WINCHESTER – The Select Board still doesn’t know whether to ask Town Meeting to support an article for direct ownership of solar panels for the new Lynch Elementary School or to enter into a Power Purchase Agreement with a third-party vendor.
While it seems some members are leaning one way and some another, the board is running out of time to make a decision on what to recommend. With two articles on the warrant, the board will have to recommend indefinitely postponing one of them, ether before Town Meeting or during it.
This week, to help them make that crucial decision, they heard from Beth Greenblatt, managing director from Beacon Integrated Solutions, a woman-owned energy management solutions firm specializing in energy management services, performance contract solutions, traditional and renewable energy solutions, energy analysis, and energy procurement.
Greenblatt brought a lot of information for the board to consider. The town engaged her to conduct high level due diligence on analysis provided by Zapotec and Solect for solar photovoltaic installations at the new Lynch School. Her data included a commercial review of the analyses provided by the two energy firms and a review of assumptions and financial analysis for both third-party owned and town-owned facilities.
The main drivers in the board’s final decision will most likely be cost and savings, I.e. what will the cost be to own versus work with a third-party vendor and what will the savings be in each case. Greenblatt provided that information, though, ultimately, the board still seemed unsure of which direction to go.
Town Manager Beth Rudolph said the Educational Facilities Planning and Building Committee planned to bid the project with two alternates: one with above ground work and one with below ground work. She also said Solect’s numbers only included the above ground work whereas Zaoptec included both.
Unfortunately for the board, Rudolph said the town won’t have firm numbers until bids come in on Nov. 17. By then, Town Meeting will have (likely) ended. This means, the board will ask Town Meeting to support either direct ownership or a PPA with only estimated cost figures.
The following breakdown assumes the town chooses to own the solar panels.
Project sizing
Greenblatt said both Solect and Zapotec specified 475-watt modules and relied on the 90 percent design drawings; however, Zapotec’s rooftop array design is 14 percent bigger than Solect’s (as she said Solect is against filling every space on the roof). Both companies have the same carport design.
Jay Nardone, chair of the EFPBC, said the town hired Solect to take the drawings already done and work off those. They then assumed retrofitting.
Project design
Solect provided carport options for a larger and smaller specification, but Greenblatt said the town desired a smaller footprint. Zapotec provided the design required smaller option. Therefore, Greenblatt’s used both firm’s smaller design in her analysis.
Project economics
Both firms assumed a four percent interest rate for a 15-year term and both assumed tax-exempt borrowing, thus accounting for a reduction of the Investment Tax Credit by 15 percent.
Capital cost assumptions
As directed by the town, Zapotec’s cost assumptions are 30 percent higher than Solect’s to reflect unknown and unanticipated costs.
Annual cost assumptions
Both firms included some annual operations and maintenance costs, though neither included any additional annual insurance costs specifically for solar. Both included some costs for capital replacement for inverter replacement mid-term (around year 15, as solar panels have approximately a 25-year lifespan).
Both firms included avoided costs savings escalating at two percent per year, alternative on-bill credit savings escalating at two percent per year and fixed SMART incentives for 20 years.
Net benefit/savings
Greenblatt said Zapotec’s cumulative net benefits over the term are significantly lower than Solect’s due primarily to higher capital cost and financed amount assumptions. She also noted that each of the analyses conservatively estimated avoided energy costs, and therefore net benefits/savings over the 25-year term are likely lower than would be realized.
BAN
In the short-term, she assumed a two-year BAN at five percent assuming tax-exempt borrowing; but in the long-term with tax-exempt borrowing, she assumed a 13-year bond at four percent. With taxable borrowing in the long-term, she assumed a 13-year bond at five percent. This leads to short-term borrowing of $3.1M and long-term borrowing at $2.3M (tax-exempt) or $2.17M (taxable).
Annual costs and benefits
Greenblatt anticipated capital replacement in year 15, plus annual operations and maintenance, insurance costs and debt service for 15 years. On the plus side, she anticipated avoided cost savings escalating at two percent per year, alternative on-bill credit savings also escalating at two percent per year and fixed SMART incentives for 20 years.
If the town ultimately chooses to work with a third-party vendor and enter into a PPA, Greenblatt offered different numbers.
Power purchase rate
Zapotec’s analysis assumes Solect’s rate is equal to 85 percent of the utility avoided cost which escalates annually at two percent. Solect, meanwhile, offered a fixed price with no annual escalation. Greenblatt used Solect’s offered rate,
Net benefits/savings
Zapotec’s net benefits/savings are lower than Solect’s due in part to the different pricing approach listed above. Zapotec’s estimated net benefits/savings come out to approximately $509,000 over 25 years while Solect’s estimated net benefits/savings come out to approximately $606,000 over 25 years. Greenblatt’s estimated net benefits/savings come out to $556,000 over 25 years.
Greenblatt also noted that each of the three analyses conservatively estimated avoided energy costs, and therefore the net benefits/savings over the 25-year term is likely lower than would be realized.
Financial breakdown
Greenblatt outlined a complete financial summary that showed the costs and benefits over the 25-year lifespan of the solar panels (first assuming capital costs of $3.1M). However, EFPBC Vice-Chair Chris Nixon pointed out that roofs in town rarely last that long. This means, the town will most likely need to repair or replace the Lynch School roof before the solar panels, resulting in the need to remove the panels from the rooftop.
For town-owned tax-exempt debt and taxable debt, over 25 years, the town will see nearly $2.8M in avoided cost savings, $237,188 in alternative on-bill credit revenue, $1.5M in SMART incentive revenue, and $90,975 in renewable energy credit revenues for a total benefit of $4.7M.
With a PPA through Solect, it would see the same avoided cost savings and alternative on-bill credit revenue, but not the SMART incentive revenue or renewable energy credit revenues for a total benefit of $3M.
As for 25-year estimated costs, Greenblatt outlined $3.266M for town-owned tax-exempt debt and $3.239M for taxable debt, plus $139,500 for capital revenue, $387,307 for operations and maintenance, and $413,127 for insurance (for both tax-exempt and taxable debt).
With a PPA, there is no debt service, capital reserve, operations and maintenance or insurance costs, as that is all covered by the third-party vendor. The power purchase costs, however, would run the town $2.474M (assuming the town chooses Solect as the provider; it could theoretically execute an RFP),
The net benefits for all three options are $497,651 for town-owned tax-exempt debt, $524,311 for taxable debt and $556,210 for a PPA with Solect.
The annual impact, as discussed by Greenblatt, sees the town realize savings with a PPA by year three, but in a scenario whereby the town chooses direct ownership, it wouldn’t realize any savings until year 14. However, those savings would be much greater (the town would pay off the debt by then), up to $169,394.
Greenblatt also included savings if capital costs come in at $2.8M. In that scenario, the town sees greater benefits with direct ownership ($904,693 with tax-exempt debt and $928,773 with taxable debt) as opposed to a PPA ($556,210).
Here, the savings begin in year 13 for direct ownership and reach as much as $174,000.
Considerations
Greenblatt offered the town food for thought, so to speak, when it comes to direct ownership or a PPA. With a third-party owning the panels, the town would enter into a long-term contract for lease and power purchase (a rate which can be variable or fixed, with or without escalation) and the third-party vendor would assume the risk.
Definitive agreements provide financial guarantees for performance risk due to downtime or outage and the vendor is responsible for all annual maintenance, insurance, operations, and any capital upgrades. The third-party is also responsible for all data reporting, incentive management and utility collaboration.
With direct ownership, Winchester must raise the capital for construction – long-term debt service, be responsible for lifecycle costs including periodic equipment replacement and cost, be responsible for annual operations, maintenance and additional insurance costs, perform risk considerations from downtown or grid power outage, storms, and equipment failure (which would result in reduced net benefits).
Decisions, decisions
The board seemed split on whether to recommend to Town Meeting direct ownership or a PPA. Member Michelle Prior, as she has since day one, continued to push for direct ownership, stating in that scenario the town wouldn’t have an energy bill for the Lynch School. They would simply have to pay down the debt service costs.
Vice-chair Anthea Brady asked about potentially replacing the panels after year 25 and Greenblatt noted how solar technology continues to advance. She said by year 25, the modules are warrantied to be 85 percent effective. If they do need to be replaced, Greenblatt said the carport can be reused.
As noted earlier, Nixon mentioned how flat roofs in town don’t last 25 years. When Select Board member John Fallon asked about how roof replacement would affect the panels and associated costs in removing them, Greenblatt said some PPAs have provisions for roof repair and replacement.
“If the roof won’t last 25 years, then enter into a 20-year PPA,” Greenblatt suggested.
She also noted the PPA would clearly state what costs the town would be responsible to pay. Brady then asked about maintenance and if that would need to be contracted out and Greenblatt mentioned entering into a third-party O+M agreement initially as the town gets staff comfortable with the equipment. She added the town should have an on-call provision.
Select Board member Michael Bettencourt asked Greenblatt how many projects involve direct purchase and she admitted most projects have been conducted through a PPA. But, she also noted many of the incentives are brand new through the Inflation Reduction Act.
“Some clients do direct (purchase) on very small systems,” Greenblatt stated.
The plan for the board involves voting on the Town Meeting motions at their next meeting on Oct. 5. If they choose a direct purchase, the town manager asked the obvious question: “how do we fund it?” Previously, members of the EFPBC said they wold volunteer contingency funds to offset the cost. Now, it appears those funds won’t be available.
“I would love to use (Lynch School) project funding,” Nixon said, “but I don’t know what we’re going to get.”
Bettencourt added how the project doesn’t appear as though it will be significantly under budget.
Rudolph reminded the board some of the solar project can be borrowed, meaning the town could use a combination of Free Cash, borrowing and even some American Rescue Plan Act funds. Or, the town could possibly use capital funds.
Bettencourt stated he didn’t favor borrowing the full amount.
When Select Board Chair Rich Mucci asked about the potential risk with direct ownership, Prior said there would be risk either way. Fallon added how ownership brings predictability.
Rudolph said she would work on both motions, without dollar amounts, while the board continues debating, both internally and externally. Then, either at Town Meeting or before, the board will have to recommend members approve one article and indefinitely postpone the other.