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Title:
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Approval for 15-Year Contract with SRP for Solar Energy (Ordinance S-45262)
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Title
Approval for 15-Year Contract with SRP for Solar Energy (Ordinance S-45262)
Description
Request to authorize the City Manager, or his designee, to enter into a 15-year contract with Salt River Project (SRP) to provide up to 15 percent of the City's total SRP electricity use from a new solar farm as part of the SRP Sustainable Energy Offering.
Report
Summary
SRP recently approached its largest customers to participate in the purchase of renewable energy at a fixed price of 2.7 cents per kilowatt hour (kWh) for 15 years as part of a proposed 100 megawatt (MW) solar farm being constructed in southern Arizona. The initial offering is for an allocation of 7 percent of the City of Phoenix's annual electricity load; however, that allocation may increase slightly assuming some customers will elect not to participate.
The offering is quite unique, in that, the volume contracted from SRP will be decoupled from current and future rates, and instead, be reflected as a separate line item on the SRP bill as a bill credit based on the difference between SRP rates at the time and a fixed contract price of 2.7 cents per kWh. Currently, SRP rates for the commodity portion of the bill average close to three cents per kWh, meaning in the first year the contract would result in credit of approximately $25,000. If commodity prices rise for renewable electricity over the next 15 years, then the credit would increase; however, if the price of renewable energy falls, the credit would decrease.
After consultation with SRP, staff report that the offering has a strong upside of an immediate credit on the annual SRP energy bill. Even if SRP rates were to fall below the 2.7 cent contract price, the total energy bill from SRP would still fall because the majority of the City's energy use would benefit from the lower price.
In addition to financial considerations, there are several other benefits of entering into the contract:
The renewable energy attributes purchased through this agreement would accrue to the City. The City could claim a percent increase in renewables in its portfolio once the project becomes active.
The offering supports and contributes to the Council-adopted goal to reduce carbon pollution from operations 40 percent by 2025.
SRP indicated that customer participation in this offering would encourage SRP to provide similar offerings in the future. Recently, SRP announced plans to grow this initial 100MW solar investment to 1,000MW of renewable solar by 2025.
Financial Impact
The initial impact of the contract, not to take effect until 2020, would be a likely be an annual bill reduction in the range of $25,000. Over the 15-year life of the contract, that annual credit may rise or fall depending on SRP rates in the future. Given the most likely scenario is an ongoing bill credit, staff recommend applying the credit specifically to General Fund electricity accounts.
Concurrence/Previous Council Action
This item was recommended for City Council approval by the Water, Wastewater, Infrastructure and Sustainability Subcommittee on Dec. 5, 2018 by a vote of 3-0.
Department
Responsible Department
This item is submitted by Deputy City Manager Karen Peters and the Office of Sustainability.