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16. Installation of a Solar Energy Project at the Operations Services Center Director of Operations Services Daniel Smith presented the staff report, stating that in line with the Council's priorities for energy efficiency and environmental programs, staff retained energy consultant, Energy Solutions, to explore the feasibility of photovoltaic (PV) systems at all City facilities. An analysis of existing structural conditions, shading, and electrical systems has resulted in a design for PV panels on Municipal Well 8 and several of the Operations Services Center's (OSC) main buildings. Staff believes that this design best combines environmental protection efforts with cost return for the city. The proposed system would generate 80 kilowatts of DC power for OSC and 275 kilowatts for Well 8. Mr. Smith explained that the system designed for Well 8 is much larger because its meter rate and usage schedule results in a much higher charge than that of the other buildings. The electrical generation of the system is expected to produce about 20% of the electricity used at OSC and 55% of that at Well 8, for a combined production total of 40% of the entire facility's electricity. Carbon emissions would also be reduced by 248 tons with this system. The total system is expected to cost $2.5 million including parts, labor, installation, permitting fees, maintenance, and inverter replacement at the 13 year mark. While state and federal tax incentives like credits and accumulated depreciation cannot be taken unless a third party or private enterprise is used, there is limited potential for kilowatt-hour buyback and sale of renewable energy credits. The greatest incentive is available through the California Energy Commission -California Solar Initiative (CSI) which is a performance based incentive that pays a set amount per kilowatt-hour produced during the first five years of installation. Mr. Smith noted that numbers have changed somewhat as the incentive dropped a tier during this analysis and resulted in a $173,000 decrease to the amounts projected. The cost of a CSI reservation for the recommended system is $10,000, which would lock in the current rate for up to one year while an RFP is obtained and the project is implemented. Mr. Smith outlined the four financing options for the system: • Lease - A third party assumes the upfront purchase and installation costs, receives the tax benefits, collects a monthly lease, and at the end of the lease offers the City a purchase option at the current market rate. PPA - A Power Purchase Agreement with a third party that assumes a fixed rate paid per kilowatt-hour over the 20 years of the agreement. While electricity costs can fall on either side of current rates, the advantage is the lack of capital, operation, and maintenance costs. • Low-interest Loan- Is not viable without private party incentives. • Outright purchase - Is viable as Well 8 would provide a high return and enterprise funds could be used for that portion of the installation. Staff recommends that the Council authorize issuance of an RFP for solar installation that would allow contractors to bid on the following project types: PPA, lease, or outright purchase. Staff also recommends that the Council authorize the City Manager to pay the CSI reservation fee. Councilmember Thorne asked if the CSI reservation fee is later applied to the project or assumed by the initiative. Mr. Smith said that the funds are only forfeited if the City chooses not to complete the project. City Council Minutes Page 12 of 17 April 7, 2009