Page 175 - Sustainable Cities and Communities Design Handbook

Life Cycle Analysis Versus Cost Benefit of Renewable Energy Chapter j 8 151

Power Purchase Agreement Business Model
Under this model, the City would engage in a publiceprivate partnership and
allow a solar project developer to design, build, own, maintain, and operate a
renewable energy facility on municipal property. This City would enter into a
PPA with the developer to purchase all or part of the electricity generated by
the system. A PPA is a contractual agreement whereby the developer/owner
sells electricity to the City at fixed price per kilowatt hour over a long
contractual term, typically 15e20 years. Such an agreement allows the City,
which is a nonprofit entity that cannot fully utilize all available incentives, to
still indirectly benefit from them by entering into a contract with a third party
that utilizes all available incentives and sells the produced electricity to the
nonprofit entity at a rate defined by the PPA.
Overall, the financial advantages of the PPA, i.e., the savings passed on to
the City by the developer/owner taking advantage of federal tax credits,
usually make it the most attractive business model for a municipality. Other
advantages to the City include avoiding installation and equipment costs as
well as ongoing operations and maintenance expenses, and locked-in fixed
electricity price over the term of PPA contract.
Some disadvantages of a PPA include high legal costs involving compli-
cated contract negotiations and multiparty negotiations between the City,
developer/owner, and electric utility for net metering, grid tie-in, and offtake.

Calculating Utility Rates
Determination of the financial feasibility of a renewable energy system in-
cludes a comparison of its annual costs, typically through the PPA, with the
current and expected future annual utility costs. For example, Southern Cali-
fornia Edison utility rates involve charges for energy use, by customer, and by
demand. Energy charges involve delivery service and generation charges based
on time of use (“TOU”). Customer charges and facilities-related and power
factor adjustment demand charges are not TOU charges. Time-related demand
charges involve TOU during summer (12 a.m. on the first Sunday in June
through 12 a.m. of the first Sunday in October) and winter (the remainder of
the year).
TOU rates are based on three time periods: on peak, mid peak, and off
peak, with maximum demand rates established for each of the time periods
based on the maximum average kilowatt input recorded during any 15-min
interval during the month. On-peak hours are noon through 6 p.m. on sum-
mer weekdays, except holidays. Mid-peak hours are 8 a.m. to noon and 6e11
p.m. on summer weekdays, except holidays, and off-peak hours account for all
remaining hours.
Monthly energy rates are determined based on the above-mentioned
factors.