AltaTerra Working Paper 13 October 2008 From Concept to Contract: Hewlett-Packard s San Diego Solar Power Project by Jon Guice and Don Bray Executive Summary Hewlett-Packard, the world s largest information technology company, has set goals to increase its use of renewable energy as part of a corporate goal to reduce greenhouse gas emissions by 25 percent between 2005 and 2010. This case study recounts the decision-making process and the milestone events leading to HP s first major on-site solar power installation, a 1.2 megawatt system in San Diego. Beyond a cleaner, cheaper source of power, HP now has a deployment and financing model for solar that fits its capital allocation strategy, and an integration partner and internal team that can successfully replicate such projects elsewhere in the company. As a result of the project, HP has concluded that it can and should reap the benefits of solar power without going into the solar business. Solar power purchase agreements enable the company to continue to scale up its use of renewable energy with an efficient, focused approach to capital allocation and operational strategy. Contents 0 Background to the Study 1 Strategic Context 2 Timeline and Process 3 Evaluation 4 Endnotes Notes & Resources This case study presents original data and analysis based on proprietary and public sources. For this report, AltaTerra developed enterprise survey data and conducted correspondence and in-depth interviews with six executives. For this and other reports in the Corporate Solar series, please visit: http://www.altaterra.net/members/blog_view.asp?id =272897&tag=Corporate%20Solar trademarks of AltaTerra Ltd.
0 Background to the Study Demonstrating progress toward environmental sustainability is an increasingly important economic and social priority for major corporations. To this end, these companies are making significant investments in energy efficiency, reducing both greenhouse gas emissions and energy costs. To reap further benefits, some organizations have begun to evaluate and implement programs for purchasing clean power and installing systems for on-site renewable power generation. Investing in on-site renewable power presents opportunities and challenges. Solution options, commercial marketplace experience, and investment incentives vary by geography. Commercial solar power generation is growing rapidly as a renewable energy source. Yet it is still a young industry, and many corporate managers are at square one with respect to understanding the benefits that commercial solar power can offer. This case study is intended to provide firsthand information on how corporate decision-makers have approached solar power. Based on a review of internal documents and interviews with HP executives, it was developed and conducted by AltaTerra Research, an independent industry research firm, and sponsored by SunPower Corporation, a solar power manufacturer, integrator, and developer. Rather than concentrating on technical details, this case study tells the story of how the HP organization took solar power from idea to reality how solar power was conceived, supported, and approved in a large corporate setting. Three main topics are addressed: Strategic context: How was this effort affected by, and how did it affect, the company s executive agenda for energy and sustainability? Timeline and decision process: Who were the key players in the initiative, and what were the key decisions and decision points? Evaluation: What were the practical challenges, and what would be done similarly or differently next time? 1 Strategic Context For information and communication technology companies, improving energy efficiency and environmental performance has become a high-profile priority. It spans all aspects of the business from designing and manufacturing products that are more energy-efficient to reducing impacts in internal business operations and the extended value chain. Hewlett-Packard, based in Palo Alto, California, has been regarded as a leader in corporate social and environmental responsibility for many years. Every year since 2005, when the Global 100 index was first published, HP has been recognized as one of the world s 100 Most Sustainable Corporations. 1 HP is working toward the publicly stated goal of having, by 2010, reduced greenhouse gas emissions by 25 percent from 2005 levels, across internal operations and its portfolio of computer and peripheral products sold in the marketplace. As part of this effort, HP continues to evaluate and adapt its electricity purchases. In 2006, the company purchased 11 million kilowatt hours of renewable energy for use in its operations. HP 2
also joined the U.S. EPA s Green Power Purchase Program, a challenge to Fortune 500 companies to double their renewable energy purchases by the end of 2007. During 2007, the year in which this case study begins, HP planned to increase its renewable energy purchases by approximately 350 percent, procuring 50 million kilowatt hours of renewable electricity. Much of that is expected to come from wind power, but HP also made plans to explore and augment its use of other renewable energy sources, including solar. 2 Timeline and Process 2.1 Project Overview As HP s first large-scale solar installation, the project examined in this case study placed solar photovoltaic systems on five of seven buildings at a multiuse site in San Diego s sunny, inland Rancho Bernardo area. SunPower Corporation served as the project integrator and developer, providing installation services and arranging long-term financing through a power purchase agreement (PPA). Table 2.1. Project Overview: Hewlett-Packard San Diego Solar Power Project Time Period Products & Services Siting Financing Aug. 2007 Sept. 2008 (contract through completion) Solar electric power products and services: a 1.2 MW rated peak output system producing 1.65 MWh in the first year 5 buildings at San Diego facility 15-year PPA 2.2 Initiation (2006) In 2006, a Palo Alto based HP marketing manager, Anne Feldhusen, was one of several people in the company gathering information on solar power. She was spurred by questions from HP s sales staff regarding HP s expertise in the area of renewable energy. At that time, she heard about an option to buy solar on a monthly basis, under a PPA. Feldhusen noted this as a commercial innovation that could make solar more accessible and attractive to corporate buyers, including HP. She connected with others in the company who were interested in solar power, and she pushed for a concerted effort to investigate the feasibility of solar for HP. Feldhusen contacted members of HP s worldwide facilities organization, Real Estate and Workplace Services (REWS), including Sam Gelpi, the corporate manager of design and construction in Palo Alto, and Jerry Thom, a site manager at the facility in Rancho Bernardo. When Feldhusen asked Thom to look into purchasing solar power, he let her know that solar power, while aligning well with HP s environmental goals and his team s expertise, had to be financially viable on its own terms. 3
Thom and his colleagues had looked at solar power proposals in the past, but they had never been attractive enough financially to move the concept forward. He sought to achieve payback in one to three years, a common yardstick among facilities managers in many companies worldwide. The projects that had been proposed earlier were economic but had longer payback periods. 2.3 Corporate Team (January February 2007) Eventually Feldhusen was able to enlist the support of other executives at the corporate level, chief among them the Vice President of REWS. REWS contacted a few commercial solar integrators to get the information needed to begin scoping and evaluating a possible project. On the basis of a preliminary analysis, the project appeared to pencil out. HP had a supportive and capable organization in San Diego, and the location had attractive state and local incentives. In addition, the roofs were nearly new and would not require upgrades until late in the service life of the solar power installation. The project team also developed detailed projections of future utility cost escalation rates, a key variable in determining the overall value of the project and an important issue in third-party financing. A PPA was a key enabler for the deal. It enabled HP to avoid having the solar project on its balance sheet and instead pay for the power produced as an operating expense, without the need for up-front capital expenditure. The overall finding of this preliminary investigation was that, in San Diego, green solar power provided under a power purchase agreement would cost less over a period of years than conventional brown utility power. The next major decision for the team was the selection of a solar power provider that could help them capture these benefits. The team got the go-ahead from the head of the corporate facilities organization to move the project forward to RFP. 2.4 RFP (March June 2007) The team advanced the vendor selection process under a competitive RFP, which is standard procedure at HP for major investments. The RFP, developed over a few months and released in June, was designed to gather detailed information on two main issues. These were the cost of electricity provided over a fixed period of years and the quality of the vendor making the offer. Companies responding to the RFP made site visits, asked questions, developed high-level designs, and then made proposals. Crucially, the proposals included terms for power purchasing and the price of the electricity over more than ten years. 2.5 Vendor Selection (July 2007) The effort to evaluate and select a solar power provider matched the initial work required to evaluate the project itself. In the end, a list of several candidates was reduced to two reputable global suppliers with strong product lines and project implementation records. According to HP, SunPower won on the strength of its design (a nonpenetrating mounting system), its company experience and financial strength, and its prebid customer service. The integrator had demonstrated a consultative sales approach, including its responsive engagement with HP in prebid meetings, its work with design requirements specific to the buildings and locale, and its efficiency in preparing the application for the state s solar incentive system. 4
In a set of considerations designed to support HP s long-term, geographically distributed plan to expand renewable energy use, HP also gave the winning provider high marks for its ability (because of its size, locations, and overall capacity) to develop other major solar projects around the United States in the future. The RFP review group also noted that SunPower had demonstrated the ability to work effectively with HP s recommended contractors. The RFP process concluded with a contract for 15 years that had economics in line with the results of the initial investigation. The global head of facilities who had commissioned the initial investigation signed the ultimate contract. 2.6 Project Construction (August 2007 September 2008) With the contract in place, the design phase began. Gelpi, Thom, and the San Diego facilities staff, led by project manager Kevin Cowen and site engineer Mike Cianciolo, started working directly with SunPower and local construction subcontractors. First, they made sure their facilities met all the basic requirements for such a project for example, that the roof was protected and that there was access to rooftop mechanical areas. Extra time was needed to incorporate parking lot bollards and other precautions to protect sensitive electrical equipment, which had not been in the high-level RFP design. There were also some delays in procurement, possibly because of the silicon shortage gripping the solar industry at the time. Once the installation and electrical work began, things went smoothly. Overhead crane work was completed on seven consecutive weekends, and there was no disruption of HP s operations at the facility. Table 2.6. Construction Tasks: HP s San Diego Solar Project Task Type Approximate Duration Project Initiation Design Utility Interconnection Agreement Permitting Construction Material Procurement Total Project Process 4 weeks 12 weeks 13 weeks 21 weeks 12 weeks 26 weeks 54 weeks Note: Project consisted of solar installations on multiple buildings with varying roof types. Table displays approximate elapsed calendar time. 2.7 Project Promotion (November 2007 October 2008) HP and SunPower issued press releases shortly after the original contract was signed. 2 In HP s, Pat Tiernan, Vice President of Social and Environmental Responsibility, underscored the company s interest in renewable energy from the perspective of sustainability and economics: 5
Switching to renewable energy sources such as solar and wind power makes both environmental and business sense... There have also been grassroots communications. Throughout the project, the local facilities managers were contacted by other organizations inside and outside HP. There has been continued interest in hearing about how the project unfolded and what the managers and their colleagues have learned. 2.8 Sustainability This project helps to demonstrate HP s broader corporate commitment to environmental sustainability in important new ways. The direct outcome of the project is a commitment to solar power. The global energy and facilities executives expect to expand their use of on-site solar, particularly when solar power can be procured under an economically attractive PPA. Two indirect outcomes have been greater HP employee interest in solar power and more solar company employees purchasing HP products. As a result of the relationship developed through the commercial power arrangement, SunPower worked with HP to establish an education and rebate program for HP employees and retirees to install solar power at their homes. By the measure of kilowatts alone, the program may seem modest; its impact is significant, however, when considered in the context of HP s commercial solar system: the electricity produced by the 60 households enrolled through mid-2008 contributes an additional one-fourth of the total electricity produced by the commercial system. The residential program, one of the first and largest of its kind, is growing. It has generated enthusiasm among employees, who view it as a tangible demonstration of HP s commitment to reducing its wider carbon footprint in the community. 3 Evaluation The project was a success, and it laid the groundwork for future successes at locations throughout the organization. HP procured renewable energy at a rate that will continue to improve both its environmental performance and its economic value. And it developed an operational and financial model that fits with the capital allocation strategy of the company, found an integration partner, and established internal teams qualified to carry out the work. HP drew the following lessons from the experience. 3.1 Accommodating Incentive Schedules For the San Diego project in 2007, California economic incentives for solar power were organized on a rapidly declining schedule, awarding higher rebates to the parties with earlier confirmed reservations. These reservations were not just simple forms but detailed documents meeting advanced design and other criteria. In response, the corporate facilities team had to move quickly to further define the program and develop an RFP. One important element that assisted in the process was HP s effectiveness in the electronic management of facilities design information, which enabled rapid access to detailed building schematics and other information. Another important element was working with a responsive integrator. HP chose SunPower in part because it had met tight deadlines during the prebid period. 6
For the future, the HP team has decided that to take advantage of national and regional solar incentives as they rapidly appear and evolve, they must monitor incentive schedules and be prepared to act quickly. 3.2 Third-Party Financing After their experience with the San Diego project, the REWS team concluded that HP can and should reap the benefits of solar power without going into the solar business. As a rule, they felt it makes more sense for the company to work with qualified providers of solar electricity than to own and operate its own solar power plants. Paying for solar services on an ongoing basis, rather than making a major up-front capital investment, mirrors the way energy outlays have historically been made. Also, although the technical risk is negligible, HP is not in the power generation business. Solar PPAs enable the company to continue to scale up its use of renewable energy with an efficient, focused approach to capital allocation and operational strategy. 4 Endnotes 1. The Global 100, The Global 100: Most Sustainable Corporations in the World, January 23, 2008, http://www.global100.org/. 2. Hewlett-Packard Company, HP Expands Renewable Energy Use in Its Global Operations, news release, November 27, 2007, http://www.hp.com/hpinfo/newsroom/press/2007/071127xb.html. SunPower Corporation, SunPower Partners With HP to Boost Energy Conservation Efforts, news release, November 27, 2007, http://investors.sunpowercorp.com/releasedetail.cfm?releaseid=278728. 7