Laura Erickson and Judy Prejean | September 11, 2013

The San Rafael Airport's Solar Farm: Local Renewable Energy Production via Community

Choice Aggregation

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Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Scoping the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Site Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

System Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

System Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Capital Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

FIT Revenues .......................................................................................................................... 7

Investment Tax Credit ............................................................................................................ 8 Financing the Project ............................................................................................................. 9

Renewable Generator Cert i f ication & Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Interconnection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Permitt ing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Annex 1: MEA FIT for Renewable Energy Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Annex 2: San Rafael Airport Solar Generation System Cost . . . . . . . . . . . . . . . . . . . . . . . . . 22

Annex 3: List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Executive Summary The San Rafael Airport is a private general aviation airport located in Marin County, California. It is owned and managed by JHS Properties, a local family business engaged in commercial real estate. The family’s interest in solar began in 2004, when Bob Herbst installed 49 kW (DC) of roof-mounted solar panels on the main building to power the daily needs of running the airport, which Bob manages. This $220,000 capital investment (net of state rebates of $4.50/watt) allowed Bob to independently produce the airport's power needs and gave him valuable experience in solar development as a property owner and manager. Seven years later, Bob was faced with the decision of whether to invest in another solar installation at the airport after learning about a new feed-in tariff (FIT) being offered by Marin Energy Authority (MEA).

Misti Norton, an account manager at Russell Pacific Solar who Bob worked with on the airport's first solar project, had been keeping tabs on MEA's Marin Clean Energy program, California's first community choice aggregation (CCA) program to be up and running since enabling legislation was passed in 2002. Once Misti learned of the new FIT program in the fall of 2011, she saw an opportunity for the airport to expand its solar production and feed energy into the grid for profit while simultaneously encouraging local sustainable development. In addition to the tariff, a 30% federal tax grant and accelerated 5 year federal depreciation schedule helped make the project appear financially feasible. Under Bob's leadership, the family decided to pursue the solar generation farm by utilizing hangar rooftops at the airport, thereby increasing the financial productivity of the real estate, contributing to local renewable development, and benefitting the environment.

The 1 MW of transformed sunlight that the airport is now feeding into the power grid contributes to California's goal to procure 33% of its energy demand from renewable resources by the year 2020.1 For Bob and his family, the project is not only helping the state and county to meet their environmental goals, but has also generated $206,000 in revenue in its first year of operation to date. The San Rafael Airport solar generation project, completed in October 2012, is a model of success for MEA's feed-in tariff and a validation of the opportunities inherent in California's CCA legislation. But the process of bringing the airport's solar generation project online was not without its challenges, particularly as the first of its kind. This paper tells the story of how it came to be as a means of sharing lessons learned with the hope of encouraging property owners and developers to invest in the future grid by building renewable generation projects. These projects can derive triple bottom line benefits through FIT mechanisms such as that offered by the Marin Clean Energy program.

1 California Public Utilities Commission. (2013, March). RPS Program Overview. Retrieved fromhttp://www.cpuc.ca.gov/PUC/energy/Renewables/overview.htm

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Background

In 2002, California Assembly Bill 117 was passed to amend the public utilities code and permit community choice aggregation, a mechanism that allows local governments to combine electric loads within the community and buy or choose power for customers within the service area. Taking advantage of this enabling legislation, in 2008 Marin Energy Authority was established as a joint powers authority amongst the County of Marin and seven of its cities and towns to provide customers with cleaner energy at competitive prices that are determined locally in a transparent public forum. In 2011 the Marin Energy Authority added four additional cities and towns in Marin, as well as the City of Richmond. Another key goal in forming was to help jumpstart local, renewable energy projects. Beginning in May of 2010, MEA started offering California's first CCA program, Marin Clean Energy, with the goal of providing customers with 100% renewable power by 2020. The program also aims to eventually finance and own local generation projects to help contribute to that goal and encourage the growth of renewable energy development.

Starting January 1, 2011 MEA began offering a FIT mechanism for local Marin renewable energy projects 1 MW or less (see Annex 1). This new FIT was offering a flat rate of $133.65 per megawatt-hour for solar via a standardized 20-year purchase power agreement (PPA) with MEA.2 With a straightforward contract and rates higher than what was available through local investor-owned utility PG&E at the time, obtaining a FIT with MEA could offset the cost of installation and provide stable long-term returns. Once Misti Norton learned about the FIT in October, she felt that the airport and its owners were well suited to maximize the opportunity, and she rushed to talk to Bob Herbst to see if they could work together again. Third party solar developers had previously approached Bob about leasing his land for solar generation, but the prices offered were extremely low. Misti convinced Bob that doing the project himself could be an attractive capital investment with enduring environmental benefits.

Scoping the Project

Site Capacity

Serving approximately 150 member pilots and ten industrial tenants, the San Rafael Airport has 100 private aircraft hangars on its 120-acre site near San Francisco Bay. Airports can provide an ideal design environment for a solar installation. For aircraft safety purposes,

2 Marin Clean Energy’s FIT program originally had a cap of 2MW of power but was increased to 10MW in late 2012. As of this writing, it is still the only operational CCA-backed feed-in tariff program in California. However the city of San Francisco has established a CCA program through its existing public utilities commission and is planning to start enrolling customers in late 2013 with the goal of offering FITs eventually. Sonoma County has also established a CCA program and will start enrolling commercial customers in early 2014 and plans to start offering FITs soon thereafter.

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they typically contain large tree-less open spaces surrounding the runways, which provide perfect sunny exposures for large banks of solar panels. The low profile of solar panels generally makes it easy to integrate them with existing facilities and the Federal Aviation Administration encourages this use as long as the installation meets environmental and safety requirements.3

In discussing the solar project, Bob and Misti realized that mounting the solar panels on the roofs of the hangars was ideal for the siting at the airport. While the open space surrounding the runway offered abundant space for mounting panels (see Figure 1), it was felt that a ground mount system would likely face lengthy land use hearings with opposition from neighbors 4 and potentially even from local Marin environmental groups who have lobbied to turn undeveloped portions of the airport into wetlands. Conversely, roof-mounted solar installations are only subject to non-discretionary building and electrical permits under San Rafael’s planning regulations thus removing the risk of hostile rejection.

This local law conforms to the state of California's New Solar Rights Act of 2004, which helps promote solar development by limiting local governments in their review processes for solar installations to health and safety considerations arising from existing state, federal, and local laws.5

Given the benefits provided by rooftop-mounted solar, Bob and Misti saw they could use 48 of the airport's hangar roofs in service for the renewable generation project. This provided enough square footage for almost 4,600 panels with a combined output of about 1.1 MW (DC) in standard test conditions (STC).

3 Federal Aviation Administration. (2010, November). Technical Guidance for Evaluating Select Solar Technologies on Airports.

4 Green Point nursery in Novato recently lost its bid to install a 664 kW solar farm on one of its twenty acres due in large part to aesthetic and zoning concerns from neighbors who felt that it would not match the area's rural character.

5 The law states that pursuing solar development is a state priority and prohibits municipalities from creating unreasonable barriers to solar installation including, but not limited to, those arising from aesthetic considerations that come from discretionary design review.

Figure 1: San Rafael Airport Site

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System Design Using the PVSyst software product, Misti was able to model the 1.1 MW (DC) expected system output for Bob based on the equipment needed for the installation.6 Table 1 shows the equipment used along with its cost.

Table 1: Solar Generation Equipment Costs

With the components listed above used in the PVSyst model, the total designed output power (STC) was predicted to be 1,121,680 watts, DC, and producing approximately 1,650 MWh per year of AC electricity fed into the grid. Solar panels do have an efficiency loss over time, which was modeled in the PVSyst output, of approximately 0.5 percent per year.

Wanting to source American made products as much as possible, Bob elected to use REC panels. In addition to being American made, REC panels are a premium product that produces more power in low light. Overall, the panels have a warrantied useful life of 25 years at 80% of power but can generally be expected to continue producing power for as long as 40 years or more. A very long-term asset, the first solar panels became available in the 1970's and many of them are still providing energy today.

6 PVSyst incorporates historical weather data and allows importing of personal site-specific data (panel tilt, orientation to sun, inverter efficiency, etc) to generate system output based on product profiles in its database. The outputs include total energy production in MWh/year, a system performance ratio, and the variable specific energy production based on the location and orientation of the site.

Category Description Manufacturer (Vendor) Quantity Unit Cost Total Cost Price /W

(System)

Solar Panels 245 watt modules240 watt modules

RECTrina

3920672

$239.80$263.39 $1,117,000 $1.00

Inverter System

250K central inverters with 20 year warranty

PowerOne 4 $77,500 $318,000 $0.28

Racking System

Snap N Rack rails on aluminum sub-frame

Russell Pacific $290,000 $0.26

Balance of System Balance of System Alameda

Electric $280,000 $0.25

$2,005,000 $1.79Total Equipment Costs

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System Cost Even though the price of installed photovoltaic (PV) systems has seen an average decline of five to seven percent per year since 1998,7 the total cost of equipment was still substantial. For Bob's project the total system installation added up to $2.95M for 1.1 MW (DC) of STC production capacity at the airport or $2.63/watt. This was significantly less than the roughly $9.00/watt he paid in 2004 for the airport's first 49kW system, reflecting some economies of scale but mostly the enormous cost efficiencies that the solar industry had realized in the intervening years with the rapidly declining cost of panels and other equipment. Even still, the majority of Bob's expenses were for the equipment and more specifically for the solar panels, as seen in Figure 2. A full chart of expenses by category can be seen in Annex 2.

Figure 2: System Cost Breakdowns

Capital Budgeting With this system information calculated, Bob could now start putting together a pro forma to calculate what kind of revenues the feed-in tariff could be expected to generate to offset the cost of the installation shown above. Whatever costs weren't covered either through income or tax benefits would need to be financed.

FIT Revenues MEA's FIT rates are currently structured into 5 tiers that decline in value for each subsequent tier. Each tier represents 2 MW of power available on a first-come basis. As no other FIT projects had yet come online, Bob knew he could contract for the maximum 1MW in the first tier for a rate of $133.65/MWh as long as no one beat him to it. MEA's checklist indicated that a completed FIT application and an interconnection agreement with PG&E

7 Panel prices are expected to continue to decline with analysts predicting that the cost could drop to $.36/watt by 2017, which would lower the overall cost of a PV system the size of the airport's to approximately $2.4M. Feldman, D., Barbose, G., Margolis, R., Wiser, R., Darghouth, N., & Goodrich, A. (2012, November). Photovoltaic (PV) Pricing Trends: Historical, Recent, and Near-Term Projections. Retrieved from http://www.nrel.gov/docs/fy13osti/56776.pdf

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were the only requirements to be approved for the program and to secure a 20-year power purchase agreement (PPA) through its Marin Clean Energy program. Preliminary information from PG&E indicated that an interconnection was technically and economically feasible, which gave Bob the confidence to proceed.

“As long as the FIT contract is completely f i l led out and meets the criteria for the program, the application cannot be turned down.”

Dawn Weisz, Executive Officer of MEA

Broad-based revenue and cost estimates were enough to convince him early on that not only would he be making a positive impact on the environment, but doing so would also make good financial sense as a property owner/investor. With further calculations Bob estimated gross annual power revenue of $220,000 minus annual operating costs of $25,000, for an estimated year one income of $195,000. This represented a 6.6% pre-tax return on investment in year one, indicating a roughly 15-year payback. However, as shown in the next section, optimal utilization of federal tax incentives would potentially reduce that payback period to as little as 5-6 years.

Table 2: Financial Return on Solar Generation Project

Average Annual System Output 1,651,000 kWh FIT /kWh $.13365 Expected FIT Annual Revenue, Year 1 $220,656 System Cost $2,946,000 Pre-Tax ROI, Year 1 6.6%

Investment Tax Credit Available tax incentives for solar installations helped to offset the cost of the project and make the investment more financially attractive. In October 2011 when Bob decided to pursue the project, he had the option of a 30% cash grant or 30% investment tax credit (ITC) from the IRS. 8 He elected to go with the cash grant that resulted in a one-time cash payment of $884,000, or 30% of the total system cost of $2.95 million. In order to qualify for the grant, the solar project construction needed to begin before December 31, 2011 and be placed in service by 2016.

8 While the tax grant expired at the end of 2011, the 30% ITC is still available for projects begun in 2011 and completed before December 31, 2016. After that date the credit will be reduced to 10% for future projects if Congress does not pass an extension.

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To take advantage of the tax grant, Bob needed to purchase enough equipment and take possession of it before the end-of-year tax deadline.9 The decision to go ahead and purchase equipment before having a PPA secured with MEA – while the price of solar panels was dropping significantly – was a significant risk. But since the decision to pursue the airport project was not made until late 2011, time to take advantage of the grant was limited. Bob worked with Misti to locate enough solar panels and have them delivered to the site by year-end in order take advantage of the grant. Unfortunately, there was a shortage in the market at that time and none of the American made REC panels that Misti had recommended were in stock. Instead, Misti was able to find enough Trina panels for Bob to purchase in order to take advantage of the grant.

An additional tax incentive was available in the form of the Modified Accelerated Cost-Recovery System (MACRS) federal depreciation schedule. MACRS is available for certain renewable energy investments that allow the investor to depreciate the cost of the system over a five-year period. In addition to MACRS, Bob was able to take advantage of a first-year bonus depreciation of 50 percent. The bonus was part of the Economic Stimulus Act of 2008 that was extended to December 31, 2013 by the American Taxpayer Relief Act of 2012. Assuming a 45% combined state and federal marginal tax rate, Bob saw that the MACRS depreciation schedule plus the bonus resulted in potential tax savings over 5 years of approximately $1.1M total. In combination with the $884,000 federal grant, this brought the 5-year after tax cost of the system down to $966,000 from $2.95M.10

Financing the Project In funding the project, Bob sought out bank financing, hoping to use the 20-year PPA with MEA as collateral for loan repayment. This is a common practice when PPAs are contracted with investor-owned utilities, given the long track records and excellent credit ratings of those utilities. However, because of the newness of Marin Energy Authority and its lack of a long-term track record as a CCA, Bob learned that banks weren’t willing to use a PPA as collateral. Instead, he would have to obtain a loan based on his family’s credit rating,

9 The IRS provides two ways in which the “beginning of construction” can be defined. The first is if “physical work of a significant nature” has begun. The second is the use of the safe harbor provision in which 5% or more of the total cost of the project has been incurred before the tax year deadline.

10 These types of tax credit deductions for commercial installations are considered to be ‘passive income’ by the IRS, and can only be deducted against other ‘passive income’ earned by the taxpayer. The IRS defines passive income as income derived from trade or business activities that one does “not materially participate in” or as income derived from real estate properties. Given the fact that JHS Properties is a commercial real estate company, they were able to fully deduct the tax credits against their income derived from their regular real estate operations. For developers who want to take advantage of these tax incentives but do not have passive income, the use of tax credit investors could be used to help fund these types of projects. Tax credit investing passes on tax credits to investors who in turn provide capital to the developer in exchange for the credits. There are numerous ways in which these complex contracts can be structured and they require the use of a CPA and attorney on both sides of the partnership.

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including a personal guarantee of repayment. Effectively Bob and his family invested in the future of MEA, at a time when banks were unwilling to do so. He ultimately secured a 12-year, 4% interest loan with the Bank of Marin for 50% of the total system cost, anticipating receipt of the tax grant and tax savings to repay the remaining portion. A challenge for other FIT projects moving forward will be the ‘bankability’ of the CCAs, meaning the willingness of banks to loan to solar developers based solely on the ability of the CCA to perform on the terms of the long term Power Purchase Agreement.

Renewable Generator Certif ication & Registration

In discussing the PPA contract with MEA, Bob learned that in order to receive payment he would need to obtain two certifications for the renewable power the airport would be generating. The first generator certification was related to California’s Renewable Portfolio Standards (RPS) Program, as administered by the California Energy Commission – receipt of an RPS generator certification ensures that eligible renewable generating facilities, like the San Rafael Airport, may sell energy that can be used to demonstrate compliance with California’s RPS (California’s RPS requires all retail sellers of electricity, including community choice aggregators like MEA, to deliver 33% of all energy supplies from eligible sources by 2020). Registration with the Western Renewable Energy Generation Information System (WREGIS) was also required. WREGIS tracks renewable energy generation within the western United States and issues Renewable Energy Credits (REC) to generator owners or their designees. Providing qualified energy generation data from the generator owner to WREGIS normally involves the use of a Qualified Reporting Entity (QRE). As a value-added service to the San Rafael Airport, MEA arranged for QRE services (at no cost to the San Rafael Airport) through its scheduling coordinator, Noble Americas Energy Solutions. With new market demand for carbon-free energy products stemming from California’s RPS procurement requirements and cap and trade program (initiated in 2012), RECs have become a valuable financial asset for renewable energy developers that can be sold to companies in need of the credits to comply with these laws. As such, the RECs produced by the San Rafael Airport were sold to MEA as part of the FIT PPA – MEA then uses these certificates to demonstrate compliance with applicable renewable procurement requirements

With MEA’s assistance, both the RPS and WREGIS certifications were obtained without incident, though each did require significant paperwork and took several months to obtain. Pursuant to California Energy Commission rules, final RPS certification was not issued until about one month after the project became operational. Meanwhile, Bob’s PPA with MEA stipulated that they would only pay him for RPS certified power. Fortunately the RPS certification arrived around the time of the first monthly billing cycle with MEA, so there was no loss of revenue, but this is a potential catch-22 situation that other solar developers should manage closely.

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Interconnection With the capital budgeting finished and support for the project from his family partners, Bob went about obtaining a wholesale generation interconnection agreement with PG&E to feed the power into the grid. Because his facility would be operating below 60 kV, at 480V, the distribution interconnection process with the local utility was the appropriate one. If his installation were over 60 kV that would have prompted the more complex transmission interconnection process that is done with the state-level grid operator, the California Independent System Operator Corporation, (CAISO). CAISO manages the flow of electricity across the state's high-voltage transmission lines that carry energy across long distances, whereas the local utilities such as PG&E manage the distribution grid. The traditional power grid is shown in Figure 3. Traditionally, energy flowed in one direction from a large centralized generating station to individual energy customers. With distributed generation like the airport's solar farm, energy production is decentralized and power is fed into distribution lines from small-scale producers who are also customers.

Figure 3: Tradit ional Power Grid

Bob chose to pursue the interconnection with PG&E via its Fast Track Study, as his project was under 5 MW. Fast Track is less costly and time consuming than the other two types offered, Independent Study and Cluster Study. However, the requirements for Fast Track feasibility study do impose some challenges for small-scale generators like the airport. Fast Track requirements state that no grid system improvements or upgrades are necessary in order to interconnect,11 something that is extremely difficult for an applicant to determine. Current regulations also require that the interconnecting generator in aggregate with other

11 PG&E. (2003). Distribution Interconnection Handbook. Pacific Gas & Electric Company: San Francisco.

Image credit: Global Network Energy Initiative

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generators can't consume more than 15% of the peak line load. PG&E’s interconnection website does include a map tool that allows applicants to view the peak line loads on circuits near their proposed site. However, it does not show other planned or operational solar generators on the circuits and can only be used as a preliminary guideline. Thus when applying for Fast Track, an applicant like Bob does not know for certain if the grid is capable of accepting his power. He further risks that his application will be kicked into supplemental reviews, adding further time and expense. The applicant may also need to invest in significant system upgrades, but the extent can only be assessed through the feasibility study process.12 13

Bob's experience developing the airport's first array was very useful in going through the somewhat complex and lengthy wholesale generation interconnection process with PG&E (see Figure 4) that he began in October 2011. His intimate knowledge of his own electrical systems and the surrounding grid was key in avoiding a large cost that PG&E was proposing. Based on the drawings submitted, PG&E came back saying that the solar system would need to connect into the grid with 12 kv equipment, including a new standalone transformer to up-convert the solar output from 480 volts up to 12 kv. Luckily, Bob knew his existing electrical system well and was able to demonstrate that the airport was the only customer being served by the existing 480-volt transformer servicing the airport. On that basis PG&E allowed the solar system to connect into the grid at 480 volts, with only a requirement to upsize the existing airport transformer to accommodate the extra solar load. Given the fact that 12 kv equipment is very expensive, Bob was able to save several hundred thousand dollars on the interconnection. His all-in costs for the interconnection ultimately totaled $125,000, which included $75,000 paid to PG&E for their new equipment and metering.

12 In addition to technical requirements such as these, the Fast Track Study also has a number of deadlines contained within the process. It is imperative that anyone considering applying for an interconnection with PG&E gets very familiar not only with their local grid but also with the procedural steps and deadlines involved. The application process involves submitting application paperwork, a scoping meeting, and technical studies that result in an interconnection agreement outlining any necessary infrastructure upgrades, which are paid by the applicant.

13 The probability of having an application pass the initial screening process in Fast Track increases when siting near distribution lines with a lot of capacity and away from other generation interconnections. Rogers, S. (2012, June). Permitting And Interconnection Of Solar PV Generators For The Marin Energy Authority Feed-In Tariff Program.

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Figure 4: Interconnection Process for Wholesale Generators

Once Bob had the interconnection agreement in hand, he could finally go back to MEA and secure the PPA that would help him get a bank loan to finance the up front costs of installation. But he encountered a delay when it came to light that there was no existing mechanism for PG&E to share the metering data with MEA in order for MEA to use the feed-in tariff to credit the airport's electrical generation account. As the first FIT project to be completed with MEA, this was one of the major challenges that all parties involved experienced and it nearly derailed the entire project. Luckily, Misti Norton came to the rescue and facilitated meetings with PG&E, who agreed to expedite the matter and work with MEA to figure out a method for sharing the airport's meter data. In close cooperation, MEA and PG&E were able to locate a tariff in the public utilities code that could be used for this novel purpose. Finding a way to share the airport's meter information was key to the ultimate success of the project and luckily all parties involved worked together to find a solution.

With the signed interconnection agreement and now a new data sharing relationship established between MEA and PG&E, the PPA for Bob's solar output was a given. And yet, there was one last unforeseen matter that got in the way of securing it as expected. Although MEA didn't list building permits as one of the checklist items for signing a PPA, Bob was told he would need to submit approved building permits in order for MEA to sign the agreement.

“I was pleasantly surprised by how helpful PG&E was with the interconnection. Although the f inal agreement required ten separate PG&E signatures, our interconnection manager Gerald Cabrera was on top of the process throughout and gave me a high degree of confidence that it would al l work out.”

Bob Herbst, JHS Properties

Permitting

When starting the project, Bob’s design engineer created single line drawings that show the major components and their general location (a single line connects them on the drawings, indicating the directional flow of electricity). Single line drawings were all that PG&E required as part of the interconnection application package. Bob had been under the

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impression that an interconnection agreement with PG&E was all that MEA required in order to approve his PPA application. So when MEA asked for building permits, Bob only had single line drawings completed. However, the City of San Rafael Building Department required three-line drawings, which depict exact details of the electrical system down to every wire size and circuit breaker. Having to get additional engineering drawings quickly added time and expense.

Bob experienced another minor delay in getting the building permit approved when the city's plan check engineer requested additional information about the roof system's load bearing capacity. Although the nearly flat hangar roofs were ideal for sun exposure, they needed to handle the added weight and wind load of the solar panels and racking. Bob had to again provide additional details to support his application. In all, the building permits took about two months to secure once preliminary inspections had been done. As soon as Bob received the permits stamped approved in early June of 2012, he rushed down to sign the 20-year PPA with MEA for 1 MW (AC) of locally produced and distributed solar power. In doing so, Bob invested in the future and made history by launching California's first renewable generation facility enabled by community choice aggregation. About four months later, construction finished, the building department did final inspections, and the San Rafael Airport started generating local renewable power.

Summary In 2011 as Bob was facing the decision of whether to do the second solar project at the airport, the price of solar panels was quickly dropping. The continued decline in prices since then makes projects such as the San Rafael Airport generation facility, pictured in Figure 4, even more attractive for landowners and developers, even though the tax relief that Bob received in the form of a cash grant is now only offered as a tax credit. That same credit is set to drop to 10% after 2016, which is reason for some concern in the renewable energy sector. However, expected continuing declines in solar equipment costs (especially solar panels) should help offset the reduced tax credit, allowing these projects to remain profitable with financial incentives like the Marin Clean Energy program's feed-in tariff.

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Figure 4: San Rafael Airport Solar Generation Faci l i ty

Accelerated depreciation, coupled with the smaller tax credit, will continue to account for a major component of the economic return of these projects. Their financial success will therefore depend on the developer’s ability to utilize or otherwise monetize these tax incentives at full value. Inability to use the tax incentives turns an attractive 5-6 year payback into a 15 plus year payback, which for most owners/investors is likely unacceptable. As with all investments, there are other risks involved. MEA is still relatively new with a very small customer base compared with its competitor, PG&E. Therefore project financing for the foreseeable future may continue to require some level of personal guarantee and/or collateral from project developers. In addition, should MEA for some reason cease operations, the project owner would need to find new buyers for their power. It is unclear whom those buyers would be or what price they would be willing to pay for the power.

Notwithstanding these caveats and challenges, innovative programs like Marin Energy Authority's FIT hold great promise in helping stimulate local renewable energy production by providing a proven, willing buyer of commercially generated solar power, at financially attractive rates. As the example of the San Rafael Airport 1 MW solar generation project demonstrates, the combination of declining solar equipment costs, tax incentives for renewable development, and the rates offered by MEA's FIT for distributed renewable generation allows the airport's $2.95 million capital investment to make a positive return financially, economically, and environmentally. In addition to the return on investment

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detailed above, the airport's solar farm – Marin County's largest – has led to three permanent jobs and also provided 20 seasonal construction jobs during the installation. In its first year of operation to date the airport has offset approximately 2231.65 metric tons of carbon, which is the equivalent of what a 475.8 acre pine forest could do, as illustrated in Figure 5.14 At peak production, it produces enough electricity to power approximately 1,200 Marin homes.

Figure 5: San Rafael Airport Energy Output and Environmental Benefits

While the process of securing the first feed-in tariff offered via community choice aggregation was an adventure worthy of a pioneer, owner Bob Herbst was able to successfully design, permit, and install the 1 MW (AC) solar farm at the San Rafael Airport within the span of approximately one year. This bodes well for other investors and landowners who are interested in developing local renewable generation projects.

As long as potential developers are aware of the complexity of the process, given its multijurisdictional nature, and their surrounding power grid, future FIT renewable generation projects should be fairly straightforward. Now that California's first CCA-supported renewable generation facility is in operation at the San Rafael Airport, other potential generators can

14 The figure is a snapshot of the online energy management tool that was included with the airport's purchase of its inverters. Real-time updates can be viewed at https://easyview.auroravision.net/easyview/index.html?entityId=1203477

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benefit from the lead that Bob took in navigating the process of feeding the airport's power into the grid. In doing so, individuals investing in these distributed generation projects can help their municipalities, counties and the State of California to meet their clean energy goals and secure the state's leading position on climate change mitigation for the benefit of all. These distributed generation projects also help to build the future grid, allowing individuals and business owners to alter the balance of power by changing the direction it flows throughout the wires that connect our modern world.

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Annex 1: MEA FIT for Renewable Energy Generation  

Revised November 2012

I. Applicability

This Schedule is optional for customers who wish to sell to the Marin Energy Authority (“MEA”) the electric output from an Eligible Small-Scale Distributed Renewable Generation Resource (“Eligible Resource”), with capacity of not more than one (1) megawatt (“MW”), as defined in the General Conditions section of this Schedule.

Service under this schedule is on a first-come, first-served basis until the combined rated generation capacity within the Eligible Territory (as measured by Eligible Resources under contract with MEA) reaches ten (10) MW or until such combined rated generation capacity is increased beyond the current level of ten (10) MW by MEA’s Board of Directors.

II. Territory

This Schedule is available to any Eligible Resources located within any member jurisdiction of the MEA (the “Eligible Territory”), which meets the eligibility requirements established in this Schedule.

III. General Conditions

1. REQUIRED CONTRACT

Any Eligible Resource accepting service under this tariff shall execute a power purchase agreement (“PPA”) with MEA.

2. CONTRACT DELIVERY TERM The tariff shall be offered for a contract Delivery Term of twenty (20) years.

3. PARTICIPATION IN OTHER MEA PROGRAMS

Customers taking service under this Schedule may not also obtain benefits from any of the following:

a. A power purchase agreement with MEA for deliveries from the same facility; or

b. Any net metering option for energy deliveries from the same facility.

4. ENVIRONMENTAL ATTRIBUTES

A distributed generation resource accepting service under this tariff will deliver to MEA both

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the energy generated and any environmental attributes associated with that energy.

5. DEFINITION OF ELIGIBLE RESOURCES

For purposes of this Schedule, Eligible Resource shall have the following meaning: an electric generating facility meeting the California Renewables Portfolio Standard eligibility requirements described in the California Energy Commission’s Renewables Portfolio Standard Guidebook: http://www.energy.ca.gov/2012publications/CEC-300-2012-006/CEC-300-2012- 006-CMF.pdf, as this document may be amended or supplemented from time to time, which also meets the capacity requirements/limitations described herein.

6. ELECTRICAL INTERCONNECTION

Distributed generation resources receiving service under this Schedule Tariff shall be interconnected within the Eligible Territory and shall be required to: 1) comply with applicable interconnection procedures established by PG&E and/or the California Independent System Operator (“CAISO”); and 2) shall execute applicable agreements with PG&E and/or the CAISO to establish and maintain interconnection with such transmission or distribution system. Any resources not meeting the requirements specified in the applicable interconnection procedures of PG&E and/or the CAISO will not be eligible for service under this Schedule.

7. METERING REQUIREMENTS

Eligible Resources receiving service under this Schedule shall comply with all applicable rules in installing a meter appropriate for full buy/sell or excess sale agreements, and which can be read daily by means acceptable to PG&E and MEA. All costs associated with such installation will be the responsibility of the customer. The customer shall be responsible for procuring and maintaining any communication link required by PG&E for retrieving meter data.

IV. Payments for Electric Generation Produced by Eligible Resources

Under this Schedule, MEA will pay for the Eligible Resource according to the applicable price for metered energy, consistent with the Energy Delivery Profile specified.

Applicable prices are presented below in Section VI, Prices for Energy Produced by Eligible Resources, and will also be reflected in MEA’s Small Renewable Generator Power Purchase Agreement, with prices differentiated by Delivery Profile.

V. Renewable Energy Delivery Profiles

MEA has established the following Energy Delivery Profiles, which will be used to determine applicable energy prices to be paid for Eligible Resources.

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Energy Delivery Profile

Delivery Characteristics

Representative Fuel Type

Peak

Under normal operating conditions, 90 percent or more of daily electric generating output is produced and delivered between the hours of 6:00 A.M. and 10:00 P.M. (On-Peak Hours)

Photovoltaic Solar and Solar Thermal

Base load

Under normal operating conditions, the annual capacity factor for the generator typically exceeds 75 percent, inclusive of planned outages (maintenance)

Landfill Gas, Biomass, Fuel Cell

Intermittent

Delivery characteristics are not consistent with either of the described Peak or Base load Energy Delivery Profiles

Wind

VI. Prices for Energy Produced by Eligible Resources

MEA has established the following price schedule, consistent with the Energy Delivery Profiles specified in this Schedule, which will be used to determine prices paid to Eligible Resources meeting the requirements of this Schedule. MEA’s Board of Directors may periodically review and revise this price schedule.

Prices Shall Apply Under the Following Conditions

Peak Energy Prices (20-year Term, $/MWh)

B a s e l o a d En e r g y P r i c e s (20-year Term, $/MWh)

Intermittent Energy Prices (20-year Term, $/MWh)

Condition 1 $ 137.66 $ 116.49 $ 100.57

Condition 2 $ 120.00 $ 105.00 $ 95.00

Condition 3 $ 115.00 $ 100.00 $ 90.00

Condition 4 $ 110.00 $ 95.00 $ 85.00

Condition 5 $ 105.00 $ 90.00 $ 80.00

Condition 1: For any Eligible Resource such that the addition of such Eligible Resource occurs before the combined rated generation capacity within the Eligible Territory (as measured by Eligible

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Resources under contract with MEA) reaches 2 MW.

Condition 2: For any Eligible Resource such that the addition of such Eligible Resource occurs after the combined rated generation capacity within the Eligible Territory (as measured by Eligible Resources under contract with MEA) has reached 2 MW but before such combined rated generation capacity reaches 4 MW.

Condition 3: For any Eligible Resource such that the addition of such Eligible Resource occurs after the combined rated generation capacity within the Eligible Territory (as measured by Eligible Resources under contract with MEA) has reached 4 MW but before such combined rated generation capacity reaches 6 MW.

Condition 4: For any Eligible Resource such that the addition of such Eligible Resource occurs after the combined rated generation capacity within the Eligible Territory (as measured by Eligible Resources under contract with MEA) has reached 6 MW but before such combined rated generation capacity reaches 8 MW.

Condition 5: For any Eligible Resource such that the addition of such Eligible Resource occurs after the combined rated generation capacity within the Eligible Territory (as measured by Eligible Resources under contract with MEA) has reached 8 MW but before such combined rated generation capacity reaches 10 MW.

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Annex 2: San Rafael Airport Solar Generation System Cost

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Annex 3: List of Acronyms

AC: Alternating current electricity. Solar panels electricity output is DC, which has to be converted into AC to be used.

CCA: Community choice aggregation. A regulation that allows municipalities to combine electric loads to purchase or choose power for customers within their service area/jurisdiction.

DC: Direct current electricity. The type of electricity solar panels produce.

FIT: Feed-in tariff. A regulation that permits utilities to offer standard contracts for the purchase of eligible renewable energy generation.

ITC: Investment tax credit. Federal tax incentive for certain renewable energy projects.

MACRS: Modified accelerated cost recovery system. Federal tax incentive for certain property owners.

MEA: Marin Energy Authority. A joint powers authority between twelve cities and towns as well as the County of Marin established to offer community choice aggregation.

MCE: Marin Clean Energy. A CCA program run by MEA.

PPA: Power purchase agreement. Contract to buy power from a generator over a defined period of time for a certain price.