Chair Tom Galloway and Members of the Administration & Finance Committee

Transcription

1 REGION OF WATERLOO CORPORATE RESOURCES Facilities Management TO: Chair Tom Galloway and Members of the Administration & Finance Committee DATE: June 8, 2010 FILE CODE: A19-01 SUBJECT: RENEWABLE ENERGY INITIATIVE: SOLAR PHOTOVOLTAIC RECOMMENDATION: THAT the Regional Municipality of Waterloo: a) approve a new Capital Project in the amount of $16.0 million funded by debentures for a term not to exceed 20 years, to implement a new solar electricity initiative (Option #2) as part of the Ontario Power Authority (OPA) Feed-In Tariff (FIT) program as outlined in Report dated June 8, 2010; b) authorize the Commissioner of Corporate Resources to execute the required 20 year contracts relative to the sale of electricity to the OPA, subject to such contracts being satisfactory to the Regional Solicitor; c) direct staff to review and report as part of the 2011 budget process with options and a recommendation for the use of net revenue in excess of costs from the Solar Photovoltaic Project to fund other environmental sustainability initiatives or programs such as the Environmental Initiative Fund. SUMMARY: The Ontario Power Authority (OPA) was established through the Electricity Restructuring Act, 2004 (Bill 100). Licensed by the Ontario Energy Board it reports to the legislature through the Ministry of Energy and Infrastructure. The OPA has developed an Integrated Power System Plan that sets the path for a drastic change in the electricity supply mix by 2025 to address critical electricity supply challenges over the next 20 years. As part of this plan, Ontario's Feed-in Tariff (FIT) Program is North America's first comprehensive guaranteed pricing structure for renewable electricity production. By encouraging the development of renewable energy in Ontario, the FIT Program will: help Ontario phase out coal-fired electricity generation by the largest greenhouse gas (GHG) reduction initiative in Canada boost economic activity and the development of renewable energy technologies create new green industries and jobs. The OPA s FIT program consists of two separate and well defined areas under the solar Photovoltaic (PV) portion. The MicroFit portion applies to ground or rooftop mounted PV systems with 10kW or less generating capacity and pays a fixed value for each kwh generated. The FIT portion applies to ground or rooftop mounted systems greater than 10 kw but with a maximum output of 10 mega watts (MW). Rooftop systems over 10kW are further divided into three different Page 1 of 8

2 payment schedules depending on kw output. The Region of Waterloo is uniquely positioned to show strong leadership while fostering the environmental and economic goals of the OPA s FIT Program and benefit from the associated financial incentives through a large-scale implementation of solar photovoltaic projects throughout the Region. Of the nearly 600 buildings owned by the Region, almost 300,000 sq.ft. of available roof area would be suitable under this program. Based on detailed evaluation of this opportunity, staff recommend an option which would include the addition of PV panels on 37 regionally-owned buildings in various locations and program areas such as Sunnyside Home, 150 Frederick Street, and various Police and Housing buildings at a cost of $17.5 million with an estimated net cumulative revenue of $4.6 million over the 20 year OPA contract. The previously approved Operations Centre PV project of $1.5 million is included in the above figures with the remaining $16 Million related to a new capital project. Approximately 174,000 sq.ft. (61%) of the available and appropriate roof space is expected to be used leaving 39% available for future technologies and programs. In order to achieve the optimum benefit from the OPA s FIT program, it is critical to move this project forward as quickly as possible as the program criteria will be subject to change. There is a strong environmental and economic argument for the Region to become a significant participant in the FIT program. From an environmental perspective, as part of the Province s initiatives to reduce reliance on non-renewable sources of power, and the Region s own Environmental Sustainability Strategy this approach will significantly reduce GHG emissions by providing clean solar electricity to the Provincial grid. From a strictly economic perspective, there will be an attractive financial return through the 20-year contract and an ongoing cost benefit of owned generation capacity up to 20 years beyond the contract life. At the same time, if the revenue is reinvested in energy conservation through projects with the Region s Energy Conservation Office (ECO) and other sustainable initiatives through programs such as the Region s proposed Environmental Initiatives Fund, further reductions in green house gas emissions can be achieved in the Region as a direct result of participation in this program. REPORT: Power Generation & Renewable Energy The Ontario Power Authority (OPA) has recognized that Ontario faces very real electricity supply challenges over the next 20 years. The current electricity supply mix relies heavily on an aging infrastructure of non-renewable sources such as nuclear, natural gas and coal. It has been estimated that as much as 80% of this infrastructure will need to be refurbished or replaced in the next 20 years. Coupled with the growing demand for electricity, the OPA estimates that a 30,000 MW gap will exist between available supply and required capacity by 2025 if no new power generation facilities are constructed. This gap is roughly equivalent to the current total generation capacity. To respond to this need, the OPA has developed an Integrated Power System Plan that sets the path for a drastic change in the electricity supply mix by It calls for dramatic reductions in peak demand through conservation and demand management and targets renewable energy sources for over 50% of the supply mix. Through the Green Energy and Green Economy Act, 2009 which was passed into law on May 14, 2009, the OPA is actively developing and implementing the programs necessary to implement this large-scale change. Docs# Page 2 of 8

3 FIT Program background: Ontario's Feed-in Tariff (FIT) Program is North America's first comprehensive guaranteed pricing structure for renewable electricity production. It offers stable prices under long-term (20 year) contracts for energy generated from renewable sources, including: Bioenergy (biogas, biomass, landfill gas) Wind (on-shore and off-shore) Solar photovoltaic (PV) Water (naturally flowing) The OPA FIT Program includes a total of four different approaches of varying scale and scope for roof-mounted PV, with different income-rates associated with each. MicroFIT is a separate stream of the FIT program for projects smaller than 10KW. It is open to all applicants, but designed for homeowners and small businesses with simpler application requirements and produces higher revenue per kwh. Program PV Array Size Contract Price MicroFIT <10 kw 80.2 /kwh FIT 10kW to 250kW 71.3 /kwh FIT 250 kw to 500 kw 63.5 /kwh FIT >500 kw 53.9 /kwh Currently, solar photovoltaic (PV) is the easiest and most risk free of the renewable technologies covered by the FIT program. Because of the proven reliability of flat panel PV technology and decreasing initial costs, it is also the most cost effective option under the program. Naturally, there has been a groundswell of interest in the program from all sectors. To date, 3000 applications have been submitted to OPA. Of these, 1000 have been approved to date and the pace of submission remains much more aggressive than anticipated by the FIT program developers. In the Region, there are currently 22 FIT applications and 214 smaller-scale MicroFIT applications. Combined, these will potentially provide up to 1% of the current local electricity demand. By encouraging the development of renewable energy in Ontario, the FIT Program will: help Ontario phase out coal-fired electricity generation by the largest GHG reduction initiative in Canada boost economic activity and the development of renewable energy technologies create new green industries and jobs. Through long-established connections in the local energy management community, the Region s Corporate Energy Office has been working closely with local specialized consulting firms, local distribution companies (LDC s), area municipalities and the University of Waterloo (UW) to evaluate this emerging opportunity in the local context. Together, this dynamic working group has shared resources and knowledge as well as confirming the viability of participation in the FIT program from a local distribution perspective. Applicants of the FIT program will work closely with the LDC s during the application, design and construction process to insure safety, connection and capacity requirements are met. This group has also been working closely with Canada s Technology Triangle in their attempts to attract solar technology companies to this area. Docs# Page 3 of 8

4 As evidenced by the Corporate Strategic Plan commitment to research and pilot alternate energy technologies in Regional facilities, the Region has had a long-standing interest in this field including projects in solar PV as well as solar thermal, wind, geothermal and biogas. The Region has several geothermal installations including the Library Headquarters and Supportive Housing buildings and is also investigating the viability of utilizing wind power for generating electricity. Other area municipalities are also forging ahead with exciting renewable energy initiatives. The City of Kitchener expects to have a 500kW system in place by the end of 2010 and is considering options for their pools and the Huron Park mixed use campus. The City of Cambridge has a 20kW system tendered awaiting FIT approval, is considering a 50kW system on an existing building and has approved leasing roofs for PV systems. The City of Waterloo has a pilot PV project in place on the roof of City Hall and has included green energy in the revised environmental strategy for Council approval. Region of Waterloo Opportunities: The Region of Waterloo is uniquely positioned to both foster the environmental and economic goals of the OPA s FIT Program while benefiting from the associated financial incentives through a largescale implementation of solar photovoltaic projects throughout the Region. Of the nearly 600 buildings owned by the Region, many are appropriate for roof-mounted solar photovoltaic panels which would be eligible under this program. Two solar photovoltaic projects have been implemented on Regional buildings in recent years. The 20kW system on the roof of the EMS Fleet Centre on Maple Grove Road has been in place since 2004/5 and generates all of the electricity required for the building base load under optimal conditions. More recently, a 170kW array is in the process of being installed on the Operations Centre and is partially funded by the Infrastructure Stimulus Fund program. Although it was initiated under a different Provincial program, this project is being converted to a FIT project and is expected to generate 174,000 kwh s of electricity and provide a gross revenue of $124,000 per year. The positive experience and learning opportunities through both of these projects have placed the Region in an excellent position to take advantage of the FIT opportunity. Options for Region of Waterloo participation in FIT Program: Recognizing this exciting opportunity, Corporate Energy staff initiated a detailed review of the Region s portfolio of buildings to determine which roofs might be technically appropriate for solar photovoltaic installation. Because of the the complex and emerging nature of the opportunity, staff worked with an external consultant with proven experience working with the FIT program and development of the Green Energy Act. Factors considered included: location & roof shading, roof type & orientation, building use as well as roof size, age, scheduled replacement & available roof area. Based on this evaluation process, almost 300,000 sq.ft. of available roof area was identified as appropriate for roof-mounted PV installation. This total available roof area was then further refined into three options based on complexity of implementation, potential revenue, as well as roof age and condition. In order to minimize downtime and life-cycle costs, it is important to install the PV equipment on relatively new roofs that will not need replacement before the equipment costs are covered through revenue. Three typical financing options were considered by staff working with an external consultant during the preliminary evaluation of this Project: Leasing roof space to solar installers and investors; leasing the solar PV equipment from a leasing company; and purchasing and owning the solar PV equipment outright. Based on the Region s excellent credit rating and the share of revenue given up Docs# Page 4 of 8

5 in either of the leasing options, the direct purchase option is preferred. Option 1: Limited implementation (15% of available roof area) This option includes most of the smaller roofs such as child care centres and housing properties that could be considered under the less stringent MicroFIT program and implemented quickly at the highest income rates. It also includes taking advantage of the opportunity to combine the FIT program with new construction projects such as the new Police Division 3 as well as the upcoming expansion of the Strasburg Road Transit Operations Centre and the recently completed Region of Waterloo History Museum. Option 2: Optimized implementation (61% of available roof area) This option includes all of the roofs in Option 1 combined with all appropriate roofs that have been replaced in the last 5 years as well as those currently scheduled for replacement in 2010 and Option 3: Accelerated implementation (76% of available roof area) This option includes all of the roofs in the above options as well as a number of roofs older than 15 years that are likely to need replacement in the next 3 to 5 years. This approach would include accelerating their replacement in order to minimize equipment down time. Once this evaluation was complete, the viability of three options was assessed based on a rigorous financial and operational review of business case, environmental benefit, and constructability. The following chart summarizes these options Option Option 1: Limited Implementation Option 2: Optimized Implementation Option 3: Accelerated Implementation Roof Area (sq.ft) % total available kwh/ year Project Costs ($M) Capital/ Operating) Total Revenues in Excess of Costs ($M) 44,000 15% 796,400 $5.9 $ ,000 61% 2,296,200 $17.5 $ ,000 76% 2,855,000 $21.7 $5.4 Notes: Project costs include all construction, consulting and project management costs associated with PV installation. Where roof replacements will happen concurrently, these costs are covered in separate capital maintenance budgets. Cumulative revenues in excess of costs include revenues generated, other funding sources and costs (annual operating costs and debt repayment based on a 20 year debenture the anticipated financing rate of 5.25%) associated with the project through the 20-year FIT contract duration. The previously approved Operations Centre PV project is included in the above calculations. A cash flow chart for the 20 year term of the contract with the OPA is attached as Appendix A. After a detailed review was conducted from an implementation and staff availability standpoint, it was determined the Optimized Option #2 was the best choice at this time. It is also important to Docs# Page 5 of 8

6 remember that one of the key goals of this Provincial initiative is to stimulate development of newer technologies and to bring down the overall cost of photovoltaic systems. For these reasons we have deliberately left rooftop capacity of approximately 39% to allow us to take advantage of new technologies once they have proven reliable. This option would include the addition of PV panels on 37 Regionally-owned buildings in various locations and program areas such as, Sunnyside Home, 150 Frederick Street, and various Police and Housing buildings. Some of the first steps in the detailed design process are to validate the assumptions made in the initial evaluation, consider the impact of future development on roof shading and verify structural requirements. This process may lead to changes in the buildings included in this initial list. Approximately 174,000 sq.ft. (61%) of the available and appropriate roof space are expected to be used leaving 39% available for future technologies and programs. Project timing & risk management: In order to achieve the optimum benefit from the OPA s FIT Program, it is critical to move this project forward as quickly as possible. Given the large number of projects that have already been submitted to the OPA, a backlog has developed in the application process. Although there is no firm information available, there is expectation that the highly favorable rate structure will be changed to a less favorable rate structure in 2011 to reduce the tariff rates, which could dramatically alter the business case analysis. Similarly, although no total funding limit has been published by the OPA, there may not be sufficient funding to cover all of the eligible applications. For each successful application, the Region will be asked to enter into an agreement based on the rate structure in place at the time of approval. Although it is expected that by submitting the Region s applications early, the existing rate structure will still be in effect, any change will be analyzed with respect to the viability of the OPA offer and revised recommendations will be made if appropriate. Upon entering into agreements with the OPA for each building, the Region will be required to complete construction and achieve commercial operation within 3 years. Based on the anticipated application process timelines of 2-6 months, it is expected that construction will start on smaller projects in late 2010, with the majority of projects being initiated in 2011 for completion before Due to the large volume of projects, these will be staged throughout the 3-year window. Aggressive measures to mitigate risks such as equipment failure or less solar radiation are factored into the analysis and planned project implementation. Estimates and figures used during the analysis were deliberately conservative to allow for these types of issues and system installation on new or relatively new roofs will lessen the likelihood of unexpected roof repairs. Solar radiation modeling was also carried out using Natural Resources Canada software, Retscreen, which uses 20 year average meteorological data. Operational and technical allowances have been made as well to minimize the likelihood of system failures and ensure a rapid response to correct any problems. The system installations will utilize proven flat panel PV technology with 40 year panel life expectancy, panels and inverters will carry 20 year warranties and an aggressive and proactive maintenance regime with associated costs have been budgeted for. Appropriate spare parts will be stocked to eliminate down time in the event of equipment failure. Real time metering installations will also notify appropriate staff when systems are not performing at optimal levels so appropriate corrective action can be taken to ensure maximum performance and revenues are realized. Docs# Page 6 of 8

7 At the end of the 20 year contract with the OPA the Region will have several options. Should the program be extended and the price offered to the Region for kwh s generated be financially acceptable an extension or new contract could be entered into. However, if the FIT Program is not extended the Region could make minor alterations to the metering and use the generated kwh s in each individual facility lowering the electricity consumption in that facility. Revenue Utilization If approved, the installation process will be spread over a two and half year period beginning in This will result in diminished gross revenues in 2010 and 2011, increasing to reflect steady, annual gross revenues of approximately $1.5 million by When operating and debt repayment costs are factored in, annual cash flow will average out at approximately $173,000 between 2 and 2030, increasing significantly in the last two years of the contract. The cumulative amount of net revenue is expected to exceed $1 million by A cash flow chart for the 20 year term of the contract with the OPA is attached as Appendix A. This renewable energy initiative presents an opportunity for reinvesting electricity revenue back into environmental sustainability initiatives that will generate further environmental benefits. If revenue is reinvested in energy conservation or other sustainability initiatives through the Energy Conservation Office or the proposed Environmental Initiatives Fund, further reductions in GHG emissions can also be achieved. Staff are proposing a more in depth investigation of the viability and options for reinvestment of net revenue, and if directed will undertake an analysis and prepare a report for Council consideration in the fall of Conclusions: There is a strong environmental and economic argument for the Region to become a significant participant in the FIT program. From an environmental perspective, as part of the Province s initiatives to reduce reliance on non-renewable sources of power, this Project will significantly reduce GHG emissions by providing clean solar electricity to the Provincial electricity grid. From an economic perspective, there will be an attractive financial return through the 20-year contract and an ongoing cost benefit of owned generation capacity up to 20 years beyond the contract life. At the same time, if the revenue is reinvested in energy conservation and other sustainable initiatives through programs such as the Region s proposed Environmental Initiatives Fund, further reductions in GHG emissions can be achieved as a direct result of participation in this program. CORPORATE STRATEGIC PLAN: Successful implementation of energy reduction programs and renewable sources of energy support the Corporate Strategic Plan in Strategic Focus Area 1 Environmental Sustainability: protect and enhance the environment. This proposed initiative is a direct result of one of the key actions in Focus Area 1: Research and pilot alternate energy sources in Regional Facilities. The OPA s FIT Program aligns naturally with the Region s values of Innovation and Collaboration by setting the groundwork for innovative solutions to the Province s electricity supply challenges and promoting collaboration between various stakeholders including local distribution companies, municipalities, universities, the greater business community and the solar technology industry. Docs# Page 7 of 8

8 FINANCIAL IMPLICATIONS: The total capital and operating cost of the recommended Option 2 (Optimized Implementation) is $17.5 million, of which $1.5 million was approved in the 2009 Capital budget for the Operations Centre Photovoltaic project currently under construction. The funding for that project was approved as $1.0 million combined from the Federal and Provincial governments as part of the Infrastructure Stimulus Funding (ISF) Program and $500,000 from the issuance of debentures. The remainder of the funding, to a maximum of $16 million, is requested to be funded through the issuance of debentures for a term not to exceed 20 years. Several alternate partial funding sources are potentially available, particularly for the PV installation on Housing projects. These will be pursued through the detailed design process and may potentially reduce the debentures needed by an estimated $1 million or more. The project does not negatively impact the tax levy. In fact, it is projected to have positive cash flow starting in Estimated revenue generated from the fixed price 20 year contract with OPA exceeds operating costs and debt financing costs by approximately $4.6 million over the term of the contract. After the term of the contract, there may be up to 20 years residual life remaining in the asset. It is possible the Region would have the option of entering into another OPA contract or use the power generated to reduce electricity consumption in its facilities. Concurrent roof replacements under Option 2 are already included in the 2010/11 capital maintenance budgets. OTHER DEPARTMENT CONSULTATIONS/CONCURRENCE: Finance and Legal staff have reviewed this report and their comments have been incorporated as appropriate. Staff from all impacted program areas have been consulted in the evaluation of viable buildings. ATTACHMENTS PREPARED BY: APPROVED BY: Appendix A Solar Photovoltaic Cashflow for term of 20 year contract Ellen McGaghey, Director, Facilities Management & Fleet Services Brian Bechtel, Corporate Energy Specialist David Roewade, Environmental Sustainability Planner Jose Rocha, Corporate Energy Specialist Gary Sosnoski, Commissioner, Corporate Resources Docs# Page 8 of 8

9 Appendix A Solar Photovoltaic Cash Flow $(000)s Year Revenues Operating costs (inflated) Short term Interest costs Debt repayment Annual Cash Flow Excess Cumulative Annual Cash Flow Excess , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,103 4,573 Assumptions 1) Expenditures $3.5M in 2010, $9.0M in 2011, $5.0M in 2 2) Revenue based on fixed price contract 3) Operating costs 2% per year 4) Infrastructure Stimulus Funding of $1.0 Million 5) 5.25%, 20 year term