Revised 8/7/2008

STAFF REPORT

Operations Committee, August 7, 2008
 

Solar Photovoltaic Electrical System for the Cary/Apex Water Treatment Plant (PWUT09-02)
Consideration of entering into an agreement to provide a solar photovoltaic electrical system at the Cary/Apex Water Treatment Plant
Speaker:  Mr. Steve Brown
 

From:  Stephen J. Brown, P.E., Director of Public Works and Utilities
Prepared by:  Stephen J. Brown, P.E., Director of Public Works and Utilities
Approved by:  William B. Coleman, Jr., Town Manager
Approved by:  Benjamin T. Shivar, Assistant Town Manager

Staff has received a proposal from Mr. Bill Jensen of Solar Energy Concepts to provide a solar photovoltaic (PV) electrical power system at the Cary/Apex Water Treatment Plant (CAWTP) to supplement the electrical power needs of this facility.  This system will consist of an array of solar panels that produce electricity on the plant site.  This electricity is then distributed into Progress Energy’s electric distribution grid through a power meter associated with the plant’s service connection.  The proposal includes entering into an agreement with Progress Energy whereby they will buy the power generated by the PV system at a market rate plus an additional supplement for renewable energy. 

PV’s best application is to provide power in remote or hard-to-access locations where they compete favorably for cost over other power sources.  PV’s would be an excellent choice to power remote equipment or facilities that would otherwise require long utility line extensions.  For example PV’s are used at some remote wilderness National Park sites as part of a hybrid power system that relies on propane powered generators for large loads and to provide power at night and in inclement weather (ref: U. S. Department of Energy).  Another good application is the new PV solar powered school flashers recently installed by the Town.  These signals require little power and operate in sufficient daylight so it was more cost-effective to utilize solar powered units rather than install conventional power services.  Sunlight availability in North Carolina is generally very favorable to PV use.  The biggest drawback for PV systems is their high initial cost.  They are much more expensive initially where conventional utility power is readily available.  Long-term operating cost, however, is better than other forms of electric power such as engine generators or long utility line extensions.  The life-cycle cost of the system must be considered for comparison to alternate energy sources.

A considerable number of panels are also required to meet large loads, such as a water treatment plant.  The proposed PV system will provide up to 10 kilowatts of power.  For comparison, the CAWTP’s peak demand is currently around 3,200 kW, so the proposed PV system will offset only about 0.31% of the plant’s total demand.  The proposed PV system includes about 700 square feet of solar panels.  The proposed system will be located on available open area at the CAWTP that will not interfere with current or future plant operations.  Over 5 acres of solar panels would be required to power the entire CAWTP with solar power.  This much area is not available without impacting future plant expansions.  The proposed system will only generate power during daylight hours for sale back to Progress Energy.  Batteries would be required to store power for uninterrupted operation at night or in inclement weather.  These batteries would be expensive, heavy, and require a lot of space and supporting infrastructure.  So at best, in our application, the PV system could provide power for smaller loads and trim our overall power usage, but cannot realistically meet all of our power needs under current conditions.  Conventional electric utility connection and existing diesel generators must be maintained at the CAWTP anyway to meet regulatory requirements for a redundant adequate power source around the clock and through all weather conditions.  Staff research did not find any PV installations in North Carolina similar to what is proposed, although other cities are also investigating potential PV applications.  However, other North Carolina cities have installed solar hot water systems at municipal buildings such as fire stations.

Federal and state legislation provides considerable tax subsidies for providers of alternative energy, up to 65% of its initial cost.  Electric utilities are also required to support renewable energy initiatives with, among other things, supplemental payments.  The viability of this proposal depends on these tax subsidies and supplemental payments.  As a local government, the Town of Cary is not eligible to receive these subsidies.  However in partnership with a private firm the Town can indirectly receive these benefits.  In Mr. Jensen’s proposal, private investors, through an as-yet-unnamed corporation, will purchase all of the necessary equipment to install the PV system and place it in operation.  The corporation will collect federal and state solar energy subsidies to offset their initial costs.  A term of 6 years is proposed by Mr. Jensen to ensure that the investors receive a modest return on their investment.  The proposal calls for the corporation to own and operate the PV system for the first 6 years, after which the Town would purchase the PV system from the corporation for a lump sum payment for the residual value of the system.  The Town will assume ownership and operation responsibility for the system at that time.  The corporation will receive revenues from power sales during the first 6 years, and the Town will receive these revenues after that.  The Town will need to enter into an agreement with Progress Energy at that time for them to purchase the electricity produced.  It is estimated that Progress Energy will pay approximately 8 cents per kilowatt hour (kWH) for power produced by the PV system.  Power consumed at the CAWTP currently costs the Town about 4.8 cents per kWH.

There is also much debate, and little consensus, on the overall environmental cost of solar panels.  Raw material extraction and processing, manufacture, transportation and installation of the panels and supporting infrastructure consume energy and produce their own environmental impacts.  However, once installed, solar panels are a simple, inexpensive, clean and reliable means of producing electricity.  Staff recommends approaching this proposed project as a small scale demonstration pilot to evaluate the long-term viability of PV technology for possible larger-scale implementation in the event that improving technology and economics make PV’s more attractive and competitive in the future.

Solar Energy Concepts is finalizing a Staff will continue to evaluate a proposed detailed design and cost analysis prior to entering into a final agreement for PV service.  At this time some of the details are not yet fully resolved.  Final costs will be known prior to execution of any agreement with the corporation.

Fiscal Impact:  The proposal estimates the total initial cost of the PV system to be $95,000.  Tax credits and deductible depreciation used by the corporation to pay down this initial cost over the 6 year term of the subsidies is estimated to be between $70,000 and $80,000.  So in year 6, the Town would pay the corporation between $15,000 and $25,000 to assume ownership and operation.  The final amount will depend on the actual cost of materials, how much subsidy the corporation recovers over the period and how much revenue is received for power sales.  The cost of solar panels is dependent upon market conditions at the time of purchase.  After the Town assumes ownership, annual revenue from the sale of power is estimated to be $1,122 per year, or about $94/month.  This results in annual income for the Town of between 4.5% and 7.5% of its cost for the PV system.  Without considering the time value of money, this income will pay back the Town’s investment in 13 to 22 years.  However when the time value of money is considered, the payback period is much longer using any realistic interest rate.  This is why staff recommends this project be approached only as a pilot to investigate the feasibility of this technology and gain operating experience at our facilities for possible future larger scale application.

The proposal also asks the Town to consider implementing a voluntary program whereby Cary citizens can donate money to a fund for developing alternate energy projects such as this, such as through utility bills.  Staff does not recommend developing this program because it would compete with Oasis, the Town’s voluntary donation program to help those in financial hardship with their Town of Cary utility bills.

Staff is also working with Mr. Jensen on the final details of this project, to ensure that the Town will be in full compliance with the statutory requirements for procurement of this type of service and technology.  Final costs of the PV system will depend on final design details and the final amounts of the tax benefits, as well as the contract with Progress Energy for purchase of the power generated by the system.  At this time, staff requests Council’s direction to proceed with final investigations and negotiations for entering into this type of agreement to provide solar photovoltaic electrical power at the CAWTP or other suitable utility facility as a pilot program to establish the long-term benefit of this type of system.  Based on this experience, the Town may wish to consider expanding this type of service in the future at the CAWTP and other facilities as appropriate and beneficial.

Staff Recommendation:  Staff recommends that Council direct staff to complete detailed investigations and negotiations and enter into a contract with a solar energy system supplier associated with similar to that proposed Solar Energy Concepts to provide a solar photovoltaic electrical power system at the Cary/Apex Water Treatment Plant or other suitable utility facility within the general terms described in this staff report.  Staff will ensure that all statutory requirements for procurement are met.  Staff will return this item to Council for further consideration if any of the costs or terms deviates materially from those described in this staff report.