REPORT TO COUNCIL
SUBJECT
Title
Action to Authorize the City Manager to Complete Negotiations and Execute a Renewable Energy Purchase and Sale Agreement with Energia Sierra Juarez U.S., LLC to Purchase Renewable Energy from the Cimarrón Wind Project (Cimarrón Wind Project)
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 the 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 44% of retail sales by December 31, 2024, 52% by December 31, 2027, and 60% by December 31, 2030 of electricity products from eligible renewable energy resources.
In conformance with the City's Municipal Code and Council Policy, the purchase or sale of electrical power and fuels for the generation is not subject to the City's centralized purchasing process but is procured by SVP. SVP procures electrical power either by a) entering into Power Purchase Agreements (PPA) with project developers through their direct offerings and/or b) through a request for proposal (RFP) process. Each potential PPA project may have unique characteristics that impact the value of the resource to SVP customers. Staff evaluates potential projects on locational value, shape of the generation output, environmental attributes, capacity attributes, viability, and operational flexibility.
In April 2021, Sempra Infrastructure, a subsidiary of Sempra, presented an overview of renewable energy projects currently in development to SVP staff for their consideration. After reviewing and analyzing the projects, SVP staff determined that the Cimarrón Wind Project being developed by subsidiary Energia Sierra Juarez US, LLC, would further diversify SVP’s Renewable Energy portfolio while also aiding SVP to achieve the current State of California RPS requirements.
Energía Sierra Juárez U.S. LLC is an American electricity company, subsidiary of Sempra Energy through its wholly-owned Mexican affiliate Infraestructura Energética Nova S.A.B. de C.V. It was incorporated in 2017 for purchase and sale of electric power in North America and is based in San Diego.
DISCUSSION
The proposed Cimarrón Wind Project would be a replacement for the energy that SVP intended to procure from the unconstructed Viento Loco Wind Project and would increase and further diversify SVP’s renewable energy portfolio in accordance with the Council's adopted Policy on Environmental Stewardship and Renewable Portfolio Standards. The proposed Cimarrón Wind Project output is equivalent to 25% of SVP’s 2021 retail sales.
It is staff’s professional opinion that the Cimarrón Wind Project has less development risk, because the project will be connected to an existing, approved, transmission line. As proposed, the project is considered an eligible renewable energy resource under the State of California’s RPS rules.
The Cimarrón Wind Project is located near the town of La Rumorosa, in the wind-rich Sierra de Juárez Mountains of Baja California, Mexico. There are two existing wind farms that have been developed and operated by Sempra, a 155 megawatt (MW) wind farm (Energia Sierra Juarez 1) and a 108 MW wind farm (Energia Sierra Juarez 2). This project has a capacity of 300 MW and is projected to generate approximately 1,000,000 megawatt hours (MWh) of renewable energy annually.
Although the project is located in Mexico, the power will be connected to a substation in San Diego, California, via an existing cross-border transmission line owned by Sempra Infrastructure. This will enable the project to participate in California’s energy market while delivering renewable energy to California’s electric grid.
However, like any new energy-related construction project currently under consideration, the project is not without risks of failure or delays. Sempra Infrastructure is currently in the process of obtaining its permits from both Mexico and the United States authorities. On the Mexico side, Sempra Infrastructure is waiting for a permit to export power, archaeological clearance, and land-use permits. On the United States side, Sempra Infrastructure is waiting for Department of Energy authorization to use firm capacity on a transmission line owned by Sempra Infrastructure and to export station power from California Independent System Operator (CAISO).
Sempra Infrastructure has successfully obtained permits for similar projects in the past, particularly for Energia Sierra Juarez 2, which is currently in operation. The land for the Cimarrón Wind Project has been executed under an option agreement to accommodate the 300 MW project with additional acres to optimize the tower placement of the wind turbines. Sempra Infrastructure has a long-standing relationship with their equipment manufacturer and, though supply chain issues occur more frequently these days, Sempra Infrastructure has communicated that the manufacturer will be prepared to deliver the equipment for the wind project in time to meet the start of construction currently scheduled for October 2023. Sempra Infrastructure has a very strong balance sheet and long history of successfully developing renewable energy projects in the US and Mexico. The proposed project is expected to be online as early as December 31, 2024, and the term of the agreement will be for 20 years.
If approved, the parties intend to execute the agreement in July 2022. SVP will provide Council updates as needed through the SVP quarterly update or informational reports to Council.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the proposed agreement and activities authorized therein in accordance with Section 15277 of Title 14 of the California Code of Regulations, as the Cimarrón Wind Project is located outside of California and subject to the environmental review of Secretaría del Medio Ambiente y Recursos Naturales (SEMARNAT).
FISCAL IMPACT
SVP will purchase approximately 1,000,000 MWh per year based on forecasts of average wind conditions and the price for this energy production and environmental and other attributes will not exceed $68/MWh during the contract term. Funding for the purchase of the renewable energy is included in the Resource and Production budget in the Electric Utility Fund in the FY 22/23 Adopted Operating Budget.
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 to negotiate, approve, and execute a Renewable Energy Purchase and Sale Agreement (Agreement) with Energia Sierra Juarez U.S., LLC, subject to budget appropriations;
2. Authorize the City Manager or designee, to execute all related documents or agreements, including, but not limited to, collateral assignment agreements; and take any and all actions as are necessary or advisable to implement and administer the Agreement; and
3. Authorize City Manager to approve and execute amendments to the Agreement, as may be required from time to time, so long as the contract price and length of the Agreement remain unchanged.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Rajeev Batra, City Manager