REPORT TO COUNCIL
SUBJECT
Title
Action to Authorize the City Manager to Complete Negotiations and Execute a Third Phase Agreement with the Northern California Power Agency (NCPA) for the Purchase of Renewable Energy from Grace Orchard Energy Center
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. 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 generally procures renewable electrical power in two ways. First, it may enter into Power Purchase Agreements (PPA) with project developers through their direct offerings and/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 PPA 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.
NCPA is a not-for-profit Joint Powers Agency whose membership includes municipalities, a rural electric cooperative, and other publicly owned entities including the City of Santa Clara. The mission of NCPA is to provide its members cost effective wholesale power and energy-related services.
On March 25, 2020, NCPA issued an RFP to solicit competitive proposals for renewable energy resources, carbon-free energy resources, and energy storage solutions. In response to this RFP, NCPA received multiple proposals for the supply of renewable energy sourced from different technologies. Among them, NCPA received a proposal from Grace Orchard Energy Center LLC (Developer) to sell renewable energy produced from a 50 MW solar facility located in Riverside County, California (Grace Solar Facility). A number of NCPA members (Participants) expressed an interest in purchasing renewable energy produced by the Grace Solar Facility. NCPA, in direct coordination with the Participants (including SVP), determined that Developer’s offer was competitive for the current renewable energy 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 a PPA, pursuant to which NCPA, acting on behalf of the Participants, will purchase the facilities output. The Grace Solar Facility is expected to begin commercial operation on December 1, 2027. The solar project is expected to generate up to 147,000 MWh annually.
DISCUSSION
The PPA contains many terms which are standard for today’s renewable energy market. For example, under the PPA, the Developer will have an obligation to reach commercial obligation no later than December 1, 2027, otherwise it will forfeit its development security. As is standard for power purchase agreements, this date may be extended for force majeure and other circumstances. Once the Developer reaches commercial operation, it must meet its guaranteed energy production commitments for the entire twenty-year term. In the event, the Developer fails to meet these commitments, it will pay damages in accordance with a formula set forth in the PPA. This commitment and other post-commercial operation obligations are secured through Developer’s performance security which may be in the form of cash, a letter of credit, or guaranty.
To enable NCPA to enter into the PPA on behalf of the Participants, NCPA and the Participants must enter into a Third Phase Agreement. This will allow the Participants to take delivery of the output and to pay NCPA for all costs it incurs in connection with any PPA activities. The Third Phase Agreement sets the terms for participation in the project. In the City’s case, it will be contractually obligated to purchase between 18% to 32.8% of the 50 MW output of the Grace Solar Facility. The City’s final percentage will be known one hundred and eighty (180) days from the effective date of the agreement. By that deadline, all Participants must exercise their option for a portion of the project, otherwise they will have no further right to participate.
This project will increase and diversify SVP’s renewable energy portfolio in accordance with the City Council's Adopted Policy on Environmental Stewardship and Renewable Portfolio Standards. SVP’s share of the proposed solar output is equivalent to 0.5% - 1% of SVP’s 2023 purchased power and generation.
If approved, the parties intend to execute the agreement at the end of August 2024. SVP would begin receiving energy from the Grace Solar Facility beginning December 1, 2027. SVP will provide the City Council with updates as needed through the SVP quarterly update or informational reports to the City Council.
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 payment for the costs of the PPA 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 PPA, the Developer is required to complete CEQA, otherwise the delivery term will not commence (i.e., no energy will be delivered by the Grace Solar Facility until completion of CEQA).
FISCAL IMPACT
SVP will receive approximately 26,000 - 48,000 MWh per year at an annual cost of approximately $1.2 - $2 million for 20 years. Funding for the purchase of renewable energy will be included in the Resource and Production budget in the Electric Utility Fund beginning in the FY 2027/28 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, or designee, to complete negotiations, approve, and execute a Third Phase Agreement (Agreement) with the Northern California Power Agency for the purchase of renewable energy from the Grace Solar Facility in an annual approximate amount of $1.2 to $2 million, 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 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