REPORT TO COUNCIL
SUBJECT
Title
Action to Delegate Authority to the City Manager to Complete Negotiations and Execute a Third Phase Agreement with the Northern California Power Agency (NCPA) for the Purchase of Energy Storage Products from Trolley Pass Project LLC for a Total Contract Amount of $983,000,000 Over 20 Years
Report
COUNCIL PILLAR
Deliver and Enhance High-Quality Efficient Services and Infrastructure
Promote Sustainability and Environmental Protection
BACKGROUND
The City of Santa Clara’s Electric Department, Silicon Valley Power (SVP), purchases energy to supply residents and businesses within the City of Santa Clara (City). With the passage of Senate Bill 100, SVP must meet the State of California’s Renewable Portfolio Standards (RPS) where SVP must procure a specified percentage of its retail sales from renewable energy resources by a particular year. Most of the renewable energy resources on the market are solar photovoltaic (Solar PV) generation. As the City’s datacenter load grows, SVP will need energy storage to store solar power and to use the stored power during hours when solar may not be available. Energy storage resources can also be used to meet SVP’s resource adequacy needs.
SVP generally procures energy storage products (like resource adequacy) by entering into an Energy Storage Service Agreement (ESSA) with project developers through their direct offerings or through a request for proposal (RFP) process. SVP may also participate in energy storage project opportunities through the Northern California Power Agency (NCPA). NCPA is a not-for-profit Joint Powers Agency whose membership includes municipalities, a rural electric cooperative, and other public agencies including the City of Santa Clara. The mission of NCPA is to provide its members with cost effective wholesale power and energy-related services.
Each potential project may have unique characteristics that impact the value of the resource to SVP. Staff evaluates potential projects on locational value, environmental attributes, capacity attributes, viability, and operational flexibility.
On February 15, 2024, NCPA issued an RFP to solicit competitive proposals for renewable energy resources, carbon-free energy resources, and energy storage solutions. In response to that RFP, NCPA received multiple proposals for energy storage resources. Among them, NCPA received a proposal from Trolley Pass Project LLC (Developer) to sell energy storage products supplied by a battery energy storage system (BESS) located in San Bernadino County, California (Trolley BESS Facility). This facility’s energy storage products include discharging energy, storage capacity, resource adequacy attributes, and ancillary services. A number of NCPA members (Participants) expressed an interest in the Trolley BESS Facility. NCPA, in direct coordination with the Participants (including SVP), determined that the Developer’s offer was competitive for the current energy storage market and met the needs and requirements of the Participants.
As a result of this determination, NCPA, acting on behalf of the Participants, engaged in active negotiations with the Developer to develop an ESSA, pursuant to which NCPA, acting on behalf of the Participants, will purchase the energy storage products. The Trolley BESS Facility is expected to begin commercial operation on June 1, 2029. The 400-megawatt (MW) Trolley BESS Facility is expected to store up to and discharge 1,600-megawatt hours (MWh) of electricity over a four-hour timeframe.
DISCUSSION
The ESSA contains many terms that are standard for today’s energy storage market. For example, under the ESSA, the Developer will have an obligation to reach commercial operation no later than June 1, 2029, otherwise it will forfeit its development security. As is standard for these types of agreements, the commercial operation date may be extended for force majeure and other circumstances. Once the Developer reaches commercial operation, it must meet its guaranteed energy storage capabilities for the entire 20-year term, including guaranteed storage capacity and guaranteed round-trip efficiency rates (i.e., percentage of energy that is retrieved from the battery compared to the energy that was originally put into it).
The ESSA also requires the Developer to periodically test the energy storage capabilities of the Trolley BESS Facility at the request of NCPA and the Participants. In the event that these tests reveal the Trolley BESS Facility fails to meet the ESSA’s requirements, the Developer will pay damages in accordance with a formula set forth in the Agreement. This commitment and other post-commercial operation obligations are secured through the Developer’s performance security which may be in the form of cash, a letter of credit, or a guaranty.
Due to the recent uncertainties around tariffs and potential changes in tax laws, Developers have sought to insulate themselves from any such change. NCPA, City staff, and other Participants have negotiated a contract price increase cap in the event of tariff impacts or tax law changes (including loss of tax credits). If the Developer requests a price adjustment above the cap, NCPA may not accept the increase, in which case the Developer may terminate the Agreement or continue the Agreement subject to the cap.
Other key ESSA terms include:
• Fixed price rates, without escalators, for the twenty-year life of the ESSA
• Contains security deposit requirements that the Developer provides to NCPA to ensure the project will be completed in a timely manner and maintain its performance throughout the ESSA term
• Contains Guaranteed Efficiency Rates, Guaranteed RA Amount, Guaranteed Storge Availability
• Liquidated damage for missing performance metrics
• Termination rights for events of default, force majeure, or potential adverse tax policy or tariffs that impact feasibility of project construction
To enable NCPA to enter into the ESSA with the Developer on behalf of the Participants, the Participants must first enter into a Third Phase Agreement with NCPA. The Third Phase Agreement sets the terms for participation in the project. For example, products will be delivered to the Participants based on their project participation percentage. In the City’s case, it will be contractually obligated to purchase 70% of the facility’s capacity, which is equal to 280-MW. The Third Phase Agreement also sets forth each Participant obligation to pay their proportionate share of the Project costs.
This project will increase and diversify SVP’s resource adequacy capacity portfolio and help SVP meet its increasing resource adequacy capacity requirements due to the City’s electrical load growth. SVP originally signed up for 200 MW of the project but increased this amount to 280 MW due to concerns that other potential SVP projects are facing increasing challenges due to tariff and supply chain issues. For example the Westlands Grape Battery Storage Project developer recently terminated their agreement with the City pursuant to their termination rights due to their inability to secure financing in time to meet the guaranteed commercial operation date. SVP is recommending moving forward with this project considering the project was selected through a competitive RFP process and the increased capacity amount presented the same value proposition as the original capacity amount. In addition, with the additional 80 MW, NCPA would become the sole off-taker of the 400 MW battery and would have full control of the entire project. This would simplify the operation of the battery and eliminate any potential conflicts that may arise when there are multiple off-takers for the battery. Pricing for the project is competitive with other projects SVP is currently working on.
If approved, the parties intend to execute the Agreement at the end of September 2025. SVP would begin using the energy storage product beginning on June 1, 2029. SVP will provide the City Council with updates as needed through the SVP biennial update or informational reports to the City Council.
NCPA staff, working with the Participants’ staff, have been negotiating with Trolley Pass for the past 10 months and have reached Agreement on a number of areas and needs the City Council’s approval prior to finalizing the contract. Due to confidentiality and other considerations, staff is requesting that the City Council delegate final approval and execution authority to the City Manager.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to section 15378(b)(4) of Title 14 of the California Code of Regulations in that it solely facilitates SVP payments for the costs of the ESSA and is therefore a fiscal activity that does not involve the commitment to a specific project which may result in a potentially significant physical impact on the environment. Under the ESSA, the Developer is required to complete CEQA, otherwise the delivery term will not commence (i.e., no energy will be charged or discharged by the Trolley BESS Facility until completion of CEQA) and there is no obligation for the City to make a payment.
FISCAL IMPACT
Based on SVP’s 280-MW interest, SVP’s annual cost is approximately $49,150,000 for a total contract amount of $983,000,000 over the 20-year term. Funding for the project will be included in the Resource and Production budget in the Electric Utility Fund beginning in the FY 2028/29 Operating Budget.
Under the Third Phase Agreement, the Participants (including SVP) will be required to maintain a security deposit amount equal to the three highest monthly project costs to be held by the NCPA in the event that the Participants fail to make any required payments or defaults on the Third Phase Agreement. This amount is approximately $12,287,500 and will be due 90 days prior to the Commercial Operation Date.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Authorize the City Manager, or designee, to complete negotiations, approve, and execute a Third Phase Agreement (Agreement) with the Northern California Power Agency for the purchase of energy storage products from the Trolley BESS Facility on the terms presented, for a total contract amount of $983,000,000 over 20 years with permissible adjustments due to supply chain events and change in tax law, funded by the Electric Utility Fund, subject to the review and approval as to form by the City Attorney; and
2. Authorize the City Manager to (a) take any and all actions as are necessary or advisable to implement and administer the Agreement; and (b) approve and execute future amendments to the Agreement for any price adjustments and other changes authorized under the Agreement, subject to the review and approval as to form by the City Attorney.
Staff
Reviewed by: Nico Procos, Director of Silicon Valley Power
Approved by: Jovan D. Grogan, City Manager