REPORT TO COUNCIL
SUBJECT
Title
Action to Delegate Authority to the City Manager to Negotiate, Approve, and Execute Agreements with Aquamarine Westside, LLC and Castanea Project, LLC to Purchase Up to 350 MW of Solar and 135 MW of Battery Energy Storage for up to $73.2 Million Annually
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 to residents and businesses within the City of Santa Clara. With the passage of Senate Bill 100 (SB 100), SVP must meet the State of California Renewable Portfolio Standards (RPS) where SVP must procure a specified percentage of its retail sales from renewable energy resources by a particular year.
SB 100 requires retail sellers and local publicly owned electric utilities to procure a minimum percentage of 44% of retail sales from renewable energy resources by December 31, 2024, 52% by December 31, 2027, and 60% by December 31, 2030. The City of Santa Clara also adopted a Climate Action Plan setting a target to reduce greenhouse gas emissions by 80% by 2035.
SVP is also responsible for supporting the reliability of the grid through the demonstration of having sufficient resource adequacy capacity. Resource adequacy (RA) compliance ensures the safe and reliable operation of the grid in real-time providing sufficient resources when and where needed. Each utility or load serving entity is responsible for demonstrating it has sufficient RA either through the ownership of generation resources and/or procuring enough RA, measured in Mega Watts (MW).
SVP generally procures renewable electrical power in a number of ways. SVP may enter into power purchase agreements (PPA) with project developers through their direct offerings or through a request for proposal (RFP) process. SVP may also participate in power purchase opportunities through the Northern California Power Agency (NCPA). Each potential renewable energy project may have unique characteristics that impact the value of the resource to SVP. Staff evaluates potential projects on locational value, shape of the generation output, environmental attributes, capacity attributes, viability, and operational flexibility.
In late 2023, CIM Group - the parent company of Aquamarine Westside, LLC (Aquamarine) and Castanea Project, LLC (Castanea) - presented two renewable energy projects to SVP. Both projects are located in Kings County, California and are already in commercial operation. CIM Group has brought other projects in the Kings County area to SVP including the Westland Grape project previously approved by City Council on June 15, 2024.
DISCUSSION
SVP’s electric load has increased by more than 20% over the last decade and is expected to continue increasing over the next decade. Due to SVP’s projected load growth, the utility has a continued need for renewable energy to meet the City’s Climate Action Plan and the State’s RPS requirements. SVP staff performed an evaluation based on projects’ fully operational status, volume, pricing, and determined both projects to be a good fit with SVP’s forecasted demand.
Aquamarine Solar Project
The Aquamarine solar project is a 250 MW solar project with 200 MW to be dedicated to SVP. The Aquamarine solar project is forecasted to generate an average of 525,266 MWh annually. The PPA price for energy generated by this project will be fixed over a 15-year period.
Castanea Project
The Castanea project is a 150 MW solar project with 135 MW of battery energy storage. The Castanea solar project is forecasted to generate an average of 405,614 MWh annually with the battery energy storage portion of the project capable of dispatching an average 197,100 MWh of stored solar when needed. The addition of battery energy storage in the Castanea project will provide 135 MW of RA capacity which helps support SVP’s RA compliance. This RA capacity provided by the battery equals approximately 5.4% of SVP’s current RA portfolio value. The Castanea will have two pricing rates, one rate for the renewable energy component and another for the battery energy storage component. Both rates are fixed for the duration of the 15-year term.
PPAs with a term of 15 to 20 year are typically the best value for both the buyer and the seller. Longer term deals help the seller secure financing and give price certainty to both buyer and seller. To meet RPS requirements, at least 65% of RPS procurement must come from long-term contracts of 10 years or more. The markets always fluctuate and typical PPAs are either fixed prices throughout the term or have escalators which allows for more stable budgeting.
The renewable energy market continues to be competitive, and both PPAs contain many terms which are standard for today’s market. For example, the seller will have an energy production guarantee which if the seller fails to meet would be subject to liquidated damages. This commitment and other commercial operation obligations are secured through the seller’s performance security which may be in the form of cash or a letter of credit. These PPAs will not have any development risks because these projects are already in commercial operation.
If both PPAs are approved and executed, SVP will begin receiving the energy and associated attributes from both projects on January 1, 2025 and have a term of 15 years. The two projects combined represent approximately 21% of SVP’s 2023 retail sales. The addition of these resources will increase reliance on renewable energy resources to serve load. These projects are anticipated to help SVP meet its RPS requirements through calendar year 2029. SVP will need to continue looking for additional renewable energy purchase opportunities to meet RPS requirements beyond 2029.
ENVIRONMENTAL REVIEW
The Aquamarine Project has undergone environmental review under the California Environmental Quality Act (CEQA). On May 17, 2019, the Kings County Community Development Agency, as lead agency, adopted a Mitigated Negative Declaration for the Aquamarine Solar Project (State Clearinghouse No. 2019059082). The environmental impacts of the Aquamarine project are also analyzed by the Final Program Environmental Impact Report for the Westlands Solar Park Master Plan and WSP Gen-Tie Corridors Plan (State Clearinghouse No. 2013031043). This environmental document was certified by the Westlands Water District Board of Directors on January 16, 2018.
The Castanea Project has also undergone environmental review under CEQA. On or about October 7, 2019, the Kings County Planning Commission adopted a Mitigated Negative Declaration for the Castanea Project LLC (previously known as the Chestnut Solar Project) and, on or about April 2021, an Addendum No. 1 to the Mitigated Negative Declaration was subsequently prepared (State Clearinghouse No. 2019089051). The Final Program Environmental Impact Report for the Westlands Solar Park Master Plan, which is referenced above, also analyzes the environmental impacts of the Castanea project.
Both remain fully operational and in compliance with CEQA. The proposed approvals will not change these projects; therefore, no additional environmental review is required.
FISCAL IMPACT
SVP will purchase an average of 525,266 MWh of electricity annually from the Aquamarine project for an annual cost of approximately $24 million to $26 million. SVP will purchase an average of 405,614 MWh of electricity annually from the Castanea project for an annual cost of approximately $45.7 million to $47.2 million. The costs for these projects are accounted for in the Resource and Production budget in the Electric Utility Fund. Funding for these agreements in future years will be brought forward with the annual budget processes as needed.
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 <mailto: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 negotiate, approve, and execute a Power Purchase Agreement with Aquamarine Westside, LLC to purchase renewable solar energy and associated attributes from the Aquamarine project on the terms presented, subject to the review and approval as to form by the City Attorney;
2. Authorize the City Manager or designee to negotiate, approve, and execute a Power Purchase Agreement with Castanea Project, LLC to purchase renewable solar energy, battery storage products, and associated attributes from the Castanea project on the terms presented, subject to the review and approval as to form by the City Attorney;
3. Authorize the City Manager or designee to execute all documents, agreements, and certificates as may be required under the terms of the above power purchase agreements, subject to the review and approval as to form of the City Attorney, including, but not limited to, collateral assignment agreements, estoppel certificates, and performance security documentation; and
4. Authorize the City Manager or designee to (a) take any and all actions as are necessary or advisable to implement and administer the power purchase agreements; and (b) approve and execute future amendments to the Agreements so long as the contract price and term are not modified, subject to the review and approval as to form by the City Attorney.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager