The solar power procurement journey

Solar power is all the rage nowadays and many government agencies and other public sector entities are scrambling to find out how they too can cut energy costs, reduce emissions and contribute to building a more sustainable planet. As stable institutions with a steady revenue stream from taxes, along with the ability to issue generally high-rated bonds to fund utility projects, local municipalities and government agencies occupy a great position to take advantage of solar power procurement projects.

In addition to the large of amount of energy generation needed, municipalities and other public sector entities also have different needs and resources based on their revenue streams. Because of the large demand for energy in a diverse range of geographic locations, several different types of procurement routes have arisen to meet the challenges and needs of this sector.

The relative newness of solar energy technologies and the procurement process by which various agencies and enterprises need to navigate can raise interesting and complex challenges. Through innovative financing mechanisms, supportive government policies and the maturing of the solar industry, municipalities and other public sector entities have plenty of options to choose from for solar power procurement. 

The NREL identified some key steps that can help streamline and expedite the journey through solar energy procurement:

Assess needs and opportunities

The first thing a solar energy project manager should determine is the project's energy requirements. Government agencies and municipalities consume huge amounts of energy, and a single panel or simple array won't suffice to make a big enough difference. Due to the amount of energy needed, the size and scope of a solar system would need to generate enough energy to offset the cost of undertaking the project.

Compiling the historical data on the agency's energy usage will provide a consumption metric of which project managers can set their goals for solar power generation.

Analyze compliance issues

Each project manager will have to tailor his or her plan according to the procurement policies and the requirements of their individual jurisdiction. However, since local governments typically have extensive experience executing procurement requests for a wide range of projects, this shouldn't pose too much of a burden for an experienced project manager. Along with analyzing compliance issues, managers should take this time to research the various options and requirements available through tax incentives, net metering regulations and third-party ownership.

Assemble a team

A solar power procurement project manager does not need to be an expert on the technical details of how sunlight is converted to energy and then transformed into usable electricity. Any experienced procurement managers should be able to easily navigate the journey, regardless of background. However, it's a good idea to draft some people to the team who do have a solid understanding of the processes and how the equipment works. With a robust team of individuals with diverse skill sets, project managers can more easily delegate tasks and remain better informed throughout the life span of the project.

Arrange a site (if necessary)

While some solar energy projects might opt for leasing or obtaining solar energy from a private-sector utility, many are also choosing to fund and install their own solar arrays. Municipal solar projects can easily make productive use of abandoned lots, empty roofs or other underutilized space in the community. The site should be free of any obstructions to the panels' ability to collect sunlight, so a lot in between a bunch of tall buildings that only receives an hour or so of light in the middle of the day would not be an ideal place. However, a vacant lot by the agency in the middle of a open area could be a great way to make use of the space. In some instances, obtaining the site and the rights to use the land could involve some additional work. A municipality may need to get clearance from a town council, while a federal agency might have to request permission through the normal bureaucratic channels.

Acquire financing and contracting

This is perhaps the most important step of the whole solar power procurement process. As noted earlier, municipalities and other local and federal agencies seeking out ways to lower electricity bills and reduce overall energy consumption all have a wide range of resources, spaces and jurisdiction that limit their options. This has given rise to a complementary variety of financing and contracting procurement channels.

Due to the importance of finding the right financing and contracting option for the solar power procurement project, an assortment of pathways have risen up to meet the varied demands and resources of the different agencies and entities seeking to procure solar power. Options such as power purchase agreements, energy savings performance contracts and enhanced leasing provide with enough options for managers to find the best possible solution for their solar energy procurement project.

Sole ownership of the solar system

The most straight forward option for procuring solar power is for the government agency to simply purchase and install its own solar PV array. This will require the facility to cover all the initial costs, including the equipment, the installation and the ongoing operations and maintenance.

Power purchase agreement

Not every public-sector entity has the available resources to fund such an undertaking. However, many of these agencies do own large amounts of land, which is often underutilized. In an effort to develop the land into a energy-producing area, public-sector agencies will partner with a private entity to move forward with a solar energy procurement project.

If a municipality chooses to not install and own a solar array it can instead decide to develop the project using a third-party ownership structure. This route would involve a solar developer financing the project and owning the system. One of the main benefits of the third-party ownership structure is that the developer would be able to use the federal tax credit for up to 30 percent of the cost. Since local governments do not pay taxes, they are unable to take advantage of this incentive. However, private entities can utilize these savings.

Sinceutilities are eligible for the ITC, PPAs can be used as a component of an energy savings performance contract or a utility energy services contract (see below for more information on these two models).

Energy savings performance contract
An energy savings performance contract is a vehicle that allows federal agencies to enlist the support of the private sector to finance energy conservation and efficiency upgrades at their facilities. The ESPC allows a private-sector entity to partner with the federal agency and provide the up-front capital necessary for funding the purchase and installation of energy-efficient equipment, such as a solar PV array. Over time, generally up to 25 years, the private entity recoups its investment as the agencies repay the contractor with the savings achieved through greater energy efficiency and conservation.

Utility energy services contract
Much like the ESPC, a UESC utilizes a third-party to cover the up-front financing for a government agency to take advantage of energy efficiency and conservation. However, while a ESPC involves a private entity providing the initial funding, a UESC employs a utility to cover the capital costs for the project, which is then repaid the savings in energy down the road. Since utilities often already have the manpower and experience to undertake the installation and long-term maintenance of a solar PV systems, the UESC makes sense for a lot of municipalities and agencies. Plus, many utilities already have a good working relationship with the local government built up through years.

Enhanced lease use
In addition to the various PPAs, ESPCs and UESCs, enhanced lease uses are another third-party financing option. In this model, public-sector entities offer bids for prospective developers to compete for the lease to establish an energy project. Payment is generally monetary or an in-kind consideration, and some sort of renewable power project would be part of this consideration. 

With so many different options to choose from for financing and contracting the solar power procurement project, managers must be sure they cover every potential route and perform due diligence over how their agency or municipality can obtain the greatest cost savings in the long run. Whether this involves allocating up front capital to cover the entire cost of the project or partnering with a third-party vendor or private-sector entity to achieve long-term energy efficiency and conservation, the procurement process will take time and require a strategy.

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