The Green Ten Percent
A friend with a client seeking approvals on a biotech campus in the SF Bay Area called this week. His client wanted a pv power purchase agreement proposal for a biotech campus in SF. So far, so good.
Turns out the city is apparently asking for a percentage of the project's power be generated onsite. And they want the commitment as part of the entitlement process.
If the project draws a total of, say, 25 kWh/SF/year [average for a biotech building in SF], you would need 2SF of PV array area to feed 1SF of gross building area[GBA] to meet 100% of demand. For example, to power 10% of this complex with onsite pv generation means 1SF of array area for every 5SF of GBA. A 40,000SF array over a parking garage would meet 10% of forecast power demand for 200,000 square foot biotech building, or 500,000 SF of a general office building.
PV is cost effective--PG&E rates and current incentives work--our industry deployed over $700 million of PV in California last year alone. PV is basically a prepaid clean power contract--you get 20 to 25 years of power for an upfront payment of six to eight years of electrical demand. You have to get over the first costs problem, and then you have to match onsite pv power generation with onsite demand.
The problem is not that the math doesn't work, it is timing, and agreeing to a commitment that allows for a couple of different ways to get the job done.
Onsite clean power generation typically comes from the user, or increasingly, from the institutional investor partner. This is the first time I have heard of a jurisdiction making onsite green power generation part of the entitlement process--well intended, but you need to add some carrot to the stick...
The wrinkle is the area I want to use would not be built for four years and they wanted a price now. PV is, and will be, a tax driven deal for the next four to five years in California--designed to pull demand forward and grow the 40,000 or so green collar jobs expected in this industry sector. The federal incentives presently available will expire at the end of this year. Any forecast more than nine months out is based on the probability these incentives will continue. Not a bad bet--current sense is that a one year extension has an 80%+ probability of happening this year--but you can't take it to the bank. Four years out? No way to predict a green power price in a market that is growing 60% a year--globally. PV is a great plug and play solution--but to propose on something that is four years out, for a real estate investment that has not been entitled yet? There had to be another way.
So no proposal--but I wanted to help my friend out with an answer--what I would do if it were my project. Here's what I would do:
Plug in SREC's for the 10% renewables component until the garage is built and the buildings are occupied. And get a quid pro quo with the jurisdiction that we provide 10% renewable energy if they offer to buy the renewable energy credits--something that is already starting to happen here in Northern California. The system owner owns the SREC attribute in California--it is ours to sell or use.
I like Solar Renewable Energy Credits [SREC's} as an interim solution. The SREC is the "green" attribute of solar power stripped off from the clean energy produced and sold separately.
A 100,000SF biotech building would require roughly 250 green tags a year to offset 10% of total demand. At current pricing of $50/solar green tag, this would add $12,500 to the occupancy costs, probably passed through to the tenant on a triple net lease, similar to other utility costs. It would add $0.06PSF a year to the rent.
The City of Palo Alto is currently purchasing green tags [pdf, 30k] for solar power generated within the city limits, paid for by the ratepayer.
Could this jurisdiction set up a similar program? This would be a great motivator for a property owner to quit buying SRECS and install the actual onsite generation at the time you have leased up sufficiently to put in the system. A nice carrot, indeed...
