REPORT TO COUNCIL
SUBJECT
Title
Action to Authorize the City Manager to Complete Negotiations, Approve and Execute an Energy Storage Agreement and Lease Agreement with Kifer Energy Storage, LLC and Equipment Procurement
Report
COUNCIL PILLAR
Promote Sustainability and Environmental Protection
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
Silicon Valley Power’s (SVP) electric load and demand has increased by more than 20% over the last decade and load and demand are expected to continue increasing over the next decade. In order to accommodate the increased demand, major upgrades to SVP’s current system are required. While the department is on track to accomplish planned system upgrades within the City as approved by the City Council, there are additional required transmission system upgrades to California Independent System Operator’s (CAISO) controlled transmission system outside of the City’s service territory which may limit the City’s 5-10 year growth trajectory. As SVP has limited control over CAISO’s upgrade schedule, SVP staff evaluated other solutions that can be brought online while CAISO completes their system upgrades.
On November 10, 2020, City Council approved and adopted SVP’s Energy Storage Procurement Plan to re-evaluate energy storage in compliance with California Assembly Bill 2514 (AB 2514). Consistent with the approved Energy Storage Procurement Plan, SVP researched and analyzed locating energy storage projects at different locations within SVP’s service territory and determined that constructing an energy storage project would benefit its customers by meeting future load growth by maximizing the utilization of existing system capacity and having another tool to assist in managing the reliability of SVP’s electric distribution system.
On April 20, 2021, SVP presented a Quarterly Strategic Plan Update to the City Council regarding load growth and future SVP capital projects, including the Battery Energy Storage System (BESS) project. The proposed BESS project will be located on a City-owned parcel located at 3025 Raymond Street. SVP requires a BESS in order to help meet the peak electrical demand and projected future growth. In addition, the BESS could relieve the possible overloaded conditions on the SVP 60KV transmission systems and could be used to provide additional electricity to the grid when the grid is at its peak, if the CAISO issues a grid system emergency, or if SVP is affected by Public Safety Power Shutoffs (PSPS) initiated by PG&E limiting the flow of energy into the City. The BESS will allow additional capacity to become available while CAISO continues to upgrade their electric system. The BESS works hand-in-hand with renewable energy, such as wind and solar, to store energy by charging the batteries when those resources are abundant on the electrical grid. The stored energy is then used during times when wind and solar are not available or to help manage peak electrical demand. BESS projects will be needed on the electrical grid in order to meet the goals of a zero-carbon future. SVP requires an experienced and qualified vendor to provide, install, and maintain an effective BESS.
DISCUSSION
In December 2020, the City issued a Request for Proposals (RFP) for a battery energy storage system, using the City’s e-procurement system. A total of 190 companies viewed the RFP and the City received proposals from five companies:
• Ameresco, Inc. (Framingham, MA)
• Applied Metering Technologies, Inc. (Whittier, CA)
• Champlin Energy Company (Santa Barbara, CA)
• Sol CES Projects, LLC (Washington, DC)
• SunPower Corporation (Richmond, CA)
The RFP evaluation process consisted of two phases with only the highest-scoring proposals advancing to the second phase. The written proposals were evaluated and scored by a five-member evaluation team consisting of staff from SVP and the City Manager’s Office against the criteria and weights published in the RFP.
Phase 1: Experience, Technical Capabilities, and Environmental Stewardship:
Each proposer’s experience was evaluated, including number of years implementing battery energy storage systems. Additionally, the proposals were evaluated on the proposers’ approach to implementing the proposed BESS; scalability of the proposed solution; available maintenance and support services; potential benefits to the City; and proposer’s approach to environmental stewardship.
Phase 2: Oral Presentations and Cost: Three finalists, Ameresco, Inc., Sol CES Projects, LLC, and SunPower Corporation were invited to participate in oral presentations to demonstrate their knowledge and understanding of the City’s requirements and introduce key personnel who would be assigned to the project. Additionally, cost proposals for each finalist were reviewed during this phase.
Recommendation: Staff determined that Ameresco, Inc.’s proposal is the most advantageous and best value proposal based upon the final evaluation ranking. Their proposal met or exceeded all of the RFP specifications, and Ameresco, Inc.’s solution was rated superior in the following key areas:
• Energy Density of the BESS, (MW and MWh of the system / square feet of land used).
• Completed an economic analysis model demonstrating the value of the BESS.
• Demonstrated experience of designing, installing and interconnecting other generating resources in the CAISO market successfully.
Ameresco, Inc. will be entering into the Energy Storage Agreement and Lease Agreement as Kifer Energy Storage, LLC (Kifer LLC). The proposed Kifer LLC BESS project will have a capacity of 50 megawatts (MW) and have an energy discharge duration of up to 4 hours for a total of 200 megawatt hours (MWh). Batteries degrade over time and lose some capacity over their expected life, but the agreement with Kifer LLC will require that Kifer LLC augments the capacity of the BESS to maintain the maximum capacity of 50 MW through the term of the agreement. This will be achieved by installing additional BESS containers at the project’s location when the other containers degrade over time. Additional space at the project’s location will be designed and prepared during construction to accommodate the future installation of new BESS containers. Currently, the proposed BESS project is estimated to achieve commercial operation in mid-2025.
The Energy Storage Agreement will allow the City to be the beneficiary of the BESS project for a twenty-year term with an option to extend for an additional five years. The Energy Storage Agreement, much like a Power Purchase and Sales Agreement will allow the City to have the BESS project participate in CAISO market. In addition to the Energy Storage Agreement, the City will also enter into a Lease Agreement with Kifer LLC. As Kifer LLC will be fully dedicating the BESS project to the provision of the energy storage services to the City and the project will assist with the reliability of SVP’s electric distribution system, 3025 Raymond Street is not surplus land within the meaning of the Surplus Land Act (Government Code section 54220 et seq.). Since the BESS project will be constructed and operated within SVP’s service territory, Kifer LLC will also have to enter into an Interconnection Agreement for Generating or Storage Facilities with SVP (Interconnection Agreement). The Interconnection Agreement will dictate the terms and conditions for the technical requirements needed to connect the BESS project to SVP’s grid while abiding by SVP’s Rules and Regulations. Staff will request Council’s approval for the Interconnection Agreement upon the successful completion of the environmental review process for the BESS project under the California Environmental Quality Act (CEQA).
With the goal of reaching commercial operation in mid-2025, the initial stages of the CEQA process began in November 2022 and is expected to be completed by the end of Q2 2023. System impact studies are in process and expected to be completed by the end of Q2 2023. The design phase will begin with a kick-off meeting at the end of January 2023 and proceed throughout 2023 until construction begins with site demolition scheduled to occur; provided the CEQA process has been successfully completed. Construction of site and installation of the BESS project will begin thereafter and is expected to continue through mid-2025, when the BESS project is anticipated to be in commercial operation. SVP staff will provide updates to Council as appropriate through SVP’s Quarterly Updates.
Nationwide, there is a supply shortage for transformers, switchgears, and other electrical components. To avoid procurement delays, staff would like to commence procurement of BESS project-related equipment as early as possible. In the event, the project fails to obtain the required environmental approvals, the procured equipment will be redirected for use in other SVP projects.
An SVP owned and maintained 60 KV junction substation, Space Park Junction, will be constructed in the BESS site to interconnect with Ameresco, Inc.’s BESS system. The City’s scope of work for this project includes designing the transmission line extension from existing 60 KV Ken-Oaks line to the Space Park Junction, design of City-owned Control building, and testing and commissioning of the Space Park Junction.
Once the BESS project reaches commercial operation, it will provide the following revenue and value streams: 1) the BESS will have the capability of performing intraday energy arbitrage in the amount of 200 MWh per day by charging the BESS when market prices are low (buying the energy from the CAISO market) and discharging the BESS when market prices are high (selling the energy into the CAISO market) and capturing the difference between these prices; 2) the BESS will qualify as a Resource Adequacy (RA) resource adding to SVP’s resource portfolio used to meet the CAISO RA requirements; and 3) the system will have the capability of managing loads on the transmission system during highly stressed conditions which may reduce the likelihood of Firm Load Shedding that would otherwise be required during such events. These revenue and value streams will provide financial benefits to the City’s rate payers and will help offset the cost of the contract. In addition, the BESS project will also enhance reliability during highly stressed conditions on the grid.
ENVIRONMENTAL REVIEW
The BESS project’s environmental review is currently ongoing and is expected to be complete on or before the approval of the Interconnection Agreement for the project. Without the Interconnection Agreement, the project will not be able to provide energy storage services to the City, so it is a critical agreement which cannot be approved until the CEQA process is complete.
The City has no obligation to purchase energy storage services under the Energy Storage Agreement until all of the following have occurred: (a) any applicable review under CEQA has been completed; and (b) the applicable period for any legal challenges under CEQA relating to the BESS project has expired without any such challenge having been filed; or (c) in the event of any such challenge, the challenge has been determined adversely to the challenger by final judgment or settlement. The City may terminate this Energy Storage Agreement and Lease Agreement if it is determined based on the CEQA review the BESS project causes significant adverse environmental effects that are not adequately mitigated or for which there are no overriding considerations.
As stated above, to avoid procurement delays, staff would like to commence procurement of project-related equipment as early as possible. In the event the project fails to obtain the required environmental approvals, the procured equipment will be redirected for use in other SVP projects.
FISCAL IMPACT
Prior to the commercial operation of the BESS, SVP will be required to purchase and install certain equipment in order to accommodate the BESS. The capital cost estimate for the City’s scope of work is approximately $4 million. A portion of this is budgeted in the FY 2022/23 budget. Staff will include any additional funding needs as part of the biennial budget process. Once the BESS reaches commercial operation, SVP estimates the cost of the BESS project to be $7 million annually with a 3.5% annual escalator during the term of the agreement. The estimated revenue that is expected from the BESS project’s intraday energy arbitrage and RA value is expected to be equivalent to the cost of the BESS project, so there should be minimal fiscal impact to the budget during the term of the agreement. There is no anticipated impact on the funding for FY 2022/23 or FY 2023/24. Staff will include requests for funding in future years during the biennial budget process.
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 the following agreements with Kifer Energy Storage, LLC: a) an Energy Storage Agreement for the purchase of energy storage services from the BESS project; and b) Lease Agreement to locate the BESS project at 3025 Raymond Street in the City of Santa Clara;
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 Energy Storage Agreement and Lease Agreement;
3. Authorize City Manager to approve and execute amendments to the Energy Storage Agreement and Lease Agreement, as may be required from time to time, so long as the contract price and length of the agreements remain unchanged; and
4. Authorize the City Manager to procure long lead equipment for the BESS project and execute any related agreements.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: City Manager’s Office