The Ironhouse Sanitary District (ISD) held a public outreach meeting last night to discuss the possibility of moving forward with a $5 million solar investment which would become profitable after year 10 with its debt paid off by year 18. What this would possibility mean to rate-payers is an annual $21 fee increase.
The board is currently weighing the benefits and risks of this project before moving forward in the process. After last night meeting, my conclusion is they are essentially damned if they do, damned if they don’t as this is a complex decision.
Not helping the situation is this will be a “rushed” decision and there is no project even set in stone.
Tom Williams, ISD General Manager, did a nice job explaining both the Pros and Cons of this project—he really did a good job not showing bias one-way or another but rather stuck to the facts which was nice for a change. Mr. Williams explained there are options the board could take for this project which could be a fee increase of $21 annually over 20 years. Or, the Board could also choose to pay for the project with reserve funds which would not add an increase to the rate-payer.
Mr. Williams said he would recommend to the board that if they move forward with this project that it be without costing the rate payer a dime while explaining this is a no-interest loan and solar panels will not be this cheap again.
Here is a summary of the financials of this investment:
- 2012-2013 = no revenue ($600k debt investment) while waiting for project to begin
- 2014-2018 = $250k rebate from PG&E ($1.2 million over 5 years)
- 2024 = net positive in solar investment
- 2032 = Debt service paid off and completely profitable
From a rate payer standpoint, the only real benefits I saw are the financial deal the ISD can get a 20-year 0% interest loan and a $1.25 million PG&E rebate (paid over 5-years) which makes perfect financial sense. The loan structure of this deal is great!
With that said they do not have to rush this decision and could hold off. This decision needs to be vetted more diligently by rate payers, not just a board. Before going to the public like they did last night, I would encourage the ISD to have an actual project in place before they try and sell a $5 million project.
This is like going to the bank and asking for a $5 million loan and not having a business plan or specifications ready but your loan payments begin in October 2012. It doesn’t make sense.
I get that the 0% loan is a fabulous deal, it really is. But they are still spending $5 million of rate payer money which comes from somewhere. If it’s from reserves, what happens if they all of a sudden need $5 million because of an unexpected problem or repair? They then have to pass an increase onto rate-payers because they have fewer reserves to work with so we would get hit anyway.
The negatives explained last night is this is a completely rushed process as they have to make a decision by April 18 to apply for the PG&E rebate (which may not even be available). Without a project set in stone the ISD could take a loan and never have a project come to life and be on the hook for this loan.. The loan payments begin in October 2012. Rate-payers will not see a breakeven point until year 10.
I am all for solar, but not under this model presented as they are moving way too quickly and there is a possibility of a rate increase.
Finally, even if they did invest in a $5 million solar project, this will not make our rates go down; it simply reduces the ISD power bill/operating costs which makes our rates either stay flat or they have a small annual increase—we will see no decrease in our bill at any point in time.
I would urge the board to slow down, go through the process of figuring out a specific design/components, and create a specific plan. So what if the PG&E rebate is gone, I am sure Congress and others will create other programs in the future for a rebate. ISD could also go out and get a low-interest loan at 1-2% which is still a very good loan.
An even better solution would be to lease the land out and put the risk on someone else who wants to make the investment—at the very least, the lease payments could help offset the PG&E bill and reduce operating costs. This will also delay a rate payer investment while technology continues to improve and become cheaper.
Last night sounded great, but more information is needed and the project should be a proper proposal before trying to sell it to the public.
As this stands right now, this deal fails to pass the smell test no matter how great it may sounds.
Here is a recap of the PowerPoint slides (note, I did not include all of them)
Why is ISD Exploring Solar Energy
- Future savings for rate payers
- Educing Annual power costs
- Reducing reliance on traditional energy sours
Proposed ISD Solar Project
- 1 megawatt Solar System (4,300 panels & 1-4 inverters)
- Producing 1,900,000 KWH per year (New facility used 5,000,000 KWH per year)
- First year electrical savings of $233,000 per year, currently, ISD’s electrical bill is approximately $600,000 per year
- Estimated Cost of Solar project is $5 million
- Anticipated $1,250,000 PG&E Rebate of 5 years
- Why a 1 Megawatt system?
- Qualifies ISD for a PG&E rebate
- Less PG&E involvement equals quicker implementation
Advantages to Solar Energy
- Long term savings to ratepayers
- Shield PG&E increases
- Cut costs on current PG&E bills
- Go Green
- Solar energy is a renewable source
- The energy from the sun is free
- Solar cells do not require much maintenance
- Solar cells are quiet collectors
- Solar panels are very reliable with estimates of producing power for over 30 years
- Generates clean power during summer ozone periods, thus reducing ozone impacts
- Reduces CO2 emissions, thus reducing the threat of global warming
- Focus on energy incentives to help pay for systems
- Taking advantage of current low pricing of solar energy panels
- Current rebate programs from PG&E
Disadvantages to Solar Energy
- No form of energy generation is completely free. The cost of panels is high
- Clouds, pollution and win can minimize the suns ray penetration
- Time to realize savings (Profitable in year 10. Debt service paid off in year 20)
- Large areas of land are needed to place the solar panels
- Installed equipment may not produce energy at expected levels
- Promised incentives might not be provided
- Other regularity risks
- Replacement, repair, and maintenance costs
Cost Breakdown Year 1
- Cash Flow $141,678
- Cumulative Cash Flow -462,764
Cost Breakdown Year 10
- Cash Flow $24,220
- Cumulative Cash Flow $132,357
Cost Breakdown Year 19
- Cash Flow $487,015
- Cumulative Cash Flow $1,312,318
Consequences of Doing Nothing
- Historically speaking, PG&E rates have risen and are expected to continue to rise with an estimates of 3% to 10% annually
- Not harnessing a resource of renewable energy available to us all – the sun
- Cost of borrowing money for solar panels (0% interest 20 year loan)
- Missed opportunity for PG&E rebate
- Potential increase cost of solar panels in the future