs and increase community well-being. SECTION 2. The Council finds that adoption of the Local Solar Plan will not impact fiscal year 2014 budget resources. The Council will consider any funding needs and assess ratepayer impacts, if any, for each of the Local Solar Plan’s component programs as those programs are brought forward. // // Attachment A * NOT YET APPROVED * 140303 dm 6053026 3 SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under Section 21065 of the California Environmental Quality Act (CEQA) and the CEQA Guidelines, and therefore, no environmental assessment is required. Construction and installation of individual solar systems on buildings in the community may be subject to CEQA review and will be addressed as needed, as each of the Local Solar Plan’s individual sub- programs are brought forward. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services  Attachment B  B‐1  Exhibit A to Resolution No XXXX  Adopted by City Council on ________________________________    City of Palo Alto Utilities – Local Solar Plan    Goal  To increase the installation of local solar photovoltaic facilities to provide 4 percent of the City’s  total energy needs by 2023.    Objectives  1. Facilitate the development of local, safe and cost‐effective solar in Palo Alto to meet the  diverse needs of the community   2. Reduce the cost of installing solar in Palo Alto and become a leader in promoting renewable  distributed generation through solar installations  3. Understand the community’s solar potential and diverse needs and develop solar programs  accordingly   4. Remove internal obstacles to minimize cost and achieve greater solar potential  5. Promote solar installations in a cost effective and safe manner  6. Leverage industry resources to the extent possible  7. Deploy industry best practices    Strategies  1. Remove internal system and institutional barriers which increase “soft” costs and may  impede adoption of solar in Palo Alto   a. Work with the Development Center, Planning and Utilities to identify further  improvements to streamline the solar permitting process.   b. Promote advancements in the City’s permitting process to community and solar  developers.    2. Develop proper policies, incentives, price signals and rates to encourage solar installation   a. Solar Policy and Rate Design – explore rate structures that balance cost of service  with the City’s policy to promote the development of new solar systems in Palo Alto.  i. When evaluating new solar policies, evaluate the impact, if any, on non‐solar  ratepayers.  b. City of Palo Alto Utilities (CPAU) Billing System – explore modifications to the billing  system and/or evaluate:   i. Incorporating net metering information on the monthly bills   ii. Virtual net metering to allow the sharing of net metering bill credits across  accounts  c. CPAU Incentives – assess providing rebates or other incentives after the SB1  mandated expenditures are exhausted, the Federal Investment Tax Credit has been  reduced from 30% to 10% and the net‐metering cap has been met, to continue to  encourage local solar installations.   Attachment B  B‐2  d. Leverage available resources for solar policy and program development  i. Participate in the Federal Department of Energy’s American Solar  Transformation Initiative to receive free services including development of a   customized solar road map  ii. Request assistance from existing membership in Solar Electric Power  Association and ESource  iii. Consider partnering with regional cities, counties and the State of California  in developing solar programs   e. Advocate at a local, regional and state level for effective rules, regulations and  legislation to promote cost effective and fair solar development  i. Coordinate with other municipal utilities through the Northern California  Power Agency (NCPA) and the California Municipal Utilities Association  (CMUA) on state legislation related to solar    3. Assess technical and market potential of solar in Palo Alto  a. Review commercial and residential sites to determine solar technical  potential  b. Determine cost drivers for installing solar in Palo Alto  c. Utilize other industry studies to develop a feasible and marketable potential  d. Develop a database of solar potential  e. Assess the impacts of PV on CPAU’s distribution system    4. Implement policies and programs to increase solar system installations on CPAU customer  sites with good solar access  a. Continue to promote the PV Partners program to achieve the 6.5 MW of installation  by 2017, per CA SB1  b. Continue to promote the Palo Alto CLEAN (feed‐in‐tariff) program and revamp the  marketing of Palo Alto CLEAN to facilitate the coordination of potential sites with  developers and property owners/managers to achieve some level of participation  i. Annually re‐assess the avoided cost of local renewable energy and  recommend adjustments to the CLEAN offer price and contract terms, as  appropriate  ii. Investigate developers’ concerns with Palo Alto CLEAN program rules  iii. Continue to educate commercial property owners about the CLEAN program   c. Evaluate solar project financing options  i. Coordinate with the California FIRST Property Assessed Clean Energy (PACE)  program which allows solar system owners to borrow funds for the PV  installation and pay it back on their property tax bills over a term equal to  the expected system life (20 years).  ii. Partner with local lenders to offer solar financing1    1 See an example of such a program from New Jersey’s Public Service Enterprise Group her:  http://www.pseg.com/home/save/solar/index.jsp    Attachment B  B‐3  5. Facilitate and/or develop new programs to encourage new participants to develop local  solar installations.  a. Develop a solar donation program for community members to donate to public  sector and non‐profit organizations which may benefit from solar, but can’t afford  the investment on their own.  i. Work with PAUSD and other non‐profits to identify sites.  Potential  installation sites include public sector and non‐profit locations which are  ineligible to receive federal tax subsidies.  ii. Evaluate alternative mechanisms to provide donations to sustain the  program, including:  (1) Reformulating the suspended PaloAltoGreen electric program as a  mechanism to provide ongoing donations;  (2) Developing a bill donation mechanism to raise funds; or  (3) Developing on‐line or crowd‐funded sources to raise ongoing funds.  b. Develop a community solar share program for the benefit of community members  that do not have good solar access but have the desire to invest in local solar.   i. Evaluate  program design options that allow CPAU customers to invest in a  share of a new larger‐scale solar PV installations located in Palo Alto  ii. Evaluate options for providing value back to customer investors, including:   (1) Evaluate CPAU’s ability to provide monthly payments (in $) on the  customer’s Utilities bill   (2) Evaluate CPAU’s ability to offer “virtual net metering” so that energy  produced (in kWh) from a solar system could be reflected on customers’  Utilities bills.  [Note that the billing system challenges may be substantial  for this option.]  (3) Evaluate providing payments to customers via a third‐party administrator  separate from the Utilities bill.  iii. Evaluate outsourcing the administration of the community solar program to  provide the following:  (1) Develop the community solar program  (2) Perform program marketing  (3) Identify installation sites  (4) Manage the solar installation contract  (5) Own, operate and maintain the PV installation (or contract with a third‐ party)  c. Investigate group‐discount solar PV program options to allow/facilitate Palo Alto  residents to pool their buying power to secure significant discounts, making  installing solar on their home simple and more affordable.    i. Leverage existing group‐discount programs offered to regional residents and  company employees.    6. Maximize solar installations on City‐owned facilities   a. Assist Public Works in evaluating leasing City‐owned facilities with low electric  consumption (elevated garages and surface parking lots) to a solar developer who   Attachment B  B‐4  could install solar PV systems and would be compensated under the Palo Alto CLEAN  program.  b. Assist Public Works in investigating installing net‐metered solar on City‐owned sites  to reduce the City’s annual electric costs (and benefit the General fund).    7. Educate the community on the benefits of solar through information and demonstration  projects  a. Develop solar demonstration projects on City and public facilities  b. Promote the benefits of PV systems together with fuel switching (replacing end‐of‐ life gas appliances with electric appliances or replacing a gasoline vehicle with an  electric vehicle or a plug‐in hybrid vehicle) strategies to reduce greenhouse gas  emissions.  c. Investigate developing a “one‐stop‐shop” model (e.g., Wave‐one).  d. Develop "how to go solar" promotional materials which allows customers to  evaluate several solar options.  e. Develop direct marketing for small commercial/business customers.  f. Develop a database of solar projects installed throughout the community as “case  studies” and promote them through CPAU’s web site.  g. Promote new innovative solar technologies using the CPAU Emerging technology  Program  i. Thermoelectric paint  ii. PV & batteries  iii. Building‐integrated PV (BIPV)  iv. White roofs  v. Microgrids  vi. Solar shingles  vii. Solar thermal    City of Palo Alto (ID # 4511) Finance Committee Staff Report Report Type: Action Items Meeting Date: 3/18/2014 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Local Solar Plan Title: Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution Establishing a Local Solar Plan to Provide Four Percent of the City's Total Energy N eeds by 2023 From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend that the City Council approve the attached resolution establishing the Local Solar Plan to increase the installation of local solar photovoltaic facilities in order to provide 4 percent of the City’s total energy needs by 2023. Summary The City of Palo Alto desires to be a leading city in sustainability efforts and, as such, has set significant goals to reduce greenhouse gas (GHG) emissions. Individual homeowners and businesses desire to do their part to reduce GHG emissions, want to control the cost of meeting their energy needs, and often look to solar energy as a means to achieve those goals. Besides being carbon-free, local solar systems achieve many benefits for Palo Alto, including: reducing the amount of renewable energy the City must buy for the community, which helps keep everyone’s rates down; avoiding the cost of losses from transmitting and distributing the electricity from distant power facilities; and reducing the need to build expensive transmission lines throughout the state, thus improving grid reliability. The proposed Local Solar Plan identifies a set of strategies and initiatives to continue promoting solar in a cost-effective and sustainable manner by accelerating and increasing solar City of Palo Alto Page 2 penetration in Palo Alto. The City’s PV Partners program, which provides rebates to City electric customers who install rooftop photovoltaic (PV) solar systems, has been very successful, but is expected to run out of funds by the end of 2014. State and national efforts to expand the installation of solar energy systems have grown exponentially. The cost of installing solar on rooftops has fallen and many third-party entities offer creative ways for residents and businesses to install systems. However, the benefits to potential solar owners locally are lower due to Palo Alto’s relatively low electric retail rates. Further, with the ado ption of the City’s Carbon Neutral Plan for the electric supply portfolio, installing solar in Palo Alto may be less compelling for some customers than it once was. The City is able to fill a unique role by eliminating some of the hurdles and barriers which are impeding the cost-effective installation of solar systems in Palo Alto. Implementing the Local Solar Plan allows the City to continue to be a leading solar community and a leader in environmental sustainability. At its February 12, 2014 meeting, the UAC unanimously recommended Council approve the proposed Local Solar Plan. Background The City of Palo Alto Utilities (CPAU) has been a leader in local solar development starting in 1980 when it first launched a solar hot water heating program, which reduced the cost of systems through a bulk buy effort and provided low interest loans to home owners payable through their Utilities bill. In 1999 CPAU launched its first solar PV system rebate program to encourage residents and businesses to install solar PV systems. Since then, CPAU’s menu of solar offerings has expanded and the City has been ranked in the top ten nationally based on the number of local solar installations per utility customer since 2008. A detailed description of the City’s existing solar programs is presented in Attachment C. Table 1 provides a summary of local solar installations through the PV Partners program. City of Palo Alto Page 3 Table 1: Solar PV Installations in Palo Alto through the PV Partners Program Year System Count per Year Capacity (kW-AC) per Year 1999 4 16 2000 6 16 2001 27 100 2002 22 73 2003 16 40 2004 17 45 2005 20 74 2006 54 233 2007 77 213 2008 85 1,347 2009 57 340 2010 48 503 2011 51 444 2012 40 204 2013 * 42 254 Total 566 3,904  Data through September 30, 2013. Discussion California has adopted several key pieces of legislation to promote renewable energy and the installation of rooftop solar. A description of these legislative initiati ves is included in Attachment C. The two key initiatives are state laws that require utilities such as CPAU: 1) to provide rebates to encourage solar PV; and 2) to offer net energy metering (NEM)1 up to a cap of 5% of the utility’s peak load. These state mandates have been successful in building the market and lowering the installed cost for solar in California. 1 Net energy metering (NEM) allows a customer generating energy via a rooftop solar facility to receive a financial credit for power generated by their onsite system and fed back to the utility. The credit is used to offset the customer's electricity bill. City of Palo Alto Page 4 CPAU has played an important role in promoting solar within Palo Alto through its offering of financial incentives under the PV Partners program. CPAU’s PV Partners program, along with NEM, provides sufficient incentives to promote solar for businesses and homeowners with good solar access. However, the incentives do not provide sufficient inducement for customers who desire to be part of the solar movement, but do not have good solar access, or the financial means to install solar equipment, and/or the information necessary about available incentives. In addition, by the end of 2014 staff expects that customers will have reserved all funds available under the City’s PV Partners program and that the City will have reached its net energy metering participation limit by 2017. The cost of installing solar on rooftops is at an all-time low nationwide2 prompting many third- party entities to develop and market solar locally. A host of solar marketers have sprung up offering many creative ways in which to finance and/or coordinate the development of solar to either receive solar directly to the premise, receive financial benefits or other non -direct benefits. Many of these programs encourage community development of solar ene rgy through group-discount purchases or leases, crowd funding and virtual net metering. Solar leases and power purchase agreements (PPA) are also rising in popularity. These financial instruments are offered by companies who own, operate, and maintain th e PV system and provide generation guarantees over a 20-year term. Customers are not required to pay any money up-front, and monthly payments to the financing companies are often lower than the cost to purchase the electricity from the customer’s electric utility. In addition to solar leases and power purchase agreements, customers may finance their PV system on their property tax bill through California’s Property Assessed Clean Energy (PACE)3 program. PACE is currently available to commercial customers, including CPAU’s customers, and is expected to expand to the residential sector in 2014. CPAU’s customers are looking to the City to assist them in making decisions to install and/or invest in solar for their homes or community facilities. As such, th e City is in a unique position to facilitate the process of bringing more solar systems to Palo Alto. Local Solar Penetration, Forecast and Potential Staff conducted a technical potential assessment by reviewing the total rooftop square footage in Palo Alto, adjusted for several factors including existing penetration rates, shading, and roof setbacks. A total of 100 megawatts (MW) of solar PV technical potential was identified, representing 170,000 MWh/year of energy. The technical potential was developed by assessing 2 See Lawrence Berkeley National Lab and the Department of Energy SunShot Program’s July 2013 report: Tracking the Sun VI: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998 to 2012 (http://emp.lbl.gov/sites/all/files/lbnl-6350e.pdf) 3 See California First’s program here: https://californiafirst.org/overview. City of Palo Alto Page 5 total commercial and residential rooftop area in the City and applying factors for coverage, orientation, and shading. Staff does not yet have a good estimate of how much of the technical potential can actually be achieved. As part of the Local Solar Plan, staff will develop a better estimate of the technical potential and assess the achievable potential, given the local costs and benefits and existing penetration levels in Palo Alto. As shown in Table 1 above, local solar installations through the PV Partners Program total about 3.9 MW of capacity. The annual energy generated by these installations is 6,630 megawatt hours MWh) per year, or about 0.7% of the City’s annual energy needs. National forecasts for the annual growth rate of customer-sited PV range between 15% and 25%. Because of Palo Alto’s higher costs for PV systems, lower electric rates, and lower solar availability, CPAU assumes a more modest 10% annual growth rate, after 2016 when all the solar installations through the PV Partners program are expected to be completed. Based on this assumption, over the next ten years an additional 12.7 MW of local net metered solar energy is included in the most current electric load forecast, shown in Figure 1. Solar PV associated with participation in Palo Alto CLEAN4 program is not included in the load forecast since it is not net metered and, therefore, does not reduce the City’s load. The Palo Alto CLEAN program is accounted for in CPAU’s renewable electric supply forecast . Staff anticipates 3 MW of local solar capacity will be installed under the Palo Alto CLEAN program by 2015. 4 The Palo Alto CLEAN (Clean Local Energy Accessible Now) program is a feed-in tariff program offering a standard long-term contract for local solar energy. City of Palo Alto Page 6 Figure 1: Electric Load Forecast and PV Penetration (MWh/year) While the total installed cost of solar PV systems has decreased significantly in t he last five years on a national, state and local level, there are still obstacles and/or conditions which keep installation costs in Palo Alto high, thus preventing Palo Alto from reaching its maximum solar installation potential. In the last three years, the average installed cost of residential solar PV (before rebates and tax credits) was 10% higher for CPAU customers compared to PG&E customers ($7.38/watt versus $6.73 respectively). One reason may be the higher rebate available for CPAU customers, which may be a reason that installers charge more in Palo Alto. Soft costs associated with design, permitting and interconnection are higher in Palo Alto, which imposes more requirements than other jurisdictions. However, the City has streamlined its permitting process to help bring the costs down. Finally, Palo Alto is considered an affluent community and therefore developers may be finding that they can charge more because of the socioeconomic conditions. Setting a Goal for the Local Solar Plan As shown in Table 1 above, as of the end of September 2013, the City had a total of 3.9 MW of local PV. The remaining funds for the PV Partners will add an additional 4.1 MW by the end of 2016, for a total of about 8.0 MW. The NEM cap of 9.5 MW is expected to be reached by mid- 2017 and additional PV beyond that limit will potentially be harder to get , since the incentives in the form of rebates and NEM may be concluded. City of Palo Alto Page 7 Table 2 below shows the estimated amount of solar that is expected to be developed and installed if the Local Solar Plan is implemented. The goal selected for the plan is aggressive; it requires an increase in the capacity of solar in the City to grow from the current 3.9 MW —that CPAU has achieved after 15 years of implementing the PV Partners program—to 23 MW in the next 10 years. Table 2: Local Solar Forecast, Goal, and Technical Potential Capacity (MW) Energy (MWh/year) % of City’s Energy Use PV Partners Program: Current Installed Capacity 3.9 6,630 0.7% PV Partners Program: Remaining Capacity 4.1 6,970 0.7% Total PV Partners Program Installations 8.0 13,600 1.4% CLEAN Program Capacity 3.0 5,100 0.5% Additional PV Forecasted Absent New Programs * 8.5 14,450 1.5% Additional PV Needed to meet 4% Plan Goal 3.5 5,950 0.6% Solar Penetration Goal in 2023 23.0 39,100 4.0% Maximum Technical Potential 100.0 170,000 17.4%  Assumes a 10% annual growth rate starting after 2016 when all the solar installations through the PV Partners program are expected to be completed (as shown in Figure 1), which could occur with no new CPAU programs. Cost to Achieve the Local Solar Plan A vigorous debate on the advisability of NEM is currently underway statewide. On one hand, NEM has clearly provided an incentive to build the solar market, which has led t o falling prices for solar PV systems. Advocates for distributed local renewable generation also tout benefits that are shared by all ratepayers, such as less strain on the grid and reduced need for new power plants and transmission lines. On the other hand, some feel that NEM customers do not pay their fair share of the costs of the electric distribution and transmission systems, yet they rely on them every night and when their usage is greater than the production from their system (unless their system includes sufficient battery storage to let them completely disconnect from the distribution system). Staff will evaluate the costs and benefits of NEM and develop a recommendation on whether to continue NEM after the cap has been reached . This evaluation will be completed as part of the electric cost of service study, which is planned for FY 2015. The cost of remote solar installations was recently quantified when the City executed three 30- year power purchase agreements (PPAs) in June 2013 (Staff Report # 3845) at a price of less than $0.07/kWh for a total of 80 MW. However, this energy requires CPAU to incur costs to City of Palo Alto Page 8 transmit the power from the remote location to the City. These costs add about $0.03/kWh to the cost of the power, so that the remote solar projects cost the City about $0.10/kWh. There are other advantages to local solar installations, including those that the Council recognized when it adopted a price for the Palo Alto CLEAN program of $0.165/kWh (Staff Report #4378). Staff assumes that the Local Solar Plan’s goal of 23 MW can be achieved with no new subsidies or costs paid by non-participating customers. When the current mandated rebates that are provided through the PV Partners program are exhausted, the Local Solar Plan does not i nclude new funding for rebates. The Local Solar Plan ’s goal is expected to be achievable with the implementation of new City programs to make solar accessible to more customers, the development of proper policies and price signals to encourage solar, the removal of barriers to lower costs, and the implementation of a comprehensive educational and outreach campaign. Local Solar Plan The proposed Local Solar Plan (Attachment B) is a tailored roadmap to encourage cost-effective adoption of solar technologies in Palo Alto in keeping with the City’s objectives for environmental sustainability. Although Palo Alto’s electric supply is now carbon neutral, it still makes sense for homeowners and businesses to consider a solar system at their sites or as an investment. Local solar systems offer the following benefits for CPAU customers and the Palo Alto community:  Reduces participating customers’ utilities bills;  Reduces the amount of renewable energy the City must buy for the community, which helps keep everyone’s rates down;  Avoids the cost of line losses from transmitting and distributing the electricity from distant power facilities; and  Helps reduce the need to build expensive transmission lines throughout the state, thus reducing the cost of transmission. The proposed Local Solar Plan contains the following goal, objectives and supporting strategies: Goal To increase the installation of local solar photovoltaic facilities in order to provide 4 percent of the City’s total energy needs by 2023 Objectives 1. Facilitate the development of local, safe and cost-effective solar in Palo Alto to meet the diverse needs of the community City of Palo Alto Page 9 2. Reduce the cost of installing solar in Palo Alto and become a leader in promoting renewable distributed generation through solar installations 3. Understand the community’s solar potential and diverse needs and develop solar programs accordingly 4. Remove internal obstacles to minimize cost and achieve greater solar potential 5. Promote solar installations in a cost effective and safe manner 6. Leverage industry resources to the extent possible 7. Deploy industry best practices Strategies 1. Remove internal system and institutional barriers which increase “soft” costs and may impede adoption of solar in Palo Alto 2. Develop proper policies, incentives, price signals and rates to encourage solar installation 3. Assess technical and market potential of solar in Palo Alto 4. Implement policies and programs to increase solar system installations on CPAU customer sites with good solar access 5. Facilitate and/or develop new programs to encourage new participants to participate in developing local solar installations 6. Maximize solar installations on City-owned facilities 7. Educate the community on the benefits of solar through information and demonstration projects The proposed Local Solar Plan includes several tasks and initiatives. The intent is to implement the Local Solar Plan over the next two years with a focus on developing several solar programs intended to reflect the different interests in the Palo Alto community. The proposed Local Solar Plan requires staff to further evaluate the merits of community solar programs and/or other initiatives, identify several strategies to reduce hurdles to install PV in Palo Alto, and reduce the cost of installing PV and provide information/demonstrations to help residents and business decide if one of the City’s solar programs makes sense for them. Staff intends to return to the UAC and Council with specific program details, including resource and funding needs for each program developed. Specifically, the proposed Local Solar Plan includes the development of at least two community solar programs to facilitate solar for those customers who either don’t have good solar access, cannot support solar at their own premise due to size o r home/business ownership status, or want to contribute towards solar for the benefit of a community -based organization, such as local schools. City of Palo Alto Page 10 The main tasks in the Local Solar Plan are to develop new programs to encourage local PV system installations, and are described below: 1. Develop a community solar donation program to be implemented by Fall 2014 In a community solar donation program, participants contribute funds towards building PV systems on community buildings such as schools or other communit y and/or nonprofit facilities. The projects could be funded in many ways, including via donations from participants through monthly contributions of (e.g., $5 to $10) through their utility bill s. In addition, members of the community or businesses could donate additional funds on a one-time basis for the installation of the systems. Alternately, funds could be gathered for specific projects though a crowd funded, or “kick-starter” type, campaign. When sufficient funds are collected, the City would engage with the building owner, who would contract with a developer to build and operate the PV systems. Participants could vote to select sites from a set of locations identified as good candidates . The City’s role would be to facilitate these installations and it would not own, operate or maintain the systems. This program takes the least amount of staff time to develop, and is, therefore, the first program under the Local Solar Plan that staff is able to implement. Staff expects to return to Council with a community solar donation program proposal by August 2014 that could be implemented by October 2014. 2. Develop a community share program to be implemented by July 2015 In a community solar share program, participants pay for a share of the cost of a large r system that would be installed on a local building. This program would be valuable for customers who may not be good candidates for solar PV on their own homes or businesses (due to shading, or other roof or access issues) and could be cheaper per kilowatt (kW) installed due to economies of scale. For example, 100 participants could each pay 1% of the cost of a system and virtually receive 1% of the energy output from the PV system. The City’s Utility billing system may require modifications to implement “virtual net-metering” to make the participant’s experience similar to customers with PV on their own roof. A community solar investment program is a variation of the solar share program described above. In this program, participants would pay for a share of the cost of a PV system that would be installed on a local building. For example, 100 participants could each pay 1% of the cost of a system and receive 1% of the income derived from the sale of the energy produced City of Palo Alto Page 11 from the system. In this case, CPAU would buy the energy using a long-term power purchase agreement. Staff expects to outsource the administration of a community share program and would need to identify changes that may be required to the City’s Utility billing system. As in the solar donation program above, the City would not own, operate, or maintain the systems, but would facilitate the installations by working with the building owners who would engage developers to build the systems. Staff expects to return to Council with a community solar program proposal by October 2014 that could be implemented by March 2015. 3. Develop a solar group-discount program to be implemented by January 2016 The goal of a group-discount solar PV program is to lower the cost of installing PV systems i n Palo Alto. In this program, CPAU would likely engage a third-party administrator to offer a group-discount program for solar PV and solar water heating systems to interested customers at a lower purchase or lease cost. CPAU could participate in existin g group-discount programs offered by local governments (through ICLEI USA, for example). The program administrator would provide turnkey services including: offering consumer education, preparing a Request for Proposal for local contractors to provide solar PV and solar water heating systems to the interested CPAU customers, and managing the installation contracts. Contractor selection would be based on experience, installation services, cost, financing, and system quality. The program participants would pay the full cost of administering the program. Staff expects to return to Council with a solar group-discount program proposal by July 2015 that could be implemented by January 2016. This program would be available after staff expects that the rebates from the PV Partners program will run out. 4. Develop a plan to install PV at City-owned facilities CPAU staff has worked with Community Services, Planning, Public Works and Real Estate staff to review City-owned sites for their suitability for solar PV installation based on solar access, property leases, future redevelopment plans and whether the buildings are historical. Staff has concluded that the parking garages have good potential for a first solar project on City -owned facilities. Public Works staff has engaged the non-profit CLEAN Coalition to draft a Request for Proposals to solicit bids for installing PV systems on the City-owned garages using a variety of ownership and leasing options. If the proposals have merit, staff would request Council approval, as appropriate, of any lease agreements. In addition, staff will continue to investigate mechanisms to install PV systems on other City - owned facilities and develop a plan to complete those installations. Staff expects to complete the plan for City-owned facilities by July 2014. City of Palo Alto Page 12 Committee Review and Recommendation The UAC reviewed the proposed Local Solar Plan at its February 12, 2014 meeting. The UAC was generally very supportive of the proposed plan and its programs and strategies. The commissioners asked for more clarity on how the goal was selected asked why, if the City’s electric supplies are carbon neutral, the City should seek more local solar. In response, staff added more explanation to this report in the Discussion section One commissioner stated that net energy metering (NEM) customers are not paying their fair share of the distribution costs and that he expects NEM to be discontinued in the future. Staff replied that NEM is a state mandate and that the NEM cap is expected to be reached at about the same time as the PV Partners rebates funds are exhausted. Commissioners also suggested that when staff returns with the specific programs in the proposed plan, a complete economic analysis should be provided that shows the impact on non-participants. Commissioners also advised that the City’s role in any of the programs needs to be well defined. The UAC voted unanimously (5-0, with Commissioners Chang and Waldfogel absent) to recommend that Council approve the proposed Local Solar Plan. Excerpted draft minutes from the February 12, 2014 UAC meeting are included in Attachment D. Next Steps Depending upon the recommendations from the Finance Committee, s taff plans to seek Council approval of the proposed Local Solar Plan in April 2014. Provided Council approves the proposed Local Solar Plan, staff intends to develop the programs and will return to the UAC, Finance Committee and Council for recommendations and specific approval of programs. At that time, staff will include a description of the program and potential participation, benefits and costs and include funding and resource needs. Table 3 is a tentative timeline for seeking Council approval for and launching the three key new programs in the Local Solar Plan. City of Palo Alto Page 13 Table 3: Tentative Review and Approval Timeline for Major Programs Program Development UAC Review Finance Comm. Review Council Review Program Launch 1. Community Solar Donation Program Through May 2014 June 2014 July 2014 Aug. 2014 Oct. 2014 2. Community Solar Share Program July-October 2014 Nov. 2014 Dec. 2014 Jan. 2015 July 2015 3. Solar Group-discount Program Jan-April 2015 May 2015 June 2015 July 2015 Jan. 2016 Resource Impacts Approval of the Local Solar Plan will not impact budget resources for fiscal year 2014. Sta ff resources will be impacted for the programs contained in the plan and as such staff may seek consulting and program administration services to assist with the implementation of the Local Solar Plan. Staff will identify resource impacts and will seek Co uncil approval for funds to implement specific programs as needed. Policy Impacts Approval of the Local Solar Plan is consistent with existing solar legislative mandates and is in support of the 1) City’s Climate Protection Plan; 2) CPAU’s Long -term Electric Acquisition Plan; and 3) CPAU’s Strategic Plan. Environmental Impacts Approval of the Local Solar Plan does not meet the California Environmental Quality Act’s (CEQA) definition of “project” under California Public Resources Code Sec. 21065, thus no environmental review is required. Construction and installation of individual solar systems on buildings in the community may be subject to CEQA review and will be addressed as needed, as each of the Local Solar Plan’s individual sub-programs are brought forward. Attachments:  Attachment A: Resolution Approving the Local Solar Plan (PDF)  Attachment B: Local Solar Plan (PDF)  Attachment C: Current Solar Programs (PDF)  Attachment D: Excerpted Draft UAC Minutes of February 12, 2014 meeting (PDF) EXCERPTED FINAL MINUTES OF THE FEBRUARY 12, 2014 UTILITIES ADVISORY COMMISSION SPECIAL MEETING ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Approve the City’s Local Solar Plan Senior Resource Planner Monica Padilla summarized the written report. Padilla described the proposed Local Solar Plan as a road map, which includes the development and implementation of three new solar programs: a solar donation program, a community solar program and a bulk discount program. She stated that the needs for the plan include hi gh community interest as well as the expected end of the current program to encourage the installation of solar photovoltaic (PV) systems, the PV Partners program. Padilla noted that even though the City ranks 7th in the nation on the number of solar syst ems installed per customer, there is still the potential to increase the penetration of solar in Palo Alto. As of September 30, 2013, the City had a total of 3.9 MW of solar installed and the goal of the proposed Local Solar Plan is to have 23 MW installed by 2023. Padilla stated that the proposed Local Solar Plan includes seven strategies including reducing any barriers to installing solar, developing proper incentives, assessment of technical and market potential, the development of the three new solar programs, promotion of solar installations on City facilities, and community education. Public Comment: Bruce Hodge, from Carbon Free Palo Alto, supported the proposed plan, but would like to see more analysis of the big picture and accelerated development of solar program. He stated that the plan should include the impact of changes to the electricity landscape such as additional Electric Vehicles (EVs), fuel switching from gas to electricity as well as replacement of most lighting with LED lights on the electric system. Hodge said that the solar plan should be developed in the larger context of the Climate Protection Plan. He recommended accelerating the timeline for the community solar program. Hodge said that a good model already exists for this program and there is no need to reinvent the wheel. He said that this program should be sped up and would have the largest impact. Bret Anderson, a resident of Midtown, who has installed solar on his roof, said that the best option is the community solar program since it's a breakthrough for those who can't have solar on their own roofs. The other options can be done already with existing rules and systems. A community solar program opens up a whole new market and will allow Palo Alto to take the lead in the solar. Commissioner Eglash stated that he is delighted with the plan and recommendations. He said that this plan is the most exciting thing CPAU is doing and noted that the plan has all the right aspects and components. He asked why, if we are alread y carbon neutral, should the City seek more solar. He noted that the stated goal in the plan is to increase solar, but there is no explanation of why this is a goal. He advised adding a reason for the goal to the plan, noting that these reasons may include good contributions to the Renewable Portfolio Standard given that some of the renewable Power Purchase Agreements (PPAs) will be expiring, and that there may be certain benefits of having local renewable systems. Padilla replied that one of the reasons is that local solar decreases the need to buy renewable energy outside the City and that local generation may have some strategic value to the City. Commissioner Eglash noted that the PV Partners will run out of money at the end of 2014 and asked if the City can add new money to the PV Partners program when the current rebates expire. Assistant Director Jane Ratchye replied that state law requires the City to provide the rebates for the PV Partners program, but that once the rebates are all paid out, the subsidy would no longer be mandated. She added that the proposed Local Solar Plan assumes that no new subsidies would be provided since the goal of the state mandate to build a market for local PV systems has largely worked as evidenced by the declining cost of solar. After the program’s funds expire, the hope is that the economics for solar systems will be attractive without the need for further subsidies. Commissioner Eglash noted that the plan mentions solar water heating, but it is not clear if that will be part of the proposed new programs outlined in the plan. Padilla explained that the state established a target for solar water heating systems, but they are not cost -effective, and that there are better technologies. However, the cost could decrease in a group discount program enough that these systems may become cost-effective. Commissioner Eglash said that net energy metering (NEM) customers are not paying their fair share of the distribution costs and that those costs are borne by non -participating customers. He said that he expects NEM to be discontinued in the future and that customer charges will be designed to recover more of the costs of the distribution system and backup service. Commissioner Eglash asked what staff is thinking about NEM. Ratchye said that the NEM limit by state law is 5% of the City’s peak load. She noted that the table in Attachment B shows that the 5% target is expected to be reached at about the same time as the PV Partners program ends. At that point, a policy decision will need to be made as to whether to continue the NEM subsidy beyond the 5% limit. Ratchye also said that electric rates have not been adjusted since 2009 and currently include no fixed customer charge. She said that staff expects to embark o n a new electric cost of service study this year that will look at rate design and that this topic will likely be a key issue in that study. Commissioner Hall said that he is supportive of the plan, but would like to see a long -term trajectory of the impacts of the costs of local distributed generation (DG) versus remote, higher intensity, renewable energy sources. He asked where the bright line of the economics is and when is it better to site PV remotely than locally. Noting that the goal is to achieve 4% of the City’s energy needs from local solar, he asked if that cost-effectiveness line is less, or more, than that number. Commissioner Hall suggested that we need to justify the goal established and to explain to everyone, especially to those not part icipating in the programs, that this is a sensible plan to implement. Padilla said that the 4% goal was selected as it is expected to be achievable without any additional subsidies. Commissioner Hall asked that staff show if the cost of power can be lowered with this plan and its programs. Commissioner Eglash added that the latest remote solar PV PPAs were executed at a very low cost. He suggested that when the individual programs contemplated in the plan return to the UAC for consideration, staff include a complete economic analysis showing the impact on non - participants. Commissioner Hall said that for the three programs in the plan, the role of the City needs to be clearly identified. For example, if a system installed through a community solar pro gram did not work as expected, what would the City do? He said that citizens will understand and may invest in the programs, but staff needs to identify who owns and maintains the systems as part of the plan. Padilla noted that although staff is still evaluating alternative program designs, she does not feel that an alternative where the City owns and maintains the solar system will be a viable option and therefore would not be proposed. Vice Chair Foster said that he was very supportive of the program. He read a statement the UAC received from Walt Hays, the Chairman of the Community Environmental Action Partnership (CEAP): "I am writing to urge you to approve the proposed plan as presented. Staff has worked long and hard in coming up with this pla n, including seeking and receiving feedback from the Community Environmental Action Partnership, which I chair, on two occasions. Increasing evidence of climate change impacts makes setting high goals urgent, and the Plan offers an aggressive program to achieve them, including a variety of approaches that allow different groups to participate. Please recommend that the Finance Committee and Council approve it expeditiously so implementation can begin as soon as possible. Thank you for your consideration - and for your continuing service to the community." Vice Chair Foster said that he agreed with the comments from Bruce Hodge and is most supportive of the community solar program. He asked how a donation program would work. Padilla said that the City won’t own any of the facilities. She said that the City might collect money through the Utility bill that is given to a non-profit entity that would build and own the PV system itself. Ratchye added that another way to raise money is a crowd -funded, or “kick- starter” type, campaign for a particular project or location. Lindsay Joye, Solar Marketing Engineer, added that the non-profits are currently an unserved market since they cannot take advantage of federal tax credits that reduce the cost for others. Vice Chair Foster said that he noted that solar water heating systems are not cost -effective, but that a group buy program could help to improve the cost-effectiveness of those systems. Chair Cook said that heat pump water heaters could be a better alternative than solar water heating systems and we may want to encourage those instead. Ratchye referred to the analysis presented to the UAC in December 2013 on fuel switching. That analysis confirmed that air - source electric heat pumps are much more cost-effective than solar water heating systems. Vice Chair Foster supported an accelerated timeline for implementing the community solar program. ACTION: Vice Chair Foster made a motion to recommend that the City Council approve the proposed Local Solar Plan. Commissioner Eglash seconded the motion. The motion passed unanimously (5-0) with Commissioners Chang and Waldfogel absent. Finance Committee Final Minutes 1 Special Meeting Tuesday, March 18, 2014 3. Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution Establishing a Local Solar Plan to Provide Four Percent of the City's Total Energy Needs by 2023. Monica Padilla, Utilities Senior Resource Planner, reported the Local Solar Plan set a roadmap of Staff's intentions to facilitate the acceleration and implementation of solar power in Palo Alto. The Local Solar Plan built on existing programs and offered new strategies to bring solar power to those who did not have it. The goal of the Local Solar Plan was to increase the installations of photovoltaic (PV) systems within Palo Alto to achieve 4 percent of supply from PV locally by 2023. Key to the Local Solar Plan was identification of three major initiatives or new programs. First, a solar donation program would place solar installations on not-for-profit facilities. Second, a community share program would allow community members without good solar access to invest in solar installations somewhere in Palo Alto. Third, a group discount program would work to decrease the price of solar water heaters and solar PV for Palo Alto residents. The community was interested in and supported solar power. Vice Mayor Kniss noted a number of people were installing solar, and asked if the initiatives would be the City or an outside company generating solar power. Ms. Padilla explained that the City would facilitate more solar generation within Palo Alto. Vice Mayor Kniss inquired whether the City would partner with existing companies doing business in Palo Alto. Ms. Padilla responded yes, and with residents. The cost of solar installations has decreased dramatically; therefore, demand had increased. Funds for the PV partner rebate program would be fully committed by the end of 2014. Net Energy Metering was an attractive incentive for PV participants, and Staff expected to reach the cap of those funds by 2017. Federal tax credits for solar installations were expected to expire. Staff wanted to encourage more solar generation in Palo Alto while remaining cost-effective and safe. Benefits of local solar generation were a reduction in the participating customer's utility bills; a reduction in the amount of renewable energy 2 March 18, 2014 purchased for all of Palo Alto; a reduction in the cost of transmitting and distributing electricity; a reduction in the need to build expensive transmission; and strategic value. Strategic value was the sense that local generation provided reliability. Palo Alto ranked number 7 in the nation and number 2 in California in terms of solar installations as measured in systems per customer. Technically local solar generation could generate about 100 megawatts of solar power, but realistically only 23 megawatts. Staff felt 4 percent local generation was and aggressive and achievable goal. The Local Solar Plan established a series of strategies to reach 4 percent local generation by 2023. Staff would work to reduce internal barriers or soft costs; develop proper policies, incentives, and rates to encourage solar without subsidizing it; develop programs for customers with good solar access; develop programs for customers without good solar access; promote solar installations at City facilities; and educate through innovation and demonstration. Staff's Recommendation to approve the Local Solar Plan did not commit the City to a particular program. It provided direction to Staff on launching programs. Staff proposed beginning with the community donation program, because it provided a good transition from the PaloAltoGreen Program for residential customers. Staff hoped to present the program to the Council for approval by August or September 2014 and launch it in October. Staff hoped to launch the community share program in July 2014 and the group discount program in July 2015. The Local Solar Plan was scheduled for the Council Agenda for April 21, 2014. Bruce Hodge, Carbon Free Palo Alto (CFPA), stated CFPA analyzed the plan in detail and was generally supportive of the high level concepts. The City was missing a huge opportunity by following a slow linear progression of program implementation. The community solar program had the largest potential impact of any of the proposed programs and should be fast tracked. CFPA recommended the City enable the implementation of the community solar program by issuing an initial Request for Proposal (RFP) to third parties within the next three to four months so that programs could begin by January 1, 2015. Bret Andersen believed the largest part of the solar market was people without access to sun. The community solar program was the opening of a new market and enabled a new business model. It needed to happen fast in order to take advantage of existing tax credits. He urged the Council and the Utilities Department to accelerate the community solar option. Council Member Burt inquired whether federal tax credits would be reduced by two-thirds by 2016. Jane Ratchye, Assistant Director for the Utilities Department, nodded affirmatively. 3 March 18, 2014 Council Member Burt asked if accelerated depreciation would be eliminated. Ms. Ratchye was unsure. Council Member Burt encouraged Staff to add resiliency for the individual site or the local grid and shade and rain protection as benefits of solar installations. He suggested Staff consider partnerships with schools and faith institutions. The City had to be proactive in identifying locations. He asked if Staff could release an RFP within three to four months. Ms. Padilla noted Staff had constraints in terms of available resources to develop the three programs. The donation program was a transition from PaloAltoGreen, and that was Staff's first focus. Staff did not necessarily assess the potential for each program. Staff identified the potential for generation of 500 kilowatts of solar power at schools; therefore, Staff prioritized that one first. Staff could issue an RFP for the community share program in two to three months once they determined the scope of work and the design of the program. Council Member Burt indicated many school districts were aggressively installing solar power on their sites. Palo Alto's slightly lower electricity rates reduced the feasibility of solar installations . He inquired whether Staff reviewed the economics of Palo Alto Unified School District (PAUSD) installing solar panels. Lindsey Joye, Utilities Marketing Engineer, worked with PAUSD to recognize opportunities. PAUSD had competing pressures for funds. Eight new PAUSD buildings were structurally sound and ready for solar installations. Council Member Burt asked if solar panels were installed when the new buildings were constructed. Ms. Joye answered no. In 2013, PAUSD finances were favorable enough to allow PAUSD to enter into a Power Purchase Agreement that would result in positive cash flow. Council Member Burt inquired whether the donation program needed to be the first priority as PAUSD no longer needed donations . Ms. Joye reported PAUSD would have a tiny positive revenue stream. Nonprofit organizations could not utilize federal tax credits and accelerated depreciation. The donation program would allow PAUSD to have a much larger solar system and have larger revenue for educational benefit. Council Member Burt inquired whether other districts utilized third-party developers who could take advantage of tax credits. 4 March 18, 2014 Ms. Joye indicated Chevron Energy Systems installed a number of systems. Council Member Burt asked if Chevron could capture the tax credits. Ms. Joye replied yes. Council Member Burt asked if PAUSD was considering use of a third-party developer. Ms. Joye remarked that PAUSD was considering both. Council Member requested feedback regarding the option of prioritizing the community share program over the donation program. Ms. Padilla reported Staff had not assessed individual programs to determine the potential. Staff prioritized the donation program first, because it was an easy program to implement and would require small changes to the billing system. Valerie Fong, Utilities Director, added that Staff did not have the capacity to focus on one program. Council Member Holman believed the community share program offered an opportunity for a broader sector of the community to participate. MOTION: Council Member Holman moved, seconded by Council Member Burt to recommend the Council adopt the a Resolution establishing the Local Solar Plan to increase the installation of local solar photovoltaic facilities in order to provide 4 percent of the City’s total energy needs by 2023 prioritizing the proposed programs in order of the community share program, community solar donation program, and the solar group-discount program. MOTION PASSED: 4-0 Vice Mayor Kniss left the meeting at 9:10 P.M. Attachment F C-1 City of Palo Alto Utilities Current Solar Program Offerings California has adopted several key pieces of legislation to promote renewable energy and the installation of local rooftop solar. The City of Palo Alto Utilities (CPAU) has developed programs to comply with these laws, including the following: 1. PV Partners Rebate Program: This program provides incentives for Palo Alto solar electric photovoltaic (PV) customers who generate electricity that is used on site and lowers the facility’s electric bill. Mandated by California law, the funds are reserved on a first-come, first-served basis and are expected to be depleted by 2015. 2. Net Energy Metering (NEM) and Net Surplus Energy Compensation: This program credits solar PV system owners for the energy they feed back into the grid. For example, a customer’s PV system may generate more electricity than their home uses during daylight hours. Under NEM, the electricity meter will run backwards to provide a credit against electricity consumed in the home at night or other periods when electricity use exceeds the PV system's output. Therefore, customers are only billed for their "net" energy use. “Net surplus energy” is the electricity generated by an eligible customer over a 12-month period that exceeds the amount of electricity consumed by the customer. CPAU compensates customers for net surplus energy at the cost of renewable energy. 3. Solar Water Heating Rebate Program: This program provides incentives for Palo Alto solar water heating systems that generate hot water for domestic water heating uses. The funding for the Solar Water Heating program was mandated by California law and is expected to last for at least five years due to slow customer adoption of solar water heating systems. 4. Palo Alto Clean Local Energy Accessible Now (Palo Alto CLEAN) Program : This program offers payment for the electricity generated from Palo Alto solar electric PV installations where the electricity is not used on site but is sold to CPAU for the renewable electricity portfolio. A Power Purchase Agreement establishes a fixed price per unit of electricity delivered to the Palo Alto electric grid over a twenty-year term. 5. Local Distributed Generation (DG) Programs: While the City does not have a specific DG goal, CPAU offers incentives to promote DG through the Power from Local Ultra-clean Generation Incentive (PLUG-In) program. However, the PLUG-In program is under review for possible elimination as it offers incentives for local fossil-fueled DG projects. More detailed descriptions of these programs are provided below. Attachment F C-2 Current Program Detailed Descriptions 1. PV Partners The PV Partners program started in 1999 with a limited annual budget of $200,000 paid from the funds collected by the electric Public Benefits charge. From 1999 through 2006, 166 PV systems were installed for a total of 598 kilowatts (kW) with an average rebate of $3.22 per Watt1. Adopted in 2007, California’s Million Solar Roofs bill (Senate Bill 1, or SB1) requires that all load serving entities such as CPAU, provide incentives in the form of rebates to encourage the installation of 3,000 megawatts (MW) of solar PV systems in California by 2017. The City’s proportionate share of the statewide goal is 6.5 MW 2. To meet the SB1 requirements, CPAU increased the PV Partners Program budget to $13 million over ten years. The total budget is divided into ten steps, each funded at $1.3 million. Each step is allocated across four customer classes: residential, small and medium commercial, large commercial and non-profit/public sector. SB1 also required that solar rebates be reduced by a minimum of 7% per year to encourage lower installation costs. The average PV Partners rebate for the SB1 goal is $2 per Watt ($13 million divided by 6.5 MW). For PV systems with capacities less than 30 kW, the rebate is paid in a single check to the system owner. For systems 30 kW and larger, the rebate is paid monthly for five years based on the metered PV system generation (using a revenue -grade generation meter which is separate from the City’s net energy meter). Customers may reserve a PV Partners rebate after they have a purchase contract and have participated in an energy audit. The reservation period is 12 months for retrofits and 24 months for new construction projects. As of September 30, 2013 $5 million of the SB1 PV Partners funds has been expended, $6 million has been reserved and staff expects the balance ($2 million) to be reserved by end of 2014. Table 1 provides a summary of local solar installations through the PV Partners Program. 1 All power units (Watts, kilowatts (kW), and megawatts (MW)) are rated using the California Energy Commission (CEC) rating standard. The CEC-AC rating standards are based upon 1,000 Watt/m² solar irradiance, 20 degree Celsius ambient temperature, and 1 meter/second wind speed. The CEC-AC Watt rating is lower than the nameplate rating at Standard Test Conditions (STC). 2 While 6.5 MW was the original AB1 goal for CPAU, over time based on changes to how the capacity can be counted, CPAU expects to get more from its expenditure of the $13 million, or a total of about 7.4 MW plus the 0.6 MW installed prior to SB1 for a total of 8 MW for the PV Partners Program. Attachment F C-3 Table 1: Solar PV Installations in Palo Alto through the PV Partners Program* Year System Count per Year Capacity (kW-AC) per Year 1999 4 16 2000 6 16 2001 27 100 2002 22 73 2003 16 40 2004 17 45 2005 20 74 2006 54 233 2007 77 213 2008 85 1,347 2009 57 340 2010 48 503 2011 51 444 2012 40 204 2013 * 42 254 Total 566 3,904  Data through September 30, 2013. 2. Net Energy Metering and Net Surplus Energy Compensation In 1996 California state law required all electric load serving utilities to offer net energy metering to eligible customers with a solar PV system, up to a defined maximum cap based on the load serving entity’s total customer peak demand. Under current law, the net energy metering cap is 5% of the City’s peak electric demand, or 9.5 MW. Net energy metering is a special billing arrangement that provides a bill credit to customers with solar PV systems for the full retail value of the electricity their system generates. Under net energy metering, the solar customer's electric meter keeps track of how much electricity is consumed by the customer and how much excess electricity is generated by the system and sent back into the electric utility grid. If the customer earns a net metering bill credit, it cannot be cashed out and can only be used to offset future electric consumption charges on the same account. Most solar customers are net consumers and do not generate more electricity than they need in a year. Attachment F C-4 As shown in Table 1 above, as of September 30, 2013, the City has 566 customers on net energy metering, for a total of 3.9 MW of PV capacity representing 2.1% of the City’s peak electric demand. Table 2 is a summary of PV installations through September 30, 2013 along with forecasted new PV installations. The table shows that the 5% net metering cap will be reached in mid-2017. Table 2: PV Partners and Net Energy Metering Participation Year Pending PV Partners Reserved Capacity (kW) Unreserved PV Partners Capacity (kW) Estimated Forecasted PV Capacity After SB1 Funds Depleted3 (kW) Cumulative Installed Capacity (kW) Percent of Net Metering 9.5 MW Cap Rebates paid 1999-2013* 3,904 41% $7.7M 2014 1,689 5,593 59% 2015 765 1,000 7,358 77% 2016 691 509 8,558 90% 2017 1,320 9,878 104% 2018 1,452 11,330 119% 2019 1,597 12,927 136% 2020 1,757 14,684 155% 2021 1,933 16,617 175% TOTAL 2,454 1,691 8,568 * Through September 30, 2013 California Assembly Bill 920 (2009) requires electric utilities to offer the option for solar customers with net energy metering to receive compensation for “net surplus electricity”. Net surplus electricity is the electricity generated by an eligible customer measured in kilowatt - hours over a 12-month period that exceeds the amount of electricity consumed by t he customer. AB 920 states that the utility can count the purchased net surplus electricity toward its Renewable Portfolio Standard (RPS)4 requirements. The net surplus electricity compensation rate is priced based on the cost of renewable electricity (currently at $0.05481/kWh) so that no extra cost is borne by other rate payers (beyond the program administration cost). 3. Solar Water Heating Program In 2007, California State law (Assembly Bill 1470) established a requirement for all natural gas utilities to offer rebates for solar water heating systems. In 2008, CPAU launched the Solar 3 Forecasted new PV capacity is estimated using 10% annual growth in net metered installations. Does not include systems installed under the CLEAN program since CLEAN participants are not eligible to receive net metering. 4 The annual amount of net surplus electricity generated in Palo Alto is minimal and therefore is not currently counted towards the City’s RPS. Attachment F C-5 Water Heating (SWH) Program which provides incentives in the form of rebates to customers who install qualifying solar water heating systems that offset energy used by an existing water heater or boiler for domestic water heating uses. Space heating, pools and spas are not eligible for CPAU SWH program incentives. CPAU currently provides approximately 32 million therms of natural gas per year to its natural gas customers, which represents approximately 0.25% of statewide non-electric-generation natural gas sales. The State’s goal is to install 200,000 solar water heating systems by 2017, and City’s proportionate share is approximately 530 systems. The City’s Climate Protection Plan has a goal of achieving 1,000 systems by 2020. The SHW Program is available to residential, commercial and industrial natural gas and electricity customers within Palo Alto. CPAU offers incentives on a first-come, first-served basis within each incentive category (Single-Family Residential, Multifamily Low-Income, or Multifamily/Commercial). As of September 30, 2013, $86,737 in rebates have been issued under the program. The program is expected to continue through 2017 with incentive levels decreasing over the program lifetime. Table 3 is an accounting of the number of SWH systems installed in Palo Alto since the SWH Program was launched in 2008. Table 3: Palo Alto Solar Water Heating Installation Count Year SWH System Count per Year 2008 9 2009 10 2010 15 2011 7 2012 1 2013 1 Total 43 4. Palo Alto CLEAN In addition to meeting the mandated solar initiatives, in 2012, the City launched the Palo Alto Clean Local Energy Access Now (CLEAN) program. Through the Palo Alto CLEAN program, building owners may lease their roof tops to solar developers, or develop solar themselves, and sell the energy and renewable attributes to the City at a fixed rate over a 20-year term. Through Palo Alto CLEAN, CPAU would purchase electricity generated by solar electric systems located in the City through a standard Power Purchase Agreement (PPA). The power is separately metered and delivered to CPAU’s electric distribution system (as opposed to being used at the facility where the system is located), and is counted towards CPAU’s renewable energy goals. Programs like this are also known as "feed-in tariff" programs in reference to the fact that the power is "fed into" the electric grid. None of the power is used to offset the host Attachment F C-6 customer’s load and therefore participants in the Palo Alto CLEAN program do not qualify for net energy metering. A key feature of a CLEAN program is the standardized PPA so that p articipants know what the requirements and payments will be without having to negotiate a contract with CPAU. As of November 30, 2013, CPAU had received no applications to the Palo Alto CLEAN program. The program was first adopted in March 2012 at a price of $0.14/kWh fixed for a 20-year PPA with a maximum capacity for the program of 4 MW. Effective January 1, 2013, Council increased the program price to $0.165/kWh for a 20-year PPA and the maximum capacity for the program was reduced to 2 MW. On February 3, 2014, the City Council voted to continue the program price at $0.165/kWh for a 20-year PPA, but increasing the program cap to 3 MW. There have been no applications for the Palo Alto CLEAN program to date, but staff believes that some CLEAN applications will be completed in 2014. 5. Distributed Generation Programs California’s Governor Jerry Brown has established a distributed generation 5 (DG) goal of 12,000 MW. Solar is expected to play an important part in meeting the governor’s DG goals and staff expects legislation or incentives will be developed in support of a DG goal. On a national level, solar makes up more than 90% of all DG6. While the City does not have a specific DG goal, CPAU currently offers incentives through the “Power from Local Ultra -clean Generation Incentive” (PLUG-In) program to promote DG, including from fossil-fueled resources. The PLUG-In program is planned to be revamped or terminated as the program no longer meets the City’s carbon neutrality objectives. Local solar is expected to continue to be the City’s primary DG resource in the future. 5 Distributed generation (DG) refers to power produced at the point of consumption which is connected to the host utility’s distribution system. DG is typically a small -scale energy resource ranging in size from 3 KW to 10 MW, but can be larger. DG may be sourced through fossil-fuel energy (e.g. natural gas) or renewable resources including bio-fuel, wind or solar or be in the form of combined-heat-and-power (sometimes called co-generation) or fuel cells. 6 American Public Power Association, Distributed Generation, An Overview of Recent Policy and Market Developments – November 2013.