By Outsourcing Solar Power, a California School Cuts its Energy Bill in Half | Article

solar powerEven in the twenty-first century, solar power still remains a cutting-edge method of providing power. California, however, is ahead of the curve in supporting solar power projects.

One of the beneficiaries of this situation is York Day School in Monterey Bay County. In early 2007 it adopted solar to power its campus in a unique outsourcing relationship with Solar Power Partners (SPP), a finance company for solar projects, and Blueline Power, a solar power integrator. The relationship provides York School electricity at an ongoing rate guaranteed for 15 years that is very competitive with California’s major electric utility, Pacific Gas & Electric Company (PG&E).

York School is a high school with 225 students and is a “widely known, top academic high school in the region, with students commuting from over an hour away,” according to Kevin Brookhouser, director of public relations and marketing at the school. The school’s commitment to academics is equaled by its commitment to green energy. Says Brookhouser, “Looking forward, we see that the future commands us to be smart about what we teach and how we live, including how we produce and consume energy. This is why York School will continue to reduce wasteful energy and embrace renewable energy like solar power.”

As a result, York recently received U.S. Congressional Recognition for being the first school to earn the Monterey Bay Area Green Business Certification.

As commendable as these merits are, York School has also proven to be an outstanding steward of its funding for such projects. Most schools would have launched a funding campaign to raise money for a green conversion. Instead, York School struck an arrangement with its two providers that netted the school implementation of 147 solar modules on the roof of the oldest building on campus for no up-front capital expense. Essentially this strategy allowed them to avoid buying and running a power plant – not a high school’s core competence, obviously.

Government incentives and private investors keep the price of solar competitive

It turns out that SPP, as a solar energy financier, is entitled to incentives that create a large long-term return on investment for York School compared to what it would pay PG&E. According to Nickalaus Johnson, engineer at Blueline, “anyone in the nation gets a 30 percent tax credit for any solar project. Effectively it’s 30 percent off the cost from the top. The state of California then offers the California Solar Emissions credit that gives an additional 20-25 percent off the cost of the system.”

The partnerships and financing of the project were also very innovative. Blueline’s bid was the only one with additional financial incentives. Johnson explains that “York School contacted Blueline, which contacted SPP to finance the project. SP then contracted with the school to provide solar electricity to York School as the outsourcing agent. They eventually will own the solar array.

In turn, York outsources that electrical generation to SPP for the purchase of power from them. SPP contracted with Blueline to design and build the system.” Blueline initially owned the equipment, which SPP eventually will purchase.

Behind the scenes, however, SPP engaged a combination of different types of investors. According to Hugh Kuhn, vice president of operations and technology, SPP, “The most important are the tax equity investors — banks representing their customers or a corporation that is looking for an investment that would harvest for them an investment tax credit. They are typically married with traditional debt and sometimes other equity in order to create a financial package that can fund the purchase of the system from the integrator and be repaid by the sale of electricity to the host customer.”

Of course, SPP also qualified for the state rebate, which is performance-based and dependent on how much power SPP generates.

Kuhn explains that “the investors pay SPP to manage and operate the array until they’ve harvested all their tax credits, their maker’s depreciation, and their energy sales revenues. When they’ve achieved their rate of return, then SPP buys it back from the investors over a period of eight to ten years.”

Meanwhile the operation functions without service level agreements. Instead, York is obligated to purchase all the power the array can produce. That agreement is called a Power Purchase Agreement and is the unique basis of the outsourcing operation.

If problems with workmanship or materials fall within their 10-year warranty period, Blueline takes care of the fixes. If something breaks, SPP pays the integrator time and materials to go out to fix it. They handle any disputes – a rarity — through the appropriate mechanisms laid out in the various contracts. What’s more, to guarantee objective data, the meter is certified by the state and a third-party entity reads the meter and provides SPP the reading. SSP presents the bill to York and to the state so the state knows how much to rebate SPP.

How the solar array works

PG&E and Blueline meters monitor the power generated. On a very sunny day when the amount of solar energy exceeds the amount of consumption on site, the meters actually turn back, meaning that more electricity goes onto the PG&E grid than off the grid. Each month, PG&E credits York in the event it produces more electricity than it uses.

Solar power means good publicity, which translates to financial donations to the school

Aside from providing cheaper electricity for 15 years, the solar array reduces York School’s “carbon footprint,” the amount of carbon released into the atmosphere. The solar array is also good public relations for the school. Yearly tuition runs $20,000, but the school offers generous financial aid. “Our financial aid program is more than double the national average for schools like York,” says Brookhouser.

Brookhouser says the solar array helps promote the school’s progressive image, which drives fundraising. He explains that “these solar modules serve our educational mission, teaching students and the broader community we can go green and still meet our economic responsibilities. When the community sees a school like York acting on its commitments, theyπre eager to lend their support.”

It doesn’t hurt that York School is situated on a hill that overlooks a highway between Monterey and Salinas and, as drivers drive by on that road, they can see the campus. Brookhouser says the solar array is situated so that it stands out like a billboard for green energy. “That freeway gets a lot of traffic,” he adds, “so it’s really a great message that we’re sending out to the community. Drivers can see that our oldest building on campus has a solar array on it, so there’s a PR benefit to the array as well.”

Lessons from the Outsourcing Journal:

  • One of the cheapest ways to outsource solar power usually involves a finance company that funds the project and a solar power integrator that installs and maintains the solar array. Once the project is finished, the funding company takes over ownership of the array and charges the buyer a per-kilowatt price for the energy the array produces.
  • Both federal and state governments offer financial incentives in the form of tax credits, of which a finance company can take advantage to keep down the cost of solar energy service.
  • Solar power helps an organization practice what it preaches, teaching the surrounding community that it is possible to go green.

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