HomeMy WebLinkAbout2007/03/26 Agenda Packet
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CIlY OF
CHUlA VISfA
Cheryl Cox, Mayor
Rudy Ramirez, Council member Jim Thomson, Interim City Manager
John McCann, Councilmember Ann Moore, City Attorney
Jerry R. Rindone, Council member Susan Bigelow, City Clerk
Steve Castaneda, Councilmember
March 26, 2007
4:00 P.M.
Council Chambers
City Hall
276 Fourth Avenue
CALL TO ORDER
ROLL CALL: Councilmembers Castaneda, McCann, Ramirez, Rindone, and Mayor Cox
PLEDGE OF ALLEGIANCE TO THE FLAG AND MOMENT OF SILENCE
PUBLIC COMMENTS
Persons speaking during Public Comments may address the Council/Authority on
any subject matter within the Council/Authority's jurisdiction that is not listed as
an item on the agenda. State law generally prohibits the Council//Authority from
taking action on any issue not included on the agenda, but, if appropriate, the
Council/Agency/Authority may schedule the topic for future discussion or refer
the matter to staff. Comments are limited to three minutes.
WORKSHOP
Jfyou wish to speak on any item listed below, please fill out a "Request to Speak"
form (available in the lobby) and submit it to the City Clerk prior to the meeting.
1. PRESENTATION AND SUB COMMITTEE REPORT REGARDING THE
SOUTH BAY POWER PLANT DECOMMISSIONING AND DISMANTLING
The purpose of this meeting is to provide the City Council and public with additional
information regarding the regulatory process associated with decommissioning and
dismantling the existing South Bay Power Plant. It will afford an opportunity to hear
directly from stakeholders that did not present at the January 18, 2007 workshop,
regarding their recommendations and participation in the process for addressing resource
adequacy and removing Reliability Must Run (RMR) from the existing plant. The
meeting will also provide the Council Sub Committee with an opportunity to provide a
progress report on their activities since the committee was established at the January 18,
2007 workshop.
Staff recommendation: Council to hear presentations and provide direction to staff.
ADJOURNMENT to the Regular Meeting on March 27, 2007 at 6:00 p.m. in the Council
Chambers.
In compliance with the
AMERICANS WITH DISABILITIES ACT
The City of Chula Vista requests individuals who require special accommodations to access,
attend, and/or participate in a City meeting, activity, or service request such accommodation at
least forty-eight hours in advance for meetings and five days for scheduled services and
activities. Please contact the City Clerk for specific information at (619) 691-5041 or
Telecommunications Devicesfor the Deaf(TDD) at (619) 585-5655. California Relay Service is
also available for the hearing impaired.
Page 2 - Council Agenda
htlD://www.chulavistaca.l!ov
March 26, 2007
-.
.
CITY COUNCIL
AGENDA STATEMENT
March 26, 2007 Item~
REVIEWED BY:
PRESENTATION AND SUB COMMITTEE
REGARDING THE SOUTH BAY POWER
DECOMMISSIONING AND DISMANTLING
Michael T. Meacham, Director of Conservation
Environmental Servi~
CITY MANAGER (JI
REPORT
PLANT
ITEM TITLE:
SUBMITTED BY:
&
4/5THS VOTE: YES
NO X
BACKGROUND
The purpose of the City Council meeting is to provide the City Council and public with
additional information regarding the regulatory process associated with decommissioning and
dismantling the existing South Bay Power Plant. The meeting will afford an opportunity to hear
directly from stakeholders, that did not present at the January 18, 2007 workshop, regarding their
recommendations and participation in the process for addressing resource adequacy and
removing Reliability Must Run (RMR) from the existing South Bay Power Plant (SBPP). The
meeting will also provide the Council Sub Committee with an opportunity to provide a progress
report on their activities since the committee was established at the January 18,2007 workshop.
ENVIRONMENTAL REVIEW
Not applicable
RECOMMENDATION
Hear the presentations and provide direction to staff.
BOARDS/COMMISSION RECOMMENDATION
Not applicable.
DECISION MAKER CONFLICT
Staff has reviewed the property holdings ofthe City Council and has found no property holdings
within 500 feet ofthe boundaries ofthe property which is the subject of this action.
FISCAL IMP ACT
There are no fiscal impacts, as staff is not recommending formal Council action at this time.
City Council Meeting
'4 pm Monday, March 26, 2007
Workshop Agenda
Open the meeting:
. Public Comment on Issues Not Before the Council
. Open the Workshop and Introductions:
o Port Commissioner Mike Najera,
o Randa Coniglio, Real Estate Manager, Port of San Diego
o Michael Meacham, Director of Conservation & Environmental Services
Brief Historv and Background: Michael T. Meacham
. Power Point and Brief Description of Current Infrastructure and History of Issues that Lead up to
the Establishment of the Council Energy Sub Committee:
. City Energy Strategy and Action Plan
. Regional Energy Strategy and Infrastructure Study
. 2001 Resolution
. Bay front Master Plan Power Plant Subcommittee
. Application for Certification by LS Power
. Joint Port / City workshop 2/18/07
. Council Establishes Subcbmmittee to Address the Decommissioning Dismantling Issues
· Council Recommendation to Port Regarding the Current and Proposed Future Power Plant on
the Bay front, February 20, 2007
. Port Resolution March 6, 2007 (Randa Coniglio)
Introductions and Comments bv Interveners and Interested Parties:
. California Unions For Reliable Energy (CURE): Gloria Smith
. Environmental Health Coalition: Paul Fenn, Robert Freehling, Laura Hunter,
. SDG&E: Mike Niggli
Council Sub Committee Report: Mavor Cox and Councilmember Castaneda Overview:
. Sub Committee Meeting(s) Mayor and Councilmember Castaneda
. Meeting with Port, LS Power, SDG&E and City: March 5, 2007
. Meetings with CPUC: (Mayor) March 7, and 16,2007 (Councilmember Castaneda)
~. Meeting with LS Power: March 19,2007
. Meeting with SDG&E, Potential Alternative Sites: March 19,2007 (staff)
~. Meeting with CAISO: March 20, 2007
Mavor Cox and Councilmember Castaneda Report on CPUC and CAISO Fact Finding Trips
. Council Questions and Comments
. Public Comment and Discussion
. Council Direction for Sub Committee and Staff, and
. Council Closing Comments
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Potential for Renewable Energy in the San Diego Region
August 2005
Executive Summary
.
For Full Report
http://www,renewablesg,orgf
.
.
Potential for Renewable Energy in the San Diego Region
August 2005
Chapter 1: Executive Summary
The results of a collaborative, l8-month study by a group of local energy experts confirm that
there is significant technical potential in the Region for development of several types of
renewable energy sources. This conclusion is supported by a rigorous technical examination
of data and can be the foundation of the Region's renewable energy policy and
implementation strategies, The participants and methodology of this study are discussed in
the Preface,
Although the actual amount and pace of development of renewable
energy resources will be determined by factors such as cost,
incentives, regulatory policy, economics, and individual customer
decisions, the message of this report is clear, Technical potential
exists to serve a substantial amount of the Region's capacity and
energy needs with renewable power, The approximate locations for
major renewable resources in the Region are illustrated in Figure
1.1.
technical potential
exists to serve a
substantial amount
of the Region's
capacity and tf/ergy
nel/ds with renewllble
power.
.
.
-
@ 2005 San Diego Regional Renewable Energy Sludy Group. All Rights Reserved.
Page 1 0'6
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Potential for Renewable Energy in the San Diego Region
August 2005
Table 1.1 sununarizes renewable resources that are deployed in the Region in 2005. Table
1.2 sununarizes the technical potential for renewable resources in 2020. That table includes
both existing and developable resources,
As a point of reference, the system peak demand for 2004 was 4,065 MW, and total
energy requirements in the Region were 20,578 GWh. These figures include customers
served by SDG&E, as well as other energy providers.
The Study Group used a multi-step process to determine a resource's technical potential,
beginning with an estimate of the gross, or maximum, amount of a given resource available
to the Region, For example, the amount of solar energy falling on the Region was
determined using solar insolation data obtained from the California Department of Water
Resource's California Irrigation Management Information System (CIMIS), and the amount
of wind energy potentially available for harvest was based on data from the California
Energy Conunission.
The next step involved applying a series of "screens" or filters to the available data to derive
the technical potential for renewable energy in the Region, These refinements represent a
significant advance in the state of analysis and knowledge for our Region and are described
in detail in each chapter. As examples, a sununary of the approaches for solar and wind
resources is presented below.
.
To determine the technical potential for residential solar electric, estimates of solar insolation
were screened through data and forecasts of available single and multi-family dwelling units
from the San Diego Association of Government's (SANDAG) database, estimates of
available residential rooftop area per dwelling, average roof size, amount of roof available for
a photovoltaic installation, roof orientation, shading, and pitch,
Technical potential for conunercial solar was determined through a GIS-based study that
used satellite images to digitize all large buildings (roof area over 3,000 square feet),
including industrial, conunercial, educational, hospital, and hotel spaces in the City of San
Diego, These rooftops were then analyzed to provide estimates of their likely available roof
space for photovoltaic equipment. Estimates of average output per square foot were then
applied to derive technical potential. Figures for the remainder of San Diego County were
derived by calculating the ratio of total useable roof area in the City of San Diego to its total
usable land (roughly 12 percent), and the applying that ratio (rounded down to 10 percent for
simplicity) to the total usable land in the County outside of the City of San Diego.
Solar technical potential for both residential and conunercial sectors was further refined by
deriving its on-peak capacity using hourly energy output shapes from existing solar
installations in the Region, Along with the solar contribution to overall energy production,
this on-peak component adds value to the Region's electric infrastructure at times of peak
system demand.
.
@ 2005 San Diego Regionel Renewable Energy Study Group. AU Rights Reserved.
Page 3 0'6
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Potential for Renewable Energy in the San Diego Region
August 2005
-..
Concentrating Solar Power (CSP) was estimated by the National Renewable Energy
Laboratory (a major contributor to the Study Group) using data and information available
from national sources as well as specific performance from the nearby CSP units 1 serving
Southern California Edison. Filters were applied to derive techillcal potential from the
overall available solar insolation in the Borrego Springs and Imperial County regions. These
include estimates ofland availability, ownership, current use, and slope, as well as prevailing
state and federal incentives.
Technical potential for wind was determined through a two-step
process. First, GIS information was used to identify all sites with
wind speeds of Class 4 or higher that are not located in national
parks and monuments, state parks and recreation areas, on Bureau
of Land Management Wilderness or Wilderness Study Areas, on
bodies of water, on grades steeper than 14 percent, in urban areas
or other hard to access areas such as mountaintops. Analysis of
the technical potential for the remaining high-promise areas was
conducted using a state-of-the art analytical methodology
developed for this study, This model takes into account wind
speed frequency distribution, direction, terrain roughness, availability factors, wind turbine
hub diameter, rotor diameter, and power curves using a representative turbine selected to
optimize annual energy output rather than peak power output or capacity factor. Other
variables accounted for include aerodynamic turbulence, rotor diameters, and losses due to
the Park Effect.2 As with solar resources, data were developed showing the seasonable and
hourly availability of wind resources to enable consideration of wind's fit with the Region's
overall and on-peak capacity and energy requirement.
This report provides
a starting point lor
the next logical steps
in renewable energy
development lor the
San Diego region,
including fNJlicy
formulation and
implementatio/l.
-,
The large-scale renewable technologies (in particular concentrating solar, wind, and
geothermal) will require adequate transmission infrastructure to bring their benefits to all
customers on the grid. While ability to deliver resources to load is a key driver of the
technology's ultimate development, the Study Group did not use transmission availability as
a constraint in its assessments of technical potential. Decisions regarding transmission and
many other key drivers are part of the next step: bringing these technologies to market.
The Study Group believes that this report provides a starting point for the next logical steps
in renewable energy development for the San Diego region, including policy formulation and
implementation. The Study Group looks forward to a thorough discussion of the current
report, possible refinements, expansion of the report as new perspectives and information
emerge, and completion of work for the remaining study/resource areas.
I These units are located at Kramer Junction, CA.
2 The Park Effect creates losses or decreases in electrical production due to aerodynamic turbulence created by the wake of the rotors
in a wind farm with multiple wind turbines.
-..
@ 2005 San Diego Regional Renewable Energy StUdy Group. All Rights Reserved.
Page 6 of 6
. The Electricity Resource Plan
Choosing San Francisco's Energy Future
,
.
San Francisco Public Utilities Commission
San Francisco Department of Environment
August i002
.
-...
Table of Contents
Executive Summary ......,..,..,..,.,...........,....,......"..,...............,.........,.......,..,., 3
Introduction '""""".,."."""""""""...,."..""""""""",.""""..,.."""..",..",.,., 1 0
Chapter 1: Setting Goals ..'..,..,......,......,..,....................,.............................. 12
Chapter 2: Structure ofthe Electricity System ..............,......,...,..........,..,.. 20
Chapter 3: Electricity Supply and Demand in San Francisco..,...........,...., 29
Chapter 4: Challenges and Choices......................,......,..,..,................,..,...., 40
Chapter 5: Action Plan ......,..,........,.......,......,......,.................,......,..........,...48
Chapter 6: Findings and Recommendations ..,..,..,.....,................,.....,......., 62
Appendices
-
Appendix A: City Ordinance: Human Health and Environmental
Protections for New Electric Generation, SF Board of Supervisors, 2001
Appendix B: Glossary
Background Documents (available as separate documents on SFE website,
sfenvironment.com)
Energy Policy Element of San Francisco's General Plan, SF Planning
Department, 1982
Sustainability Plan, 1997
San Francisco Peninsula Long-term Electric Transmission Planning
Technical Study, 2000
Public Comments
-
2
.
Executive Summary
California's experiment with electricity deregulation and the energy crisis it spawned
exposed the vulnerabilities of San Francisco's electrical supply and highlighted
environmental justice issues associated with the location of fossil fuel generation, The
City's power is supplied by two old and polluting power plants at Hunters Point and at the
base of Potrero Hill and through overhead and underground transmission lines along a
single pathway in San Mateo County, For years communities in the Southeast, where
there is a high level of respiratory disease, have been calling for the shutdown of the
Hunters Point plant. In 1998 PG&E and the Mayor signed an agreement to close the plant
as soon as replacement power was available to assure reliability,
In 1999, as part of the deregulation process, PG&E sold its power plant at Potrero to an
out-of-state merchant energy company, Mirant, the new owner, decided to expand the
facility by adding a new power plant more than twice the size of the existing plant. That
proposal has met with strong community resistance and raised further alarm about
environmental justice in neighborhoods bordering fossil fuel plants,
.
The City's Board of Supervisors responded to this situation by unanimously passing the
"Human Health and Environmental Protections for New Electric Generation" ordinance
in May 20011, The ordinance directs the San Francisco Public Utilities Commission
(SFPUC) and the Department of the Environment (SFE) to prepare an energy resource
plan that considers all practical transmission, conservation, efficiency and renewable
alternatives to fossil fuel electricity generation in the City and County of San Francisco,
This plan presents a framework for assuring reliable, affordable, and sustainable sources
of electricity for current and future generations with the following notable milestones:
a) By 2005 the City will enable the closure of the oldest of San Francisco's fossil fuel
plants at Hunters Point and the reduced operation of the second oldest one at Potrero,
This will be accomplished by developing sufficient replacement power through a
combination of peak load reduction, energy efficiency, renewable energy, and new clean
technology generation,
b) Following 2005 the largePotrero power plant can be shutdown with the development
of transmission projects already being planned or the construction of additional
renewable or clean energy technology in the City, This plan assumes there will be no
need for the construction of a large central generation plant in San Francisco.
c) Beginning with the closure of the Hunters Point power plant and throughout the
planning horizon of this plan greenhouse gases will be reduced, The operationally
flexible natural gas-fired power facilities proposed in this plan will allow for continued
displacement of the use of natural gas by increased energy efficiency and renewable
.
I Text of the ordinance appears in Appendix A.
3
.-.
energy technologies with a long term goal of having zero greenhouse gas emissions and
minimal environmental impacts from the generation of electricity,
If these milestones are met, San Francisco will have reduced its in-City fossil fuel
capacity as well as its air pollution emissions, Figure ES 1 shows that the net decrease in
fossil fuel use results in a 73% drop in in-City NOx levels by 2005,
In City NOx Emissions
(tonslyear)
700
600
500
... 400
'"
.;
II)
l: 300
0
-
200
100
0
Figure ESt 2002
.-."
2005
....,
4
.
Goals
During a series of public hearings, the following goals were identified to set priorities for
this plan:
Maximize Energy Efficiency
Develop Renewable Power
Assure Reliable Power
Support Affordable Electric Bills
Reduce Air Pollution and Prevent Other Environmental Impacts
Support Environmental Justice
Develop the Local Economy
Increase Local Control Over Energy Resources
Key Issues
.
San Francisco is a constrained transmission area because of its location at the tip of a
peninsula, During periods of peak demand, the City can irriport over existing transmission
lines only about 60 percent of the power needed to meet its needs, Therefore, the
California Independent Systems Operator (ISO) requires that power plants located in the
city be operated to satisfy maintain grid reliability, The existing power plants are now
past normal operating life, inefficient, prone to failure, and many times more polluting
than new power plants,
The Hunters Point and Potrero communities consist of a high proportion of lower-
income, predominantly non-white residents, Residents of these communities share a
common concern for public health, especially that of children and the elderly, who are
hospitalized for asthma and other diseases at higher rates than reported statewide, Air
pollution is a contributing factor to these health problems. The Hunters Point and Potrero
power plants, along with vehicles and industrial facilities, are sources of air pollution,
Potrero Unit 3 and Hunters Point Unit 4 are subject to significant NOx emission
lirriitations beginning in 2005, The Potrero Unit is subject to a NOx emissions "bubble"
that applies to multiple boilers owned by Mirant in the greater Bay Area, Air regulations
require that power plant owners operate their fleet of boilers to meet an average NOx
output. Mirant is currently evaluating alternative strategies for meeting these air
regulations, One possible approach includes scheduling an extended outage ofPotrero
Unit 3 in 2004 to allow for pollution control retrofits, Given the current set of power
resources available, such an outage would make the city more dependent on the Hunters
Point Unit 4 and four diesel-fueled peaking power plants for reliability in 2004, The
peaking plants are lirriited to 877 hours of operation because of their high level of
pollution,
.
PG&E has indicated a strong desire to avoid having to invest in emission reduction
retrofits at its 44-year-old plant at Hunters Point. PG&E has assumed they could operate
Hunters Point into 2005 and beyond using emission reduction credits for NOx, If that is
5
-
the case, the number of hours the plant could operate would be limited, Given these
circumstances it is extraordinarily important that the City develop a flexible short-term
plan that permits the closure of the Hunters Point Unit 4 plant by 2005.
Both the proposed Mirant power plant (Unit 7) and a proposed PG&E transmission line
on the peninsula (Jefferson to Martin) could provide sufficient additional load serving
capacity to allow for the closure of Hunters Point. However, there is significant
uncertainty as to when either resource could be available, but it is definite that neither
will be available by 2005, Therefore, the City needs to develop sufficient credible
generation and load reduction alternatives that can be implemented by 2005,
Complicating San Francisco's vulnerable power situation is the slate of flux California
finds itself in as a result of its failed electricity restructuring scheme, Responsibility for
planning for future electricity needs has been diffused through myriad state and federal
agencies and the private sector. Consequently, the development of new electricity
resources including generation, transmission and load reduction are not being considered
in a comprehensive fashion.
Sources of Power (MW)
,-,
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2002 2003
Figure ES,2
PG&E Peak Load Forecast
c Import Capacity
. Distributed Generation
. Solar
. New Combustion Turbines
t1 Energy Efficiency
D New Cogeneration
. Potrero
. Hunters Point
2004 2005 2006 2007 2008 2009 2010 2011 2012
Years
Figure ES2. The graph above shows the projected resonrce mix for San Francisco, following the
recommended electricity resource portfolio described in this plan.
-
6
.
Recommendations to Support an Action Plan
Based on months of research, independent analysis, and public input, the SFPUC and
SFE are recommending a strategy to shut down the Hunters Point power plant and
Potrero Unit 3 and to set the City on a sustainable course that shows a progressive decline
in dependence on fossil fuels, In order to meet the City's electric reliability requirements,
implementation of the plan should begin immediately,
The main components of the plan include:
I. A Clean, Reliable Electricity Portfolio
Demand Reduction through energy efficiency and load management. This is generally a
cost effective means of reducing electricity load, The objectives are: 16 MW by 2004; 55
MW by 2008; 107 MW by 2012,
.
In San Francisco, demand reduction needs to be accomplished citywide, Since
commercial users make a substantial contribution to peak demand they need to be
targeted for peak reductions, with downtown buildings apriority, The California
Independent System Operator (ISO) gives priority to meeting the downtown network
load in the event of a multiple transmission failures while allowing other areas to be
blacked out on a controlled basis; therefore, every megawatt reduction in the downtown
network makes in-city generation available to other areas in San Francisco and lessens
the likelihood of blackouts,
City-owned facilities will likewise be targeted for load reduction and will be managed by
SFPUC, The Department of Environment oversees several efficiency programs for the
private sector, These programs will have to be augmented to include incentives, changes
in codes and standards, outreach, and training to achieve the goals of the plan,
Renewables, Programs to harness the sun, wind, water, and other natural sources will be a
high priority, The objective for renewables are: 7 MW by 2004; 28 MW by 2008; 50 MW
by 2012.
Solar power is an excellent distributed resource because of its modularity. It can be sized
all the way from multi-megawatt systems down to hundreds of watts on residential roofs,
The SFPUC will soon begin the City's first large solar power development at the
Moscone Center. This football-field sized showpiece will produce about 688 kilowatts, A
second 600-kilowatt solar site is planned for .the Southeast wastewater treatment plant.
Other proposed municipal sites include the airport and the port, SFE will undertake an
aggressive program to identify and develop sites in the private sector,
.
There are wind technologies appropriate for urban applications, though the most
significant amounts of wind power are outside the City in areas such as the Altamont
Pass, where wind speeds and proximity to transmission can be met, Hetch Hetchy can
build wind turbines at Altamont and at sites along its transmission right-of-ways,
7
......
Tidal current and wave generation are in a pre-commercial development stage, The
theoretical potential for these resources in the Bay Area are in the hundreds of
megawatts of power. The City should seek partnerships with the federal and state
governments in exploring the potential of these resources and take the lead in providing
the opportunity for demonstration sites.
Medium-sized Generation and Cogeneration, Mid-size plants of about 50 megawatts can
provide high levels of reliability and could be built in several locations in San
Francisco. The amounts assumed to be needed to help shut down Hunters Point and
Potrero Unit 3 are: 150 MW by 2004; 250 MW by 2008.
These plants will be the most efficient gas fired generators available and will be used as
replacement generation for the old, polluting plants in the City, The quantity of new
natural gas-fired generation should be based on a publicly-reviewed reliability analysis,
Whenever investment in demand-side management and sustainable resources can offset
new fossil fuel development, this will be the City's preferred course,
Cogeneration is the production and use of electricity and heat from a single installation, It
is favored because the total efficiency goes up when the heat created from combustion is
captured and used, One site currently under consideration is a 50 megawatt cogeneration
plant at 5th and Jessie Streets in the City, This installation would produce steam to feed
into the existing district heating system, with the electricity being produced as a by-
product of the production of steam. Another potential site for a cogeneration system is
the Mission Bay campus of the University of California, San Francisco where the
potential for district heating is substantial.
-.
Small-scale Distributed Generation (DO), These include fuel cells, packaged co-
generation, and micro-turbines, DG generators range from 10 kilowatt to 5 megawatts in
size and usually support single facilities, The objectives are: 10 MW by 2004; 38 MW by
2008; 72 MW by 2012,
The SFPUC will identifY sites for municipal applications and the SFE will work with
downtown building owners and other businesses to find appropriate sites and to facilitate
installation,
The effective deployment of distributed generation will require the cooperation of PG&E
for interconnection to the grid, and the assistance of City departments in streamlining
permitting,
Transmission, An upgrade to an existing line and a new transmission line scheduled to be
built on the Peninsula to service San Francisco will be necessary for long term reliability,
and should be supported by the City, At the same time the City should commit to
securing a continually increasing percentage of renewable sources to feed the
transmission grid,
-.
8
.
II. Environmental .Justice
SFE will take responsibility for seeing that communities in the Southeast will benefit
from the programs developed through this plan,
Air quality will be more effectively monitored as a measure of the success of the plan,
The department will also monitor and periodically report on bills for low-income
residents and the dispersion of energy program benefits, including training, employment,
and business development.
III. Implementation and Review
Implementation of the Plan needs to begin immediately to accomplish the 2004-5
objectives, Relevant activities have already been initiated and can be expanded as
funding is available, Implementation will require strong continued participation by the
public and support from City officials,
SFE and SFPUC will work with each sector of the San Francisco economy to promote
efficiency, renewable energy and distributed technology into their facilities, Specific
objectives and timelines for their achievement will be developed later.
.
The Plan will be evaluated and updated to reflect new developments and SFE and SFPUC
will submit an annual report to the Board of Supervisors on achievements and challenges
of the energy program,
.
9
,
5
Action Plan
San Francisco will need new electricity resources over the next decade to meet growth in
demand for electric services, to shut down the outdated Hunters Point Power Plant and to
replace the aging power plants located at Potrero, The strategy for developing the
necessary resources to rapidly modernize San Francisco's electric infrastructure needs to
take into account the longer-term objective of environmentally sustainable electricity for
future generations, While the short-term solutions need to be cost-effective, they must
also be consistent with the goals set forth in Chapter I as well as with the Mayor's goal
for reduced greenhouse gas emissions, Therefore, taking into consideration the challenges
identified in the previous chapter, the preferred course of action outlined here proposes
solutions that immediately address the City's urgent needs while complementing and
advancing the achievement of mid- and long-term objectives, Specific recommendations
in the areas discussed follow in Chapter 6,
Short Term Action Plan - 2002 through 2005
,
The City must take aggressive steps immediately to shutdown the Hunters Point Power
Plant while assuring reliable electric service, In addition, the City should facilitate the
early retirement ofPotrero Unit 3, to avoid costly upgrades and the extended operation
of this outdated plant. This could lead to forced outages in 2004, and then allow the plant
to continue operation well into the future when cleaner, more reliable resources are
available,
Therefore, it is in the City's interest to develop a short-term action plan that would avoid
the shutdown ofPotrero Unit 3 in 2004 and minimize San Francisco's dependence on its
operation over the longer term, Our objectives are to maintain reliability through
decreasing reliance on old, polluting technologies and increasing investments in energy
efficiency and clean, efficient technologies,
An action plan that could achieve these objectives would include:
. Maximum investments in energy efficiency measures particularly peak reducing
measures
. Development of new highly efficient and operationally flexible generation at
appropriate sites by the summer of 2004 to facilitate the closure of the Hunters
Point Power Plant Unit 4 by the end of2004,
. Development of a plan between the City and Mirant to allow for the
environmental dispatch of new generation owned by the City and Potrero Unit 3
to meet BAAQMD requirements under the SIP and ISO requirements for
reliability,
. Aggressive efforts to promote and facilitate installation of distributed generation
using renewable technologies and clean natural gas-based technologies
I
48
-
Medium Term Action Plan - 2006 through 2012
The most important challenges facing the City in the medium term is to develop
sufficient new resources to permanently close Potrero Unit 3 and to limit the operation of
the diesel-fired peaking plants at Potrero to genuine emergencies, In addition, the City
must take aggressive steps to meet its commitment to reduce greenhouse gases, which
means commitments to fossil-fuel reduction both in the City and in the power sources
feeding the transmission grid, The key components of a mid-term action plan include:
. Completion of the Jefferson to Martin transmission line
. Accelerated development of solar electric generation in San Francisco with the
objective of having 50 megawatts installed by 2012
. Development of additional renewable energy, cost-effective co-generation, and
clean distributed generation technologies in San Francisco
. Maximizing investments in energy efficiency and demand reduction with a goal
of maintaining peak demand at a level no higher than 909 megawatts (the average
of 1996-2000) ,
. Development of at least 150 megawatts of new wind or other renewable
generation that can be imported into San Francisco
The following graphs present the results of the short-term and medium-term action plan.
-
Figure 5,1 shows the contribution that each resource makes towards meeting the
projected peak demand for electricity in San Francisco from 2002 through 2012, The
Chart shows 150 megawatts of new operationally flexible combustion turbines coming on
line in 2004, In 2005 an additional 1 00 megawatts of import capability is assumed to be
in place from the upgrade of the San Mateo to Martin power line number 4, The new
combustion turbines and the upgraded power line allow for the retirement of the 163-
megawatt Hunters Point Unit 4 and the down rating ofPotrero Unit 3 from 207 to 47
megawatts, This results in a net decrease of 109 megawatts of in-city fossil fuel
generation in 2005 and a 73% reduction in annual NOx emissions,
Two new 50-megawatt cogeneration power plants are developed in 2005 and 2006 that
allow for the retirement of Potrero Unit 3 and the peaking unit at Hunters Point in 2006,
The peaking unit may be retired earlier if the operational plan for Potrero Unit 3 permits
it to run at a higher capacity than estimated, By 2012 energy efficiency, distributed
generation and solar account for 210 megawatts of capacity,
Figure 5.2 shows the amount of electricity produced or saved by each resource category,
With the addition of the new combustion turbines and additional import capacity in 2005
the amount of generation from the Potrero and Hunters Point power plants is only 13
percent of their 2002 level of generation, The addition of efficient cogeneration plants in
2005 and 2006 eliminate all generation at Hunters Point and further reduce generation at
Potrero, The expansion of energy efficiency measures, distributed generation and solar
lessens the amount of power generated by the combustion turbines as well as the amount
of imported power each year through 2012
-
49
.
.
,
i
go
"' 600
~ 4000
8
:l:
I
(;
Recommended San Francisco Electricity Resource Portfolio
Fignre 5.1
Sources of Power (MW)
1400
1200
1000
800
400
200
o
2002
2003
2012
2004
2006
2006
2007
2008
2009
2010
2011
Years
Sources of Power (GWh)
7000
Fignre 5.2
6000
5000
3000
2000
1000
o
.,. Imported Power
. New Combustion Turbines
CI Energy EffIciency
o New Cogeneration
. Potrero
D Imported Power
. Distributed Generation
I Solar
. New Combustion Turbines
D Energy Efficiency
II New Cogeneration
. Potrero
. Hunters Point
.-.,
Imported Energy
Figure 5.3 details the principal sources of imported power used to meet San Francisco's
electricity needs, Wind generation is added in the following increments - 50 megawatts
in 2004,90 megawatts in 2006, 125 megawatts in 2008 and ISO megawatts in 2010,
Assuming that renewable resources account for 12 percent of the purchased imports,
renewable energy will account for almost 50 percent of imported power by 2012,
Figure 5,3
5000
4500
41100
3500
~ 3000
~
0
r
:; 2500
~
PJ 2000
Cl
1500
1000
500
0
2002 2003 2004
Imported Power (GWh)
-.,
2005
2005
2007
Year
2008
2009
2010
2011
2012
Emissions
Figures 5.4 and 5,5 show the impact oflocal emissions of oxides of nitrogen (NOx) and
particulate matter (PMIO) of the recommended San Francisco Electricity Resource
Portfoli06, A vast improvement in reduced emissions is achieved with the retirement of
the Hunters Point and Potrero power plants in 2005 and 2006, Emissions begin to
increase slightly after 2006 with the addition of cogeneration and distributed generation
in the City, which displaces imported power,
6 Emission estimates for fignres 5.4, 5.5, 5.6 and 5.7 by Rocky Mountain Institute, SFE and SFPUC staff
based on data from BAAQMD, PG&E, Mirant, CEC, EPA and California Air Resources Board (CARB).
'-",
51
.
Figure 5,4
Total In-City NOx Emissions
(tons/year)
700
600
"- 500
...
~ 400
0
Z
t/l
C 300
0
-
200
100
- 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Figure 5,5
70
60
50
..
...
~ 40
co
...
::Ii!
II. 30
t/l
C
0
-
20
, 10
0
2002 2003
Total In-City PM10 Emissions
(tonslyear)
2004
2005
2006
2007
2008
2009
2010
2011
~2
-
Figures 5,6 and 5,7 show the impact of the recommended SF Resource Portfolio on the
emission of carbon dioxide(C02), the.most common of greenhouse gases, By 2012
carbon dioxide emissions are reduced by almost one-third below their 2003 level. A
significant amount of the reduction comes the retirement of the Hunters Point and Potrero
power plants, Additional reductions are achieved by the increased proportion of
imported power coming from renewable sources of electricity, which has reached 20% by
2012, Reductions in C02 emissions are also gained through growth in energy efficiency,
-.....
-
53
.
.
,
Figure 5,6
Total In-City C02 Emissions
(tonslyear)
2.500.000
2,000.000
~ 1.500,000
'"
~
0
(.)
..
c 1.000.000
.s
500,000
o
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Figure 5.7
Sources of Carbon Dioxide (C02) Emissions
2.500.000
2.000.000
;a 1,500,000
~
(.)
..
c
.s
1.000.000
500.000
o
2002
2003
2004
2005
2006
2007
Years
2008
2009
2010
2011
2012
54
~
Long Term Action Plan - 2012 through 2030
The long-term challenge facing San Francisco in the energy sector is making electricity
generation sustainable, by maximizing energy efficiency and the use of renew.able
energy, This means the City will need to increase annually the proportion of electricity
being produced through renewable resources while managing both peak and overall
consumption of electricity, Because many renewable energy resources are intermittent in
nature, it will be important for San Francisco to develop cost-effective electricity storage
technologies that will allow electricity to flow at times when the sun, wind, or tidal
currents are not capturing energy, It will also be necessary to promote clean energy
carriers such as hydrogen that can be used cost-effectively in energy conversion
technologies like fuel cells, reciprocating engines and microturbines, Actions that need
to be taken in this time frame include:
. Phasing out fossil fuel sources of generation in the City
. Attracting private capital for the development of new renewable energy
technologies
. Strengthening regulations and incentives to encourage the development of zero
net energy buildings and investments in the upgrade of existing buildings
. Building the institutional and human capacity to support the longterm growth and
development of sustainable energy in our economy,
. Supporting research in emerging renewable technologies such as wave energy,
tidaVmarine currents, ocean thermal energy conversion, salinity gradient/osmotic
energy, and marine biomass fuels,
. Establishing regional partnerships for the development of renewable resources
~
Resources to Be Developed
,
In each program area, SFE and SFPUC will engage specific market sectors by meeting
with stakeholders to develop more effective programs, Stakeholders will assist in
defIning the market barriers, selecting the best options to overcome the barriers, and
doing outreach to potential program participants,
Energy Efficiency
Energy Efficiency is our most readily available, cost-effective, and underutilized
resource, In a study? recently commissioned by PG&E to determine the potential for
energy savings in the commercial sector throughout its service area, it was shown that an
estimated 13 percentS of the peak demand in the commercial sector could be reduced on a
cost-effective basis.
The study estimates that well-designed energy effIciency programs can cost effectively
realize 80 percent of the electricity savings that is potentially available, The study
estimates that PG&E achieved 46 percent of the maximum achievable savings for
7 Commercial Sector Energy Efficiency Potential Study, Xenergy Inc., Jnly 2002,
8 13% reduction from peak is approximately 113 MW oftheJanuary 10, 2001 peak.
~
55
.
lighting and air conditioning in 2000. Stronger and more focused programs have the
potential to achieve larger savings in the future,
In City facilities, SFPUC is continuing energy efficiency programs that include replacing
old equipment with high efficiency equipment, educating City departmental staff;
promoting the use of Energy Star-certified computers, lighting, and office equipment; and
monitoring heating and air conditioning temperatures. It expects to reduce the peak by 4
megawatts by 2004, For new City facilities, SFE is recommending adoption of a new
environmental standard that will require projects to exceed state standards,
In the private sector, energy efficiency needs to be accomplished citywide and address
both usage as well as peak load; however, the peak is of primary concern, particularly to
address the 2004-5 period and to shut down the Hunters Point plant.
.
Commercial and industrial users contribute more to the peak than is represented by the
usage numbers because much of the residential use is during off-peak hours, In
particular, downtown buildings are a priority, The ISO states that there must be sufficient
in-city generation to meet the downtown network load in the event of a transmission
failure; therefore, every megawatt reduction in the downtown network reduces the need
for a megawatt of in-city generation, New construction is the largest source of expected
growth in demand, Because energy efficiency in new construction is the cheapest
available energy resource, this should be a very high priority program area. Peak load
reductions will mean employing a range of specialized efficiency technologies, e,g,
thermal energy storage, Both SFE and SFPUC have begun working with private sector
developers by providing design and technical support to help them integrate sustainable
and efficient features into the new complexes,
Additionally, there are over 40,000 small businesses in San Francisco that also provide an
opportunity for peak demand reductions even though they represent only 20% of the
commercial energy use, Typically, they are tenants in older buildings, and cannot afford
updating the building systems; therefore, the lighting, ventilation and refrigeration
systems are older and less efficient than those in larger businesses, SFE is currently
managing a $7,8 million retrofit program (funded by a grant from the CPUC) to install
energy-efficient lighting in 4000 small businesses, with a goal of reducing peak demand
by 6 megawatts..
Mid-Sized Natural Gas-Fueled Generation
(Replaces Old Large and Mid-5ized Power Plants)
Power plant efficiency has increased significantly with the application of aeroderivative
combustion turbines, Jet engines that were developed for commercial aircraft have been
used in power applications for over 20 years, These plants are more efficient' than
,
9 Efficiency is measured as how much of the heat value contained within a fuel can be converted to electric
energy. Convention boiler-steam turbine power plants have efficiencies around 30 percent. Combustion
turbines have efficiencies around 35 percent and in a combined cycle mode have efficiencies around 50
percent. In a cogeneration application 80 percent of the energy contained in the fuel can be converted to
56
.-..
conventional power plants and perform well with availability rates10 of around 98
percent. They are operationally flexible with short start up times and can be ramped up
and down to meet power load on a daily basis, With water injection for control of oxides
of nitrogen (NOx) and selective catalytic reduction (SCR) systems, they can achieve NOx
emission rates that are at least five times less than is required by the SIP for the Clean Air
Act.
Combined cycle power plants that use the waste heat from a combustion turbine to
produce steam have reached efficiencies exceeding 50 percent and now operate
producing less than two parts per million of NO x , The City is currently seeking to
permit and construct a 57 megawatt combined cycle power plant at the San Francisco
International Airport, This plant will improve grid reliability in the upper peninsula and
provide a cost-effective source of electricity for the airport. It will also free up
transmission capacity into San Francisco
Highly efficient and operationally flexible combustion turbines powered by natural gas
can be developed at various sites in San Francisco by 2004 if a consensus could be
achieved as to appropriate sites,
Mid-Sized Cogeneration
(Replaces Old Large and Mid-Sized Power Plants)
.-..
Cogeneration is the production and use of electricity and heat from a single installation.
Starting in the late 1970's, cogeneration plants have been sited primarily at industrial
sites and the power is used on site to reduce energy costs,
One site currently under consideration is a 50-megawatt cogeneration plant at 5th and
Jessie Streets in the City, This installation would produce steam to feed into a district
heating system, with the electricity being produced as a by-product of the production of
steam. The City currently has a steam franchise agreement with NRG Thermal
Corporation that produces steam at the 5th and Jessie facilities, The new plant could
produce 90 percent of the steam requirement and reduce air emissions by significant
amounts compared to a new combined cycle power plant and the boilers necessary to
provide the steam for the downtown heating system. A key issue in moving forward on
the development of this facility is determining who would purchase the electrical output
of this facility and how it would be distributed to retail consumers,
useful energy usually in the form of steam and electricity. Efficiency is often measured as a heat rate. Heat
rates are expressed in terms of the numbers ofBrus of heat needed to produce a kilowatt hour of
electricity. The heat rate for aeroderivative combustion turbines is around 10,000 BTUs.
10 Availability rate means the percentage of the time the plant runs when it is called upon to run. Capacity
factor means amount of electricity a plant produces divided by its theoretical maximum production
capability for a period of time.
.-..
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Another potential site for a cogeneration system is the Mission Bay campus of the
University of California, San Francisco, The University of California has experience
with cogeneration plants at six of its campuses including a 43 megawatt facility at
UCLA. That plant provides heat during the winter months and air conditioning through a
central chilled water plant and a chilled water distribution loop,
The potential for district heating at Mission Bay is substantiaL However, the build-out of
the site is a long-term process that creates problems in detennining the appropriate size
for a cogeneration plant. A larger plant would be more efficient and cost effective,
However, sizing a plant larger than the electric requirements of the campus would require
that there be a retail market for the surplus,
Over the last 15 years, smaller cogeneration projects have been installed at hospitals,
swimming pools, and other facilities that have needs for heating and cooling, The City is
currently developing a five megawatt project at San Francisco General HospitaL The
commercial market for this equipment continues to be viable; however, there is
opportunity for the City to stimulate further investments through informational programs,
direct technical assistance, permitting assistance, and low interest fmancing via
Proposition H,
Renewables
.
Renewable energy options currently available to the City include solar, wind, biomass,
and geothermaL Emerging renewable technologies like wave, tidal current and, ocean
thermal energy may be available in the near future, Each of these resources has unique
opportunities, advantages, and sometimes disadvantages,
Solar
Solar power is an excellent distributed resource because of its modularity, It can be sized
all the way from multi-megawatt systems down to hundreds of watts on residential roofs,
Typically, solar electric systems use photovoltaic material to generate electricity directly,
Photovoltaic systems are well suited to commercial and institutional settings (schools,
hospitals, libraries, government buildings), However, electricity production is limited to
times when the solar resource is available, Clouds, fog and shading limit the amount of
power that a system produces, Solar is, however, particularly valuable when used at the
local level to reduce peak power usage, and to defer distribution infrastructure
development.
The City's first large solar power development will be at the Moscone Center. With
approximately 90,000 square feet of perfectly flat unshaded roof, this football-field sized
showpiece will significantly reduce Moscone's purchase of power and provide a solar
showplace for visitors from all over the world,
.
The SFPUC has installed radiometers at eleven sites on City buildings and schools to
collect data about the availability of sunlight. The variability in solar incidence is based
58
-,
on microclimate and geography, and when cross referenced with availability of
appropriate space, limits the application of solar technologies in some areas of the City.
To develop a well thought out strategy of implementation City needs to understand the
resource and develop it where it is most cost effective, If sufficient participation by
commercial and residential customers is obtained at least 50 megawatts of solar could be
installed in San Francisco, Price of systems is a major consideration in achieving this
magnitude of installation, A sustained program to develop solar in San Francisco can
help, if done in an orderly manner, reduce the overall cost of solar technologies.
Wind
Wind has been used for centuries to create mechanical power for uses such as water
pumping and the milling of grain, In recent years, wind turbines have been developed that
produce electricity, The technology is now well developed, and can be used to generate
significant amounts of relatively low-cost power, Modem wind turbines have increased in
size and output to megawatt scale machines in recent years, San Francisco could obtain
significant amounts of wind power in areas such as the Altamont Pass, where wind
speeds are high enough, and where other conditions like proximity to transmission can be
met. The SFPUC is currently looking at several sites including those adjacent to its own
Bay Area reservoirs. They estimate potential for wind development in the greater Bay
Area for San Francisco's use could exceed 150 megawatts, Electricity from these
projects would require transport using PG&E's transmission lines, There may be
additional opportunities for developing small-scale wind projects in the City itself,
-,
Biomass
The combustion or gasification of wood, agricultural waste, and other forms of biomass
offers options for San Francisco, The SFPUC is currently reviewing several potential
biomass projects, Last year the SFPUC installed a small reciprocating engine to use
biogas recovered from the Oceanside Water Treatment Control Plant. This year a 2 MW
biogas plant will be operating at the Southeast Water Treatment Control Plant. Both of
these plants use methane gas produced by the sewage that would otherwise be flared-off,
Fuel Cells
Fuel cells are a developing technology that is expensive and not yet readily available,
Fuel cells do not burn fuel, they chemically convert it, much like a battery chemically
stores electricity. Fuel cells need hydrogen and produce water and heat, though current
models are use the hydrogen contained in natural gas or gasoline because those fuels are
readily available, As this technology becomes mass produced, the cost will reduce, and it
will be a popular option because there are essentially no air emissions,
Marine Energy
Surrounded on three sides by water, the technical potential of marine energy technologies
is enormous, The energy of the ocean is stored partially as kinetic energy from the
motion of waves and currents and partly as thermal energy from the sun. Although most
-.,
59
.
marine energy is very diffuse, in special situations it could be cost effectively captured
for practical use, ,Among the marine energy technologies that are currently being
investigated are those that convert the energy in waves, tidal/marine currents, ocean
thermal gradients, salinity gradients and marine biomass fuels, Tidal and marine current
is one of the most serious of the marine energy resources to be studied. The technologies
are in development with demonstration projects now being installed in Europe, Canada,
and the U,S, The City will initiate partnerships with appropriate agencies to develop
demonstration projects,
Geothermal
Geothermal energy has been used commercially for over 70 years both for electricity
generation as well as direct use, A significant area of geothermal development has been
the Geysers region in Northern California, More recently large scale geothermal
development is taking plant around the Salton Sea in Southern California, Several
geothermal developers have approached the city with competitive offers for power
purchase agreements, A challenge for San Francisco in utilizing geothermal energy is
arranging for cost-effective transmission into the city,
Transmission
.
Recently, the ISO made the finding that proposed Jefferson to Martin 230 Kv
transmission lien is needed no later than 2005, The ISO also agreed to determine
whether the shutdown of the Hunters Point Power Plant can be approved once the
transmission line is complete, However, before the transmission line can be built, PG&E
will need to obtain a certificate of convenience and necessity from the CPUC, As part of
the certification the CPUC will have to evaluate the environmental impacts of the project
under CEQA, The CPUC also has to determine whether the project is the most cost
effective way of improving electric system reliability, If it makes that determination,
then the cost of the project is placed into PG&E's ratebase and charged over time to all of
PG&E's ratepayers, not just those in San Francisco,
Relying on transmission means that the city maybe importing power that creates
pollution in other communities, In addition, if the City is to meet its Climate Change
commitment it must reduce the proportion of imported power coming from fossil fuel
sources, The city could own or contract for renewable resources from other regions such
that the new transmission line would be "importing" green power, In fact, the energy
will be coming from the mix on the grid; however, by owning or contracting for that
power, the City will be supporting the development of renewable energy in the state,
Finally, Peninsula loads reduce the amount of power that can be transmitted to San
Francisco; therefore, an additional strategy to increase transmission into San Francisco is
to encourage efficiency and new generation projects throughout the Peninsula,
Given this linkage between the City's needs and the Peninsula cities, the City should
initiate contact with those cities to explore how San Francisco might help stimulate a
.
60
---
larger effort towards efficiency and local generation projects on the Peninsula, e,g, via
collective purchasing of distributed generation equipment to get better prices,
Funding and Development Options
The City is examining a variety of ways of becoming involved in the generation of
renewable and distributed power, It is likely that a combination of these would be
considered, including:
. Full ownership, where the City would [mance and own the facilities
. Part ownership, where the City would take an equity position and partner with a
developer
. Build-own-operate-transfer arrangements, where a developer finances and operates
the facility in return for a power purchase agreement and then transfers ownership of
the facility to the City at the end of the power purchase agreement
. Straight power purchase agreements, where the City signs an agreement to purchase
power and the developer continues to own and operate the system,
. Facilitating private activity through permitting, incentives and technical assistance,
An important issue associated with the use of small-scale distributed generation involves
the impact of multiple sources of generation on the operation of the power grid, The
distribution system was designed to have a central plant with the power delivered through
lines that decrease in voltage as they get further from the source, Distributing the
generation onto this system may place generators such that they upset the balance of the
system, cause power to backfeed through equipment not designed to operate in that
manner, Since the grid was planned for large centralized plants, the control of the system
tends to be top-down, whereas with many smaller sources interconnected throughout the
system, the issue of control becomes more important.
---
Understanding the impact of multiple sources on the flow of electricity, and
implementing intelligent two-way controls are crucial to the success of distributed
generation in the City, Therefore, distributed resources require that the City work with
the utility to resolve the safety, interconnection, and environmental issues that have
tended to dominate the distributed generation field in recent years, PG&E and the ISO
have recently agreed to analyze several possible scenarios for planned and potential siting
of distributed generation facilities,
---
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6
Findings and Recommendations
The San Francisco Public Utilities Commission (SFPUC) and the Department of the
Environment (SFE) submit the following recommendations to support the
implementation of an Electricity Resource Plan for San Francisco, In Ordinance 124-01,
passed in May 2001, the Board of Supervisors called for plans to implement all practical
transmission, conservation, efficiency, and renewable alternatives to fossil fuel
generation in San Francisco,
The recommendations are based on findings determined after detailed research and
evaluation of San Francisco's electric resources, nine public hearings, several energy
forums, consultation with state energy policy makers about California's electricity
market and regulatory structure, as well as information obtained from monitoring the
progress of proposed projects affecting San Francisco's electricity supply, including the
licensing of a new power plant at Potrero,
I.
.
A Clean, Reliable Electricity Portfolio
A. FINDINGS
San Francisco's electric reliability remains vulnerable, Regulatory requirements and
limitations continue to pose significant challenges in maintaining adequate reliability
while improving air quality and public health, The following have been found to
contribute to this situation:
1. A.1
1.A.2
.
San Francisco relies heavily on two aging, inefficient, and polluting power
plant at Hunters Point and Potrero, The State Implementation Plan for the
federal Clean Air Act requires that the owners of these plants significantly
reduce emissions of oxides of nitrogen (NOx), a precursor of ground level
ozone (smog) by January 1,2005, Installing new pollution control
technology on either of the plants would cost the owners and ratepayers
tens of millions of dollars and could result in the extension of their
operation for another ten to fifteen years. The installation of the pollution
control equipment in 2004 would require the shutdown of the main
generators at each plant for three to six months, creating a major reliability
problem as well as increased pollution if diesel-fueled peaking power
plants are called into operation,
Analysis by the SFPUC and SFE demonstrate that retrofitting and
continuing operation of both these old, large units would produce higher
levels of pollution and health impacts than if they were replaced with new,
62
1. A. 3
1.A.4
1. A. 5
1. A. 6
1. A. 7
-.,
cleaner technologies, Also, smaller-scale, distributed generation, including
co-generation, can more easily be combined with renewables, energy
efficiency, and peak load management to minimize the use of fossil fuel
generation, The analysis further indicates that reliability would also be
enhanced by distributed, mixed resources,
The City and the residents of southeast San Francisco have made it clear
that they want to shut down, rather than upgrade the Hunters Point plant.
In order to close Hunters Point and to meet demand forecasts, there is a
need for a projected 100-210 megawatts of in-City replacement generation
and load reduction, or new transmission, by 2005, That need grows to
249-317 megawatts by 2012,
Development of a proposed new 540 MW power plant at the Potrero
Power Plant (Unit 7) has been delayed in the regulatory review process
and is now looking doubtful due to investors' current lack of confidence in
the electricity market. It is now certain that the plant will not be
operational by 2005 in time to provide the replacement power needed for
the shutdown of Hunters Point.
San Francisco has transmission constraints that limit the amount of
imported power, New transmission projects can increase the amount of
power to be imported and limit the hours that in-City power plants need to
operate, One project, the upgrade of the San Mateo to Martin line number
4 from 60 kV to 115 kV could be completed before the end of 2004, A
new 230 kV transmission line from the Jefferson substation in San Mateo
County to the Martin substation would provide another 350 MW of
imported power to the City, The current schedule for completion of this
transmission project is September 2005. However, it is possible that this
project could be delayed,
-,
There is significant untapped potential for electricity load reduction
through energy efficiency improvements and load management in existing
buildings and new construction in both the public and private sectors,
Energy efficiency investments reduce peak demand, thus avoiding the
need to obtain the power from generating plants, Some projects have been
identified and could be undertaken immediately, To be fully effective in
addressing reliability in 2004-5, additional mechanisms for capturing this
potential in a timely fashion would need to be developed.
There is demonstrable public support and opportunities for the
development of solar, wind, and other renewable resources in and near
San Francisco, A portfolio of electricity resources that includes an
increasing proportion of renewables together with higher levels of energy
efficiency can significantly reduce emissions of carbon dioxide and air
.......,
63
.
1.A.S
pollutants, improve marine and wildlife habitats, lower noise levels, lessen
visual impacts, and make a contribution to improved public health,
Small-scale renewable projects stimulate local economic development to a
greater degree than do large-scale generation and transmission approaches,
which tend to send most dollars out of the City, Renewables, together with
other small-scale distributed generation, such as packaged co-generation
and fuel cells, are appropriate applications for many public or commercial
facilities in the City,
I. A Clean, Reliable Electricity Portfolio
B. RECOMMENDATIONS
The City should take on the responsibility of planning and developing new electricity
demand reduction sources and the most environmentally friendly power generation for
San Francisco. This would require that:
1. B. 1
.
1. B. 2
The City periodically review and set annual targets for increasing the
efficiency of electricity use and the amount of electricity produced by
renewable sources of energy so that ultimately all of San Francisco's
electricity needs are met with zero greenhouse gas emissions and minimal
impacts on the environment
The City identify and promote common criteria for investments in energy
efficiency, renewable energy, and fossil fuel powered generation. SFE
will develop an economic value for public health and environmental
impacts to be incorporated into the investment criteria,
Through coordination with the Independent System Operator, PG&E and others, the City
needs to determine more precisely the quantity of new power resources necessary to shut
down the Hunters Point Power Plant Unit 4 by 2005 and avoid the retrofit of Potrero
Power Plant Unit 3. Based on this coordinated determination of need, the City should
develop a mix of efficiency, renewables, small- and mid-scale sources of generation--
including co-generation facilities and gas-fired peaking power plants--and facilitate the
construction of additional transmission capacity, Specifically,
Energy Efficiency - 16 MW by 2004; 55 MW by 2008; 107 MW by 2012
1. B. 3
.
The Department of the Environment should facilitate comprehensive
energy efficiency implementation measures throughout the private sector,
and the San Francisco Public Utilities Commission should aggressively
implement energy efficiency projects in City facilities,
64
1. B. 4
1. B. 5
1. B. 6
1. B. 7
1. B. 8
1. B. 9
1. B.10
1. B.11
--...
SFE and SFPUC should perform an energy use study of San Francisco's
commercial and residential buildings, Results of this study will be used to
design targeted electricity demand reduction programs based on San
Francisco's unique energy use characteristics,
The Board of Supervisors should direct City agencies to develop
guidelines, programs, and new codes designed to reduce demand in
commercial and residential buildings in the public and private sectors.
This should include: upgrading the Residential Energy Conservation
Ordinance, re-instating the Commercial Energy Conservation Ordinance,
and requiring City vendors to participate in energy efficiency programs.
The Board of Supervisors should adopt energy-efficient planning and
building codes for new construction and major renovation projects in the
public and private sectors (eg, requiring district heating and cooling
systems in new developments) and join other cities in adopting green
building standards such as LEED (Leadership in Energy and
Environmental Design).
A priority target for reduction is the peak demand among commercial and
industrial facilities, particularly downtown buildings, SFE and SFPUC
should work with downtown building owners and operators and the ISO to
implement programs that incentivize load curtailment and load shifting
during periods of peak demand,
-.,
SFE and SFPUC should work with other City departments, PG&E, and
state and federal agencies to provide enhanced incentives to San Francisco
businesses and residents for energy efficiency and peak load reduction
(eg" tax credits, rebates, rate incentives, and peak load management
programs),
SFE should create a coordinated outreach program directing residents and
businesses to available local energy efficiency services, local appliance
suppliers, programs offered through PG&E and other organizations
receiving Public Goods Charge funding, state and federal programs, and
tax credits,
SFPUC should implement a design review program to make new
municipal construction projects more energy efficient than required by
state and local codes.
The SFPUC should continue to implement municipal energy efficiency
programs in City buildings including large scale retrofits, energy
management, recommissioning projects, maintenance, and staff training
programs for existing facilities.
--..
65
,
1. B.12
1. B.13
SFE and SFPUC should organize energy efficiency training for operations
and maintenance staff, facility managers, and designers/specifiers in both
the public and private sectors,
SFE should develop energy educational programs for schools,
coordinating with successful national and state curricula programs, These
should be integrated into the curriculum in the SFUSD, City College, as
well as private schools and professional training programs,
Renewable Energy - (Solar) 7 MW by 2004; 28 MW by 2008; 50MW by 2012
(Wind) SO MW by 2008; 150 MW by 2012
1. B.14
1. B.15
-
1. B.16
1. B.17
1. B.18
1. B.19
1. B. 20
.
SFE and SFPUC should identify locations for the installation ofrenewable
energy systems in San Francisco on public and private buildings, and
develop programs and funding mechanisms to put them in place through
propositions B and H and other sources, .
SFE and SFPUC should work with City Planning and the Department of
Building Inspection to facilitate permitting and inspections ofrenewable
energy projects,
The SFPUC should develop renewable energy sources to be conveyed
through transmission lines that serve San Francisco,
SFE and SFPUC should work with other City departments to develop a
local solar installation industry and bring renewable energy manufacturing
and assembly to San Francisco,
The City, through the Board of Supervisors, should set targets for the
quantity of solar and other renewable energy development in San
Francisco over the next decade,
The Board of Supervisors should set a Renewable Portfolio Standard that
would continually increase percentages of renew abIes in San Francisco's
imported electricity mix (to be supplied by renewable sources such as
wind, solar, low-impact hydroelectric, geothennal and biomass), The
Board should support Renewable Portfolio Standard legislation at the state
and federal levels,
SFE and SFPUC should develop resources and infrastructure for the
production of hydrogen as a fuel to convert or displace fossil fueled
technologies,
66
1. B. 21
"'""
SFE and SFPUC should seek partnerships with government agencies and
private entities to explore the potential of advanced renewable
technologies appropriate for San Francisco's urban environment, including
wind, tidal current, and wave generation,
Medium-sized Generation/Co-generation - 150 MW by 2004; 250 MW by 2008
(replaces old fossil fuel generation)
1. B. 22
1. B. 23
1. B. 24
1.B.25
1. B. 26
The City should expeditiously develop sufficient highly efficient and
operationally flexible new generating resources to enable the closure of
Hunters Point Unit 4 by the end of 2004, The amount of new generation
needs to satisfy ISO reliability requirements based on objective load flow
analyses,
The City should facilitate the early retirement ofPotrero Unit 3, to avoid
costly upgrades and the extended operation of this outdated plant. New
City power facilities used as replacement power must reduce air
emissions.
The City should develop cost-effective co-generation applications at
locations such as Mission Bay as an effective way of reducing the
emission of greenhouse gases and improving electric system reliability,
"'""
The quantity of new natural gas-fired generation procured by the City
should be based on an ISO-reviewed load flow study that determines the
amount of power necessary to maintain system reliability while complying
with all state and federal environmental regulations, All studies will be
based on the latest ISO-accepted electricity demand forecast. Whenever
investment in demand-side management programs and sustainable
resources can offset new fossil fuel development to meet demand
forecasts, this will be the City's preferred course,
SFE and SFPUC should annually evaluate the need to operate any city-
owned or controlled natural gas-fued generation, The evaluation will
include an assessment of the latest electricity demand forecast and an
assessment of the progress in energy efficiency, demand reduction,
distributed generation, and renewable energy, Fossil fuel plants should
only be used to serve city load and to meet reliability requirements as
required by the ISO,
"'""
67
,
Small-scale Distributed Generation -10 MW by 2004; 38 MW by 2008;
72 MW by 2012
1. B. 27
1. B. 28
1. B. 29
1. B. 30
.
SFE and SFPUC should develop or facilitate private and public sector
projects for various distributed generation applications including fuel
cells, packaged co-generation, and micro-turbines. Emergency diesel
generators that do not have the best available pollution control technology
should not be used except in genuine emergencies,
The City should seek to remove economic disincentives within the control
of the CPUC for the development of distributed generation projects
installed in San Francisco,
SFPUC should work with PG&E to research and identify the effects of
distributed generation on the local distribution system,
SFE and SFPUC should work with PG&E, City Planning and the
Department of Building Inspection to streamline the permitting and
interconnection of distributed generation to the grid,
Transmission - 100 MW by 2005; 450 MW by 2006
1. B. 31
1.B.32
The City should advocate for the completion of the 60 kV tollS kV
upgrade of the San Mateo-Martin transmission line number four before the
end of2004,
The City should support the Jefferson-Martin 230kV transmission line
project and strongly advocate for a continual increase in the level of
renewables in the electricity resource mix transmitted over the grid,
SFPUC should work with PG&E to expedite its early approval and
construction, SFE should monitor the EIR process to ensure the City's
expectations regarding environmental compliance/mitigation issues are
met.
II. Environmental .Justice
A. FINDINGS
2.A.1
.
The neighborhoods of Southeast San Francisco have historically borne a
disproportionate burden of environmental and health impacts represented
by the Hunters Point and Potrero power plants, At the same time, these
communities have not shared in the benefits of jobs and economic
development that the electricity generation supports.
68
2.A.2
2.A.3
-
The most pressing issue facing the neighborhoods of Southeast San
Francisco is the closure of old polluting power plants and the net reduction
of pollution from the generation of electricity in the Southeast.
Significant potential exists for creating economic and employment
opportunities for residents of Southeast San Francisco in the development
of renewable energy sources and the expansion of energy efficiency
programs,
II. Environmental Justice
B. RECOMMENDATIONS
2.B.1
2. B. 2
2.B.3
2.B.4
2.B.5
Prioritize low-income neighborhoods in San Francisco for the delivery of
services and activities related to the development of the economic
infrastructure for the efficiency and renewable energy industries,
SFE should monitor and periodically report on the dispersion of specific
energy program benefits to Southeast San Francisco including training,
employment, contracting, and business development opportunities,
-.
,
SFE should work with other City departments to monitor and periodically
report on carbon dioxide emissions, the reduction in air pollutants, and
environmental impacts to Southeast San Francisco, the Bay, and sensitive
habitats that are the result of electricity use and infrastructure, The results
should be used to measure San Francisco's environmental performance,
The Board of Supervisors should recommend that the Bay Area Air
Quality Management District (BAAQMD) install a new air quality
monitoring station in Southeast San Francisco.
The siting of any new fossil fuel generation in San Francisco must
demonstrate a significant improvement in air quality and other
environmental benefits in addition to cost-effectiveness using cost benefit
analysis criteria that includes health and environmental values,
-.
69
.
III. Implementation and Review
A. FINDINGS
3.A.1
3.A.2
In order to follow through on the recommendations made in this plan and
to meet the identified goals, sufficient human and [mancial resources must
be put in place. Some programs and projects are already underway, while
others must be initiated and funded,
Successful implementation will require strong continued participation by
the public and leadership by the City, The Chamber of Commerce and the
business community are cooperating in promoting energy efficiency and
distributed generation among their constituents, SFPUC and SFE are
actively engaged with state energy agencies, PG&E, and community
groups to coordinate efforts and resources in support of our goals,
III. Implementation and Review
B. RECOMMENDATIONS
3. B.1
.
3.B.2
3.B.3
3.B.4
3.B.5
.
SFE and SFPUC should identifY specific objectives and develop timelines
for the achievement of energy efficiency, renewable energy, and other
distributed generation objectives in each district, each sector, and
citywide, They should also identifY the resources necessary to implement
the recommendations of this Electricity Resource Plan
The Board of Supervisors should determine when City energy policies
need to supercede other City policies (e,g, the Residential Guidelines
currently disallow solar on historic buildings).
The City should establish a funding source other than revenue bonds
dedicated to private sector energy programs, such as a carbon tax and
credit system,
SFE and SFPUC should perform an economic impact and employment
projection analysis of the effects of implementation of this plan
SFE and SFPUC should target each sector ofthe San Francisco economy
for the inclusion of energy efficiency, renewable energy and distributed
technologies, Sectors include, but are not limited to commercial property
developers, banks, large office buildings, small office buildings, hotels,
warehouses, grocery stores, and apartment buildings,
70
3.B.6
3. B. 7
--,.
All energy efficiency programs should incorporate measures to address
natural gas use in addition to electricity use, SFE and SFPUC should
coordinate in applying for funding from foundations as well as federal and
state funding sources to achieve the goals of the Electricity Resource Plan,
SFE and SFPUC should provide periodic updates on any developments in
the regulatory or electricity industry that bear on this plan and should
submit a joint annual report to the Board of Supervisors on achievements
and challenges of the energy program, The Plan itself should be evaluated
and updated annually,
.~
"'"
71
.
Energ1zlnl Cities
STATE OF THE WORLD 1007
.
is 2-5 percent, but studies find that the asso-
ciated financial benefits over 20 years are
more rhan 10 times the initial investment,
And the costs of green buildings are filling
with design and construction experience,2S
r Although the marginal cost of improving
~ efficiency is lowest when buildings are con-
structed, retrofits can be highly cost-effective
as well, Simple strategies like daylighting,
efficient lighting, and glazing can pay for
themsdves in as little as one year, More than
300 retrofit projects-from insulation to
water system improvements-undertaken in
China in recent years had an average pay-
back period of 1.3 years.""
Such advances can also provide important
benefits for the world's poor, In industrial
nations, maximizing efficiency through
design and cost-effective end-use technolo-
gies can ensure that poor residents are. not
forced from their homes by rising energy
costs, In the devdoping world, efficiency
advances can bting dramatic quaJity-of,life
improvements by making energy services
more affordable to the poor, LEDs, for
example, provide an estimated 200 times
more useful light than kerosene lamps, At
$55 each, solar-powered lamps with LEDs
could brighten the nights of the poor, In
Tembisa, a shantytown of johannesburg,
South Africa, a survey found that almost
10,000 households spend more than $60
each for candles and paraffin every year;
with access to microcredit (see Chapter 8),
such families could afford cleaner, better
lighting fredy powered by the sun,27
In ancient Greece, many cities were
planned in grids so that every home had
access to the sun for warmth and light in
winter; the ancient Romans went so far as
to pass "sun-right laws," forbidding builders
from blocking access to the winter sun,
Green roofs date back thousands of years,
the most famous being the Hanging Gar-
.
96
dens of Babylon, constructed around 500
BC, The lessons of these ancient practices,
combined with state-of-the,art technolo-
gies and materials, provide today's cities
with powc;rful tools to achieve dramatic
efficiency improvements,2S
Powering Cities Locally
When Thomas Edison installed his first elec.
tric systems in the late nineteenth century, he
envisioned an industry with dozens of com-
panies generating power close to the point of
nse, Such a system would be particularly
suited to densely populated urban areas. Ini-
tially, the industry evolved along these lines,
with many companies producing power on
site and capturing the waste heat, But by
the mid-1930s most industrial countries had
established monopoly industries, driven
greatly by the economic benefits of ever-
larger generating stations matched with trans-
mission and distribution systems, It was not
until the 1980s that efficiency limits were
met-which, combined with a variety of eco-
nomic and environmental challenges, led
many experts to realize that bigger is not
always better when it comes to energy pro-
duction,"
Small-scale, locally installed power equip-
ment, also called distributed generation (DG),
could enable cities to meet much of their
own energy needs once again, Today, DG
remains more expensive per unit of energy
output than conventional, centralized gen'
eration, but costs continue to fall and asso-
ciated benefits are significant, Distributed
generation reduces the need for expensive
transmission and distribution infrastructnre
while lowering grid losses, By bypassing the
T&D system, DG also improves reliability
, and reduces vulnerability to accident or sab-
otage, Because they are modular and can be
installed rapidly, distribnted small-scale gen-
STATE OF THE WORLD 2007
Ener,lzlng CIties
erators can expand to keep pace with demand
.as a city grows, deferring or preventing the
need for new central power plants. This is par-
ticularly important in developing conntries,
where migration is rapidly raising urban num-
bers as well as energy demand. And distrib-
uted systems provine local control and
ownership of energy resources, encouraging
community-level economic development.
(See Chapter 8.)
Most DG today comes from inefficient
diesel generators or natural gas turbines, But
several new options are emerging, with tech-
nological progress on a variety of fronts. For
example, advanced technologies such as high-
performance microturbines and fuel cells
promise rellable, efficient alternatives, Fuel
cells require minimal maintenance and can be
sited in crowded urban centers because they
are clean, quiet, and highly flexible, Several
fuel cell technologies are under develop-
ment, with many already producing power
for modern office buildings and hotels;
advanced fuel cells could soon generate
enough energy to supply a large proportion
of the electricity and heat needed to power
a city and warm its buildings,'.
Today fuel cells or advanced microtur-
bines must rely primarily on natural gas that
has to be piped into cities, But alternatives
already exist: methane from a local landfill will
soon drive a fuel cell in the city of Vaasa,
Fiuland, supplying heat and power for 50
homes. Eventually, fuel cells can use hydro,
gen produced from a variety of renewable
sources.31
Far beyond feeding turbines and fuel cells,
renewable resources can provide energy for
cooking, lighting, heating, cooling, and even
transportation in the world's cities and
beyond, Renewables already meet the energy
needs of millions of people aronnd the globe,
and renewable energy markets are experi-
encing exponential growth, Wrnd and solar
power are the fastest-growing electricity
sources, and biofuels are the world's filstest-
growing fuels; all are experiencing double-
digit annual growth rates."
Green roofs date back thousands
of years, the most famous being
the Hanging Gardens of Babylon,
constructed around 500 Be.
Wherever the sun shines, buildings-
whether shacks or skyscrapers-can become
mini-power or heating stations, Solar photo-
voltaics (PVs) generate electricity directly
from sunlight, often at precisely the rime
when power demand is greatest and electric-
ity is most costly, PV technology has advanced
to the point where it can literally be inte-
grated into structures-in roofing tiles and
shingles, outer walls, and glass windows-
generating not only electricity but also shade
and insulation, When used for building
facades, PVs can be cheaper than granite or
marble. Building-integrated PV (BIPV) is
now widely used in Europe and is spreading
to other regions as well, The IBA estimateS
that BIPVs could meet nearly one fifth of
annual electricity demand in Finland, more
than 40 percent in Australia, and about half
of the total in the United States."
Solar thermal systems, which use the sUn's
warmth to heat water and space, adorn
rooftops from Freibnrg in Germany to
Jerusalem in Israel and can pay for them-
selves in just a few years throngh fuel savings,
Shanghai and omer Chinese cities are becom-
ing hotbeds for solar energy, driven by the
need to rednce coal and oil consumption.
China now leads the world in the manufac'
ture and use of solar thermal systems, Solar
power and heating offer enormous potential
in other developing-conntry cities as well,
where they could provide electricity, heat,
.-,
.-,
97
Eneralzlng Cities
STATE OF THE WORLD 201
and hot water for families and communities
in informal settlements that currendy have no
access to the electri.c grid or other modern
energy services-and for fur leSs than it would
cost to extend the grid,"
A new district with 1,000 dwellings
in t-Ialmo, Sweden, meets 100 percent
of its electricity needs with solar
and wind power.
.
Cities can also tap the insulating proper-
ties of the ground beneath them, Heat
pUmps use the near-constant temperawres of
Earth or groundwater as a heat soUrce in
winter and a heat sink in summer to heat and
cool water lind.space. The D,S, military
replaced individual space heating, cooling,
and water heating systems with ground.
souree (also called geothermal) heat pumps
in more than 4,000 housing units in Fort
Polk, Louisiana, eliminating nearly one third
of the community's electricity use and 100
percent of the natural gas previously required
for heating and cooling, In the world's
largest residential application of this tech-
nology to date, the Beijing Unlced Hybrid
Project will use heat pumps to heat and cool
almost 140,000 square meters (1.5 million
square feet) of new apartments."
There is evidence that high-temperature
geothermal water was used to heat buildings
in ancient Pompeii, Today, such sources are
tapped for district heating systems in cities in
France, Iceland, the United States, Turkey,
and elsewhere, Paris has the largest such sys-
tem in the European Union,'.
Although cities have little land available
for energy crops, they have an enormous
potential resource for biomass energy: urban
waste. New York City, for example, pro'
duces 12,000 tons of garbage per day, The
waste must be shipped as fur away as Ohio,
98
and disposal costs the city more than $
billion annually, In industrial- and deveJol
ing-country cities alike, per person genet;
tion of municipal waste is increasing "!-it
population and lifestyle changes. Dne pr
marily to a lack of resources and dispos
sites, as much as 90 percent of the waste i
some developing-country cities is not co
Iected; instead, it is burned or left to rot i
the streets, creating heavy smoke and fume
water pollution, and disease.37
Bnt one person's trash is another's blac
gold, and urban waste can be used to pre
duce everything from cooking fuel for ind
vidual households to grid-based electricit
for office buildings and homes or'biofucls fc
modern vehicles, Where waste does make
to landfill sites, methane can be extracted t
generate electricity, reducing release int
the atmosphere of a greenhouse gas (GHC
that is 2 I times more potent than carbo
dioxide, Landfill gas prodnces electricity i
many D.S, cities, in Sao Paulo in Brazil, an
in Riga in Latvia, and it meets nearty tw
thirds of power demand for lighting in Mor
terrey, Mexico. 38
Waste can also be treated in anaerobi
digesters, which break down almost an
organic material-from paper and yard wast
to garbage and municipal sewage-into COlI
postable solids, liquid fertilizer, and a gaseor
fuel that can be carried or piped to stove,
heaters, electric turbines, and any devic
fueled by natural gas. Most poor people in th
developing world spend at least 20 percent c
their monthly incomes on fuel for cookinE
But low-cost, household-sized digesters fo
with feedstock readily available in urban ate'
can displace dung or firewood, reducing pre!
sure on local forests while providing familie
with a smoke-free and healthier enviromnenl
And a Tanzanian sOldy found that bioga
could save five hours of household labor dai1]
giving women and children more time fo
.
STATE OF THE WORLD 1007
productive activities. S9
On a larger scale, many industrial-country
cities-indnding Frankfurt, Vienna, and
Zurich-are converting waste to gas for
energy, In early 2006, San Francisco launched
a pilot project to prodnce power from dog
waste after finding that it accounted fur nearly
4 percent of the residential garbage collected.
Oslo, Norway, has perhaps the largest system
in the world that uses raw sewage to produce
Space and water heating, Heatis drawn from
the sewer and transferred to a network of
, \vater pipes that feed thousands of radiators
'<8nd faucets throughout the city. And the
:;9wedish coastal city of Helsingborg runs its
!.~uses on biogas made- from local organic
':>wastes. New technologies can convert even
'Ylhorganic materials-from hospital and indus-
\jPal wastes to car tires-into electricity and
'\tansport fuels,'.
, __,. Although the potential is limited in urban
t'~eas, even 'Wind and water can provide some
{(\\ities with finch needed energy, Wmd energy,
i!iP particular, faces visual and resource siting
!~nstraints, but these challenges have not
;,itlways discouraged its use. Tokyo has installed
"~,5 megawatts of wind turbines along its
{!Waterfront, and in May 2005 an electricians'
,iQrnon installed the first commercial wind tur-
Iilme in Boston, which will provide electricity
#l">r its regional training center, Cities along
i~stlines or large water bodies can tap local
l'f!'Sources from new directions, helping to
liilJeviate transmission constraints. The Mid-
!~grunden Wmdfurm off the coast of Copen-
l~~gen meets 4 percent of the city's electricity
~""ds and is the world's largest cooperatively
~ed wind power project,4l ,
l\<Both New York and San FranCISCO have
I~'_',.:o,_,.'-,posed projects to use marine energy for
;','wer. And some cities are literally tapping
)al water sources for cooling, Paris pnmps
!$ater from the Seine River to run air-con-
., ltioning systems, and Toronto uses the
[,'
il'
,,"
~"
Energlxlng Cities
deep, frigid waters of Lake Ontario for dis-
trict cooling. Toronto's system has enough
capacity to cool 3.2 million square meters
of office space, or the equivalent of 100
office towers.42
Although few ci ties will meet all their
energy needs with distribnted renewable
resources in the foreseeable future, some
urban areas are already doing so. A new dis-
trict with 1,000 dwellings in Malmo, Swe-
den, meets 100 percent of its electricity
needs with solar and wind power, gets its
heat from sea and rock strata and from the
sun, and fuels its vehicles with biogas from
local refuse ,and sewage, The planned Chi-
nese eco-city on Dongtan Island will tap
similar resources for an expected popula-
tion of 500,000 by 2040"
Energy efficiency improvements in build.
ing:design, proper orientation and materials,
and more-efficient end-use technologies fuci1-
itate the use of renewable energy for two
re~sons. First, because the scale becomes
mOre manageable, renewables can meet a
city's energy needs more easily; second, as a
city reduces its demand for energy, it is in a
better position to bear the higher costs per
nnit of output that come with many renew-
able technologies today," ~11
While renewable energy technologies are
capital-intensive, they have low to zero fuel
costs, reducing exposure to fluctuations in fos.
sil fuel prices, They have far lower impacts on
air, soil, and water and, as a result, on human
health than conventional fuels and tech-
nologies, And they can.provide a reliable and
secure supply of power, An analysis of the
2003 blackout in the V,S, Northeast found
that a few hundred megawatts of PV gener- l
ation strategically placed in and around the
major cities involved would have reduced the
risk of the power ontages dramatically."
Renewables also provide local control over
energy supply and generate valuable tax rev,
")
_1
--
99
,Cltl.,
>r!p
10U
neters
flOO "
their
wable
some
wdis-
Swe-
:ricity
:ts its
tI1 the
from
, Chi-
II tap
'pula-
luild-
erials,
, fucil-
r two
omes
teet a
I, as a
~-
new-
~s are 11
,fuel
"fos-
tson
Iman
tech-
:and
fthe
jund
:ner- ~
i the
d the
5
over
rev-
99
----,
"},
Eners'zlnl.Cltl..
STATE OF THE WORLD 1007
enue and local jobs-one of the most press-
ing concerns of city mayors, according to a
1997 U,N, Development Programme sur-
vey, Approximately 170,000 new jobs in Ger-
many are attributed to the renewable energy
industry, About 250,OQO Chinese are
employed.in the solar heating indnstry, and
the biogas industry has created more than
200,000 jobs in India, Further, renewables
can provide energy services where many con-
ventional technologies do not or cannot go-
into the homes and communities of the very
poorest people,"
Pioneering Cities
While cities fuce formidable challenges in
reforming energy generation and use, many
are taking bold steps in this direction-IIUlg-
ing from daily municipal operations tospe'
cia! events and gatherings. (See Box 5-2.)
Their actions demonstrate at practicalleveis
which policies have proved most effective in
a variety of conditions of economic wealth,
natural resource endowment, and cnltural
and political heritage, They also indicate the
vital role that cities can play in reducing
greenhouse gas emissions and averting cli-
mate change,47
In Barcelona, Spain, after the Green Party
won in city council elections it introduced
strong policies to support renewable energy
and reduce reliance on nuclear power, The
primary focus has been on developing the
city's solar energy potential-which is 10
times as large as its total energy demand,
From 1995 to 1999, demonstration projects
and stakeholder consultations took place to
develop policy and a realistic timeline for
industry compliaUce,<8
In 2000, the Barcelona city council man-
dated that solar water heating provide 60
percent of hot water in new and substantially
refurbished buildings, Less than four years
100
Some 9,000 International gatherings take
place around the world every year, giving
cities a prime opporwnlty to address cli-
mate change In a very public way. For
example. the Olympic Village constructed
for the 2000 Games in Sydney,Australia,
represented the blggest sola"i'owered
residential development In the world at
the time,
As part of Beijing's successful bid for
the 2008 Olympics, city leaders are work-
ing to Improve local air quality, With ..sis-
, tance from the U.s. Department of Energy,
. the city Is trying to reduce coal consump-
tion and to Increase the use of solar energy
for both electricity and pool heating,
In Germany, a series of Green Goal
targets for the 2006 World Cup Games
! Included a 20-percent decrease In stadium
energy use and energy generation from
renewable sources.These efforts reflect
i municipal desires to attract prestigious
. and lucrative special events while avoiding
strains on local Infrastructure and
resources as well as the. global commons.
,
,
!
I
r
~
l
i
I
!
,
,
.;
,
~
"
I
I
SOURCE: See endnote 47,
;
~
~
;
,."",,,-'
after enactment of the Solar Ordinance,
installed solar capacity in Barcelona had
grown nearly twelvefold; by April 2004,
the city's solar water heating systems saved
the equivalent of almost 16 megawatt-hours
of energy a year, reducing CO2 emissions by
2,8 tons annually, The city has since
extended the requirements to even more
buildings, By early 2006, more than 70
Spanish cities and municipalities had
adopted solar water heating ordinances; fol-
lowing their lead, the national government
has enacted a similar policy,"
In other dties where governments
encourage increased local reliance on green
'on
..
'i:-
ii. power, one popular mechanism is quota sys- meters (15 million square feet) could save the
, ternS, which require that a growing amount city $6 million in energy costs annually. S2
( of municipal or community energy be Chicago's vision for change is not only
.,~. obtained from renewable resources, with bearing economic fruit, it is also altering the
market forces eompering to identifY the most very texture of the urban environment,
economieal projects, Often referred to as Green roofs have sprouted to life atop City
renewable portfolio standards, these poli- Hall and on more than 232,000 square
'., cies can apply to public or private energy util- meters (2,5 ri1illion square feet) of residen-
iries, The publicly owned Sacramento rial and commercial structures, Some
MUIlicipal Utility District in California- 250,000 trees planted over the last decade
). building on its long-running eomrnitment to offer shade and beauty to tocal neighbor-
~". green energy-aims to derive 23 percent of hoods, In effect, a city long known for its
:.' its electricity supply from renewable industrial heritage is preparing to seize the
:~; resources by 2011. And to encourage 10C~1 next wave of global economic opportu-
l PV installations by residential, commercial, nity-one linked explicitly to "green" and
~,_ and industrial custOmers, the utility offers "clean" development."
,\ incentive payments for every watt installed, so
,~, Cities served by privately owned utilities;;;':~ Less than four years after enactment
" or other aetors over which the municipality 'of the Solar Ordinance installed
~ has little control must often follow other ~ . .'
.' strategies, In 1995 and 1999, Chicago swel- 'solar capacity In Barcelona had
.~;- tered under serious heat waves that brought grown nearly twelvefold.
rolling blackouts and hundreds of local
>c. deaths, Following a $100-ri1illion settle-
.,' ment with the private utility CornEd due to
,.". the outages, the city chose to apply the
funds it received toward greater sustain-
iJ'
ability in local energy use in order to reduce
the likelihood and impact of future black-
outs, In 2001, Chicago negotiated a new
power purchase agreement with CornEd,
requiring the utility to provide 20 percent
of the city government's electricity from
renewable sources by 2006 (although that
was later changed to 2010),51
Through these and other initiatives,
Chicago has started a campaign to beeome
"the most environmentally friendly city in
America," As of 2004, new or substantially
refurbished public buildings must meet Lead-
ership in Energy and Environmental Design
(LEED) certification as defined by the U ,S.
Green Building Council, Retrofits of munic-
ipal buildings totaling 1.4 ri1illion square
",,"
i:!il';':!!A'TE OF THE WORLD 2.007
1;'
Energb:lng Cities
-.
j
;;1
.~
Another option for cities with ptivate util-
ities is evident in the growing movement for
governments to help a collection of commu-
nities meet their energy needs, In the United
States, for example, cities and towns in Cal-
ifornia, Massachusetts, New Jersey, Ohio,
and Rhode Island are now authorized to do
this for local government, area homes, and
businesses, thanks to recent regulatory
changes, In turn, localities may shop among
a range of energy options. This community
aggregation may allow cities to set more-
stringent rules for energy efficiency and
renewables than federal or state standards as
a condition of utility contracts,S'
Beyond the issue of municipal control
and local utility ownership, some cities seek
dean local power as a way to keep pace with
the demands of an industrializing society.
Since 2000, Daegu in South Korea has pur-
sued increasingly comprehensive urban plan-
1
101
Ener,izlng Cities
.
ning that links renewable energy with local
economic development, During the.
1997-98 Asian economic crises, the deval-
uation of South Korea's currency con-
tributed to a doubling of energy prices due
to the nation's large reliance on imported
energy. Against the backdrop of high pop.-
ulation density and rapid urbanization, this
focnsed attention on Daegu's need to alter
its energy model. 55
Daegu has established a goal of local
renewables meeting 5 percent of its total
energy demand by 2010, with long-term tar-
gets set through 2050, In addition, the Cen-
ter for Solar City Daegu, a joint effort of the
municipality and Kyungpook National Uni-
versity, is working to disseminate green tech-
nologies, These include PV and solar water
heating installations at schools, on the uni-
versity campus, and at sewage and water. treat-
1 ment facilities, To help homeowners install
solar roof systems, the city and national gov-
ernment are funding up to 80 percent of
installation costs, Strong citizen participa'
tion has been reinforced by municipal lead-
ership in Daegn, ,.
The need to address environmental
threats while widening social access to crit-
ical energy services are driving efforts in
Mexico City-home to 20 million people in
the metro area-where a cloud of haze
relentlessly shrouds views of surrounding
mountain" In 1998, the World Resources
Institute named Mexico City "the most dan-
gerons city in the world for children"
because of its poor air quality, and the city
remains among the world's most pollnted
urban areas, 57
In 2002, officials finally addressed this
situation when they enacted a range of poli-
cies that are now organized under Mexico
City's Proaire initiative for climate protec-
tion, Energy efficiency improvements are
being achieved through the installation of
.,
.
102
STATE OF THE WORLO 2001
~
advanced light bulbs in 30,000 new resi_
dential nnits and 45,000 existing homes.
Solar heating systems are due to be installed
in some 50,000 residences. Financial sup_
porters of Proaire include local electric and
water utilities, the World Bank, COrporate
foundations, the Chicago Climate Exchange,
and nonprofit organizations,5'
Since 2003, Cape Town in South Africa
has sought to advance energy efficiency and
renewable energy as a way to bring basic elec-
tricity service to poor, underserved neigh-
borhoods and to rednce the impact of a
national power shortage that is expected to
begin in 2007, The municipal government
aims ror 10 percent ofits energy to come from
renewable. by 2020 and has begun energy
audits and efficiency retrofits at public faciJ-
ities, In the Kuyasa region of the city, a pilot
project under the Clean Development Mech-
anism (CDM) of the Kyoto Protocol, which
aims to reduce GHG emissions in developing
countrieS, bas insulated ceilings and provided
residents with solar water heaters and compact
fluorescent bulbs, The GHG reductions
earned Kuyasa Gold Standard CDM recog-
nition in 2005 ror exceptional standards in
sustainable design.59
Numerous other cities are adopting goals
and programs that support sustainable energy
systems, (See Table 5-1.) And many cities
have united to form larger networks that can
pursue green energy development ror both cli-
mate protection and urban quality of life. In
many ways their collaboration-as well as
the actions of regional and state govern'
ments-reflects an effort to act in place of
national governments and the international
community, which to date have largely f.illed
to resolve major problems associated with
conventional energy use,"
Examples of these networks include the
U,S, Mayors' Climate Protection Agreement,
which encourages cities to lobby the federal
STATE OF THE WORLD 1007
City
Beijing. China
Berlin, Germany
Copenhagen.
Denmark
Freiburg. Germany
Leicester,
United Kingdom
Melbourne,
Australia
Oxford.
United Kingdom
Portland, Oregon,
United States
Tokyo.Japan
Enere1z:1ng CIties
Table 5-1. Selected Municipal EnergyTargets
Target
Reduce energy Intensity of the city's economic output by 32 percent between 2004
and 2010
Reduce energy use in public buildings 30 percent by 20 I 0; incorporate solar water
heating Into 75 percent of new buildings annually
Energy audits required for buildings exceeding 1.500 square meters; all new buildings
must rely on district heating (electric heating banned)
10 percent of all public and private electricity must come from renewable sources
by 2010
Reduce municipal building energy use 50 percent from 1990 level by 2025
much gre.,.,house gas each person on Earth
can emit annually without overwhelming the
ability of the atmosphere and biosphere to
absorb it. The target for 2050 is about 3.3
tons CO,-equiva]ent per person. This is about
as much as the average person in China or
Argentina emits today.62
Increase municipal use of renewable energy by 50 percent from 1996 levels and
private use by 22 percent by 20 I 0
10 percent of homes must use solar hot water or PV by 20 I 0
100 percent green power for municipal govemment by 20 I 0; all new city-owned
construction to meet LEED Gold certification
Minimum 5-percent renewable energy use in larg!e municipal facilities starting In 2004;
renewables proposed to supply 20 percent of total energy by 2020
Lighting the Way
Cities have great potential to influence
change, This power comes not only from the
more manageable scale of local population
and energy use but also from their role as
national and regional seats of political power,
Cities also frequently represent centers of
political and technological innovation, where
constituents are closer to these seats of power
and thus retain more influence over policy.
makers, And becanse powerful industries do
not wield the same influence at the local level
SOURCE: See endnote 60.
government for a national climate change
policy, and the Cities for Climate Protection
Campaign ofICLE1-Local Governments for
Sustainability, which focuses on the design
and use of climate-related policies among
some 650 participating local governments,
Through such partnerships, city officials are
able to share best practices and encourage
ongoing municipal leadership, And a few
governments are now stepping forward to
reinforce these efforts, For example, the Ans'
tralian government has funded a national
independent 1CLEI office, which involves
216 councils representing 87 percent of Aus-
tralia's population.'
The International Solar Cities Initiative,
created to address climate change through
effective actions in cities, has devised an
explicit target to guide "pathfinder" cities
toward major GHG emissions reductions.
The target was established by estimating how
103
Energizing Cities
STATE OF THE WORLD 2007
as at national or regional lev~ls, cities can
provide a more even playing field for all.
Under such conditions, supporters of clean
power and related alternatives may find it
easier to introduce groundbreaking changes
in cities. .-
\ Given that local renewable energy devel-
opment can yield significant benefits, what is
standing in !he way of change? One major
obstacle is the limited resources available to
pursue local initiatives, As noted, there are
numerous options for minimizing energy
nse and increasing reliance on clean power,
but cities need financial, technical, and
administrative support to pursue these strate'
gies, Although this is more commonly a
problem in the developing world, it is also a
constraint among municipalities in i,ndus-
trial countries,
j:,;i:i
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Many sustainability goals can be
pursued through policies that do
not increase taxpayers' costs.
Investment priorities deserve particular
attention in the world's poorest nrban areas,
To help achieve more balanced, snstainable
economic development that simultaneonsly
meets people's needs, nongovernmental orga-
nizations (NGOs) and community groups
can encourage governments to link clean
energy access to poverty alleviation, Bilateral
and multilateral program funding mnst also
move more qnickly from fossil fuels toward
renewables. Initiatives under the CDM and
related global programs could be used more
frequently for energy projects that rednce
GHG emissions..'
The second fundamental challenge is
posed by national and international poli-
tics, For decades, conventional fuels and
technologies have received the lion's share
of global investment in energy infrasttuc-
;Cg~~\
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104
ture. In 2002, the World Council for
Renewable Energy noted that the $300 bil-
lion of energy subsidies spent every year on
nuclear power and fossil fuels is four times
as much as has been spent promoting renew-
able energies in the last two decades. This
trend is all too evident, for example, in the
Bush administration's push for next-gen-
eration nuclear and "clean" coal technolo-
gies, in efforts to boost nuclear power in
India and China, and in subsidies used by
some developing countries to support fuels
like kerosene and diesel, which make renew-
\ able energy less competitive. Countering
these developments is going to require a
political commitment to clear, mandatory
, targets for renewable energy use and for
i technology research and development,"
A third barrier is market pressures that
ignore environmental and social costs and
benefits in energy prices. As a result, devel-
opment of green energy remains at a disad-
vantage beyond the most immediately
profitable niches, such as wind generation as
a hedge against volatile natural gas prices.
This is particnlarly clear in areas where the
electricity sector has been privatized over the
last decade, where governments have often
found it necessary to impose firm renewable
energy goals for retail electric providers in
order to ensure green power's continued
advance. Such actions highlight national gov-
ernments' crucial role in correcting for prices
and market structures that fail to signal the
true costs of conventional fuels'"
The effect of market pressure is also appar-
ent in the priorities of most electric utilities,
which focus on expanding supply rather than
conservation to meet customers' needs,
\ ,"NegawattS"-eleCtricity that is never actu.
ally produced or sold-would be a viabl,
energy service to consumers if more govern'
ments introduced regulations that encour.
aged utilities to pursue conservation.66
STATE OF THE WORLD 1007
The issue of pricing and costs also plagues
the building sector. Although developers in
cities like Chicago noW have trouble finding
the requisite "anchor" tenants if a new build-
ing does not meet certain voluntary green
standards, this is rarely the case in other
municipalities. Energy costs often represent
only a small share of overall business or house-
hold expenses, and cost savings from effi-
ciency measures are not always reflected in
conventional accounting. As a result, price sig-
nals fail to drive change,.7
Another fundamental challenge involves
altering the common skepticism that even a
large number of small-scale, local renewable
systems combined with conservation and effi-
ciency will ever be able to produce enough
energy to meet the demands of a large city. To
some extent, such mindsets are starting to
change, as evident in the growing movement
toward more sustainable cities and in recent
efforts by former President Bill Clinton to
encourage climate protection in some of the
world's largest urban centers.'
Yet a great deal remains to be done in
cities, As one example, despite some policy
efforts to encourage or require green con-
struction, the typical new D,S, home s~'
remains highly energy-inefficient, requiring
30-70 percent more energy than new
"advanced" green homes. This gap points
to the need for larger awareness of the long-
term gains, both ecological and economic,
that can be achieved through more ambi-
tious mandates for sustainable practices. In
effect, a paradigm shift is needed-one that
embraces radical improvements in energy
efficiency, with the remaining demand met
primarily by renewable energy,.'
Relevant actors and institutions-from
all levels of government to the finance sec-
tor-must consider new ways of evaluaring
the life-cycle costs and benefits of renewable
energy and of building design that consid-
Energizing Cities
ers local conditions and uses local knowl-
edge. This will mean involving the author-
ities that have the most power to mandate
new requirements and monitor enforcement.
It can also ensure the institutional capacity- \
in the form of financing for "green" home
improvements, for example-to assist peo-
ple who participate in efficiency and renewc \
able energy programs?O
Contrary to some people's perceptions,
many sustainability goals can be pursued
through policies that do not increase tax-
payers' costs, as in Chicago, where green
buildings receive expedited permitting, City
planners can incorporate the "new urban-
ism"-which involves building for people
rather than cars-and related planning
approaches for mixed-use communities that
combine residential and commercial space.
This .can minimize energy use and suburban
sprawl while making city life more sustainable
and enhancing the overall quality of life.']
In addition to education and public aware-
ness campaigns, political pressure must be
brought to bear agaInst powerful forces that
favor the status quo. positive changes in the
energy sector, particularly in the world's poor-
est urban areas, will require action from not
only municipal authorities but also regional,
provincial, and national governments as well
as NGOs and aid and lending institutions.
(See Table 5-2,)72 ~
The challenge lies in moving beyond
local voluntary partnerships toward strong
intergovernmental and societal commit-
ments for change. Wider civil society
involvement will be critical and has already
figured prominently in many recent move-
ments for more-sustainable energy nse in
cities, Citizens' groups can do more by call-
ing for national and international changes in
investment priorities and can work with pri-
vate financial institutions favoring clean
energy as a profitable strategy for minimiz-
,
~I
~
""'"
Enerclzlnl Cltle;
STATE OF THE WORLD 2007
.
Table 5-2. Roadmaps for Powering Cities Locally
Obstacle
Strategic Response
Lack of control
over energy sector
?
Lack of widespread
access to energy service
(particularly common In
low...income cities) .
Lack of funds or exper-
dse to identify and
undertake projects
.
Lack of awareness
or understanding of
benefits of local green
energy or how to use
technologies
Municipal government can set 'targets for its own green energy use, procure
goods and services made with local green power, aggregate customer demand,
and form power purchase agreements with utilities.
Muni~ipal government can target energy efficiency and conservation in public
and private buildings by requiring energy audits and mandadng use of specific
technologies and construction practices, through city planning and permitting,
Citizens can form cooperatives for local energy development or purchase green
power.
Governments can support pricing reform and commit to replanting trees to
ensure wider availability of fuelwood and other biomass resources.
Legalized secondary power arrangements can give urban dwellers access to
power sources "owned" by other Individuals, thereby avoiding or reducing
otherwise prohibitive upfront fees (the utlllty can set basic technical standards
to enhance safety of energy delivery, while the de facto electricity distributor
determines rates).
Reduced lifeline electricity tariffs (available to low..income users for lower levels
of use) can spread out upfront fees (such as grid connection charges) Into
future payments 'over time.
Local actors (public or private) can partner with energy service companies or,ln
low.. to moderate..income cities, bundle projelj:S to leverage mlcrofinance or
multi- or bilateral assistance for the lease or purchase of solar water heaters.
PV systems, and safer and more efficient stoves and smoke hoods.
Municipal government can work with local trade organizations, private-sector
champions, and citizens' groups on Information campaigns, product labeling,
professional training. and school curricula.
(NGOs and community groups can sponsor demonstration projects.
~
Lack of utility Involve-
ment or of regional,
nadonal, or international
emphasis on renewable
energy development,
energy efficiency, con-
servadon, and GHG
reductions
Municipal or grassroots efforts can coordinate lobbying across locales for
changes in political priorities (toward regional or national targets and commit-
ments) to include mandates for both public and private utilities.
States and cities can develop and implement their own policies and band
together In multi-state or mukl-city agreements to set "de facto" policy.
SOURCE: See endnote 72,
ing business risks from climate change,73
Today cities have an unprecedented oppor-
tunity to change the way they supply and use
cnergy. New eco-cities such as Dongran in
China may show the way, even as existing
106
cities turn to technologies rooted in the
past-from adobe architecture to passive solar
heating, Whcn complemented by COnserva-
tion, more-efficient technologies, and new
decentralized, small,scale energy services,
STATE OF THE WORLD 2.007
EnergiJ.lng CIties
.......
these efforts can help cities confidently nav,
igate the forthcoming peak of cheap oil and
natural gas production while reducing the
impact of climate change. Energy transfor-
mation in cities can be the doorway to secu-
rity and vitality in urban life,
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.
Green Energy Options
to Replace the South Bay Power Plant
Alternative Energy Plan on the Feasibility and Cost-Effectiveness of
Replacing the South Bay Power Plant by 2010
With Local, Competitively Priced Green Energy Sources
Prepared By
!Q,~,~,Q(~~r
Paul Fenn - Executive Director
Robert Freehling - Research Director
February 15, 2007
Table of Contents
""'"'
I. Executive Summary .......................................................................................1
Background and Purpose ................................................................................................. 1
Summary of the Green Energy Option Portfolios ......................................................... 2
A Range of Options...........................................................................................................3
Findings.............................................................................................................................. 7
Recommendations ........................................................................................................... 10
2. I n trod uction ..................................................................................................12
The Proposed South Bay Replacement Project............................................................ 14
Meeting the Appropriate Energy Needs ....................................................................... 15
3. ISO Reliability Must Run (RMR) Criteria Analysis & Scale of
Replacement Energy Needs .............................,..........................................16
Current Scale and use of the South Bay Power Plant ................................................. 17
Current RMR Contract with the ISO........................................................................... 1 9
Variables that Influence RMR Calculations and Designations .................................. 19
Peak Demand and Types of Power Plants ..,...............,............,...,..............................................19
Firming np the Capacity of Renewable Generation........................................,........,.................20
San Diego Regional Electricity Supply and Demand................................................... 21
Addition of New Power Plants .............,..,........,...,...,..,...,..............,...,.........................................23
Fntnre Power Plant proposals..............,..,..........................,..........................,......,.......................23
Local Targeted Upgrades in Transmission .............,......,.........,......................................,...........24
Energy Efficiency and Loading Order Reqnirements ...............................................................24
Demand Response ,..................,...................,.......,.................,.,...,......................,........................,,24
Distribnted Generation,................,..........,.....................................,.................,.............."...........,25
Existing and Fntnre Energy Snpply and Demand ...............,.........,..............,.......,.............,.,...,25
Summary of ISO RMR status and Scale of Energy Replacement Needs .................. 29
""'"'
4. Green Energy Options: Three Portfolios for Cleaner More Sustainable
Energy for the Region .................................................................................30
90% Replacement Capacity Green Energy Option..................................................... 30
70% Replacement Capacity Green Energy Option..................................................... 30
50% Replacement Capacity Green Energy Option..................................................... 30
5. Description of Green Energy Technology Options ...................................31
Hybrid Wind Farm & Pumped-Water Storage Facility ............................................. 31 ~
Hybrid Solar Concentrator Turbine with Natural Gas Backup and Cogeneration. 34
.
.
.
Photovoltaics with Energy Storage or Demand Response .......................................... 36
Cogeneration for peak capacity .....................................................................................37
Energy Efficiency, Demand Response and Conservation ........................................... 37
6.
Key Investment Mechanisms and Financing ............................................39
Community Choice Aggregation (CCA)....................................................................... 39
Municipal Revenue Bonds (H Bonds) ........................................................................... 40
H Bonds and CCA......,....................................................................................................41
Application of H Bonds to CCA. .................................................................................. 42
Sources of Repayment .................................................................................................... 43
Alternative Structures for using H-bonds and Implications for Tax Exemption. .... 44
Engagement of CPUC and other funding..................................................................... 47
California Solar Initiative,mm,mmmm..mm,m,..mm..mm..m..m....oooooooo.mm.oo.oomoooooooooomoo000000,47
PGC Energy Efficiency Fnnds moomoo.oooo.oomoooommoo.moooo.oooo'oooooo.'oo.m...m"m..'.'..oo.oo..,oo,..oooooooo,47
Federal Energy Tax Creditsm...,oo..oo..,..."...oom...,.m,m,...,..,m,m,moomm,m..mmoomm,m..mm'....48
Snpplemental Energy Payments (SEPS) mmmoooooom..m,moooommoooooooooooooooooommmoommmm,mm49
7.
Benefits Comparison of GEO Options to Gas-fired Replacement .........50
Economic Benefits ........................................................................................................... 50
Finaneial Retnrn on Investment oo,.oooom.oooo..oo.m.oo,oomoooo,.oo.oo.oomoooo.oooo.oo.oo.oo,oooooo,oooooo.oooo,moo.m,50
More Local Jobs 'moooooommoooo'mmmmm......m"mm.'.m......m.......m...moo'm'mm..'...m..m.'0000'00'00,51
More Money in tbe Local EconomYmoommoomoooooom,moomoooomoooooooooomoomm.oomoooooooooooooooo..mm,52
Decreased Reliance on Natural Gas ............................................................................................52
Environmental Benefits .................................................................................................. 53
Air Qnality Benefits oo.oom,oo.oomoo,oooommoomoooommmoooo..m,moomoomoommoomoomm,m,mmm..mm,m54
Environmental Justice ..................................................................................................................55
Redneed Global Climate Change Impaets ..m'oo..m....'m".......'..oo'....m'm'...........oo,oooooooooooooooo.oo.55
GEO Report Findings..................................................................................................... 57
The Greener Energy Options Portfolios are economically viableoommoooooom,m,m,m,m,...m,..oo57
The GEO Portfolios offer significant benefits oooooooo,oooooo.oomoomoooo.oooom.oooom.moomoooooomoommoo.,58
The initiative mnst be led by Chula Vista. mmmm'....'........m'mm.'.'.....,..,.oooooooooomoooooo.oomoooo,oo58
Community Choice Aggregation (CCA) and Pnblic Investment is the best Approaeh ...oooom59
The GEO Portfolios are consistent with existing local, state and federal policy, regulations
and law oooo.oomoooo'moomm'm....'.."moomoooo.moomoooo'oooooomoommoom..m..m'm'mm'm..m'oooo.'..oooooo,oooooo61
Recommendations ........................................................................................................... 63
Appendices
'"""'
Figures and Tables
Figure 1, San Diego County Wind Resource Regions..........................................................,....... 32
Figure 2. New York Mercantile Exchange Futures Prices for Natural Gas......,...,......................, 52
Table 1. Operating Profile of the existing South Bay Power Plant. ..................,..,...................... 17
Table 2, Approximate cost of generating electricity (in nominal centslkilowatt-hour) with the
South Bay Power Plant and with a new gas-fired replacement peaker plant................. 18
Table 3, SDG&E 2005 RMR Resource Calculation..,.................................................................. 22
Table 4, Actual and Potential New Peak Resources for SDG&E between 2003 and 2009........, 25
Table 5, Comparison of Demand Projections made by SDG&E in 2003 and 2005 ...................., 26
Table 6, San Diego Region Generation ........................................,.............,..................,.............. 27
""""
~
r ,oca] r\nver
Alternative Energy Plan for Replacing the South R1Y PowerPhn(
J ,muary, 2007
.
.
.
1. Executive Summary
Background and Purpose
The existing South Bay Power Plant, over 40 years old, is outdated, inefficient to run, devastates
the South San Diego Bay ecosystem and pollutes the air, The power company LS Power, all of
whose merchant power plants (including the South Bay Power Plant) were recently acquired by
Houston-based Dynegy', is in the permitting process for a South Bay Replacement Project
(SBRP) which includes the demolition of the current South Bay Power Plant and the construction
of a new gas-fired power plant near the current site. There is little disagreement that the existing
plant needs to be shut down, There is debate, however, about how the energy capacity provided
by the existing plant should be replaced, This decision will shape the region's energy future, the
health of Chula Vista residents, and the character of the Chula Vista Bayfront for decades to
come,
The SBRP decision will have global impacts, Climate Crisis is upon us, Power plants are the
largest cause of greenhouse gas pollution in the United States, which as a nation is the world's
largest greenhouse gas polluter - and California's greenhouse gas emissions have continued to
increase for the past fifteen years. A major opportunity to answer the Climate challenge is in our
front yard, and will shortly present itself for local decision-making, In the Chula Vista region, by
far the largest single cause of climate pollution is the South Bay Power Plant. While Dynegy's
acquisition of the plant has increased pressure to approve a larger power plant replacement,
green power alternatives - and the means to develop them cost-effectively - now exist, which if
developed by Chula Vista and potential local partners will render power generation at the South
Bay Power Plant site unnecessary for the regional transmission grid, Recognition of urgency and
opportunity is essential to solving the Climate Crisis, The SBRP decision may be the
community's only major chance to do something about this mounting catastrophe.
While the existing plant runs at a relatively low capacity most of the time, it does provide 700
Megawatts (MW) (reduced to 515 MW for 2007) of "Reliability Must Run" (RMR) capacity to
the grid, a special designation instituted to ensure grid stability, A number of options exist to
provide the energy and capacity that the San Diego region will need into the future, including
demand response, renewable energy, natural gas plants in other parts of the County, and other
options, For a number of reasons - to protect public health and promote environmental justice,
to protect our economy from over dependence on natural gas with its price volatility, to reduce
greenhouse gas emissions, and to meet state-mandated requirements for renewable energy - the
replacement of the existing South Bay Power Plant should include a major commitment to green
energy options, This report identifies and analyzes local opportunities for more sustainable,
secure energy development in San Diego County in order to reduce the need for, or the scale of,
a natural gas generation facility to replace the South Bay Power Plant (SBPP),
On September 15, 2006, Independent Power Producer Dynegy announced it has agreed to pay more than
$2B in stock and cash for the merchant plant portfolio of private equity fund LS power Group, including SBPP and
eight other power plants acquired from Duke Energy for $1.6B in May. LS Power Group will retain a 40 percent
stake in the combined company. Dynegy's management team, including CEO Bruce Williamson, will run the
company.
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Local Power
Alternative Energy [}\an for Replacing the South Bay Power Plant
Februcuy, 2007
The "Green Energy Options" (GEO) outlined in this report, demonstrate how Chula Vista and
neighboring communities can now move to develop solar, wind and other green power
technologies at market prices, stabilize local electricity rates, win energy independence, and
eliminate a major contributor of pollution and greenhouse gases. The City of Chula Vista has
already taken a leadership role in promoting energy sustainability and taking responsibility for
reducing the hazards associated with the global climate crisis, By investing in energy
development described in this Green Energy Options report, the City of Chula Vista can take a
major step toward ensuring energy and economic security for Chula Vista and the region, and
can set an example for the region, state, and beyond.
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Summary of the Green Energy Option Portfolios
The Green Energy Options (GEOs) described in the report are viable, and the technologies are
readily available. The GEOs are three electric energy portfolios designed to meet three different
levels of capacity replacement for the South Bay Power Plant. They address a range of possible
regional needs and provide a range of investment options, The current power plant supplies
electricity in the period of high demand during the day and early evenings, and the GEO
portfolios are designed to meet that same requirement. Each GEO portfolio includes diverse
technologies in order to avoid "putting all eggs in one basket",
The hazards of going to a 100 percent natural gas portfolio are numerous. Natural gas has a high
level of price volatility, and when the fuel price shoots up, electricity prices are sure to follow
soon, Residents of San Diego County have seen what happens when they put too much trust in
natural gas, Natural gas also has other problems. It is a limited resource that is bound to become
more difficult to obtain over time, It is also a fossil fuel that emits or creates many tons of
pollutants annually, including lung-clogging particulates, nitrous oxides, corrosive ozone, as well
as carbon dioxide and methane that are destabilizing the global climate.
"""\
The GEO portfolios are designed to meet all of these challenges, to cut pollutants dramatically,
reduce reliance on fossil fuel, and serve as a hedge strategy against future price swings in natural
gas, The GEOs provide three levels of capacity replacement relative to the current 700 megawatt
power plants, The nominal capacity of the GEO options range between 500 megawatts and 970
megawatts, but this translates into a smaller equivalent capacity for the purposes of replacing the
existing plant. This is because some renewable technologies, mainly wind power, only produce
electricity part of the time, But the wind resource is given a boost relative to its otherwise
intermittent nature, since one portion of the wind power is delivered to pump water uphill into a
reservoir during the evening so it is available the next day to power generators when demand for
electricity is high. Nearly all the rest of the portfolio's generation capacity is considered to be
able to carry its weight in electrical system support, without any greater degree of help than other
types of electrical generation routinely receive, This rating, called the Effective Load Carrying
Capacity, is a product of the full capacity of the power generation equipment and the availability
of the energy resource. In the case of wind, studies have shown that the lowest "carrying
capacity" for actual major California wind farms is about 25 percent. We have been even more
conservative, and assumed that only 20 percent would "count",
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LO(d 1 Povver
Alt(:'rnative Energy Plan for Rt:placing the South Say [\)\\'1.:'[ f)lant
Febnwry, 2007
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To confuse matters somewhat, yet another measure of reliable capacity is used by the state grid
operator, the California ISO, This measure is exceedingly restrictive and actually has never
established satisfactory rules for renewables like wind and solar power. With the increased legal
mandate for renewable energy in the state, such rules will become increasingly necessary, and
the ISO will not be able to ignore the contribution of renewables to the state's electric grid
reliability, as they have in the past. This issue is not academic, During the 2000 to 2001
California "Energy Crisis", many commercial vendors of electricity took their conventional
generators off-line, This caused serious problems that threatened grid stability, and resulted in
greatly increased prices for their product. While these and other rather overt manipulations were
going on, California's renewable generators continued to operate and they helped significantly to
maintain the state's electric grid, and even to avoid blackouts, Thus, there is historical evidence,
as well as ongoing demonstrated performance, to show how wind and solar power contribute
greatly to the reliability of California's energy supply,
We established the size of the three green energy portfolios to meet 50%, 70% and 90% of the
current South Bay Power Plant's capacity for supplying power during the hours of peak demand.
Thus the portfolios are designed to meet the same needs and have similar functionality to the
existing plant, though with a number of extended capabilities that the current plant does not
have, For instance, the pumped storage plant can respond nearly instantly to changes in demand
for electricity, a factor that can be critical during a power emergency. Other features will be
described in this report. This report also shows how any capacity shortfalls can be replaced in
other ways without resorting to adding new transmission lines leading out of the region,
A Range of Options
The GEO options contain a variety of portfolio elements, design sizes, and potential for siting of
energy facilities, that allows for flexibility to meet different system needs and market conditions,
There is really very little that is constrained about this portfolio, and in fact the GEO options
show general strategies, as well as how to apply these strategies in very specific and practical
ways. It is certainly possible to change these elements to respond to changes in the cost of
renewables and of conventional power sources. Thus there is an adaptability that is completely
lacking in the current plan to build another power plant on the same site as the existing power
plant.
3
Local 1\W\'f'f
Alternative Energy Plan for Replacing the South Bay ['mver Plant
February, 2007
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Local Power
Alterni;1tivt' Energy' Plan for Replacing the South Bay l\nver Plant
FehruiUY, 2007
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Local Power
Alternative Ent'rgy Plan for Replacing the South Bay Power Plant
February, 2007
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Alternative Energy PIiln for Replacing the South Bay Power Plcrnt
Fl'hruary, 2007
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Findings
The Green Energy Options (GEO) portfolios presented in this alternative energy plan are
economically sound, The low-interest municipal bonds available to cities like Chula Vista can
achieve significantly lower financing costs for renewable generation, Also, the largely fixed cost
of the renewable GEO portfolios provides a hedge against substantial risk of increasing natural
gas prices over the next 20 to 30 years,
The GEO Portfolios offer a number of benefits over a future commitment to a 100% natural gas-
fired plant on the bay front. One benefit is cleaner air - the GEO portfolios would result in 60-
80% lower emissions of particulate pollution and carbon dioxide every year when compared to a
new "all natural gas" plant. Pursuing the GEO options would also get us firmly down the road of
a more secure and sustainable energy future: they would produce more local jobs, decrease the
region's over-reliance on natural gas, and keep more money in the local economy,
Community Choice Aggregation (CCA) is the best approach to eliminating the need for power
generation on the South Bay, CCA would enable a full range of options, including transmission
of power. If Chula Vista forms a CCA or builds a power generation facility, it may elect to
obtain transmission services within or outside Chula Vista, by acquiring access to existing
transmission capacity, arranging with SDG&E to provide transmission access, pursuant to
Federal Energy Regulatory Commission (FERC) Order 888, or arranging to purchase
transmission services from another party such as a tribal government. No option would require
adding transmission lines leading outside the county, and all would make use of existing
transmission pathways,
This Plan finds that the initiative would be best led by Chula Vista, Over the past four years, the
City of Chula Vista has prepared extensively for the implementation of Community Choice
Aggregation ("CCA") and/or development of a power generation facility, CCA would allow
Chula Vista to find an alternative electricity supplier to SDG&E, and to decide what kinds of
electricity to purchase, In addition, Chula Vista and a number of potential public partners may
issue municipal revenue bonds ("H Bonds") to finance renewable energy and conservation
facilities, These mechanisms are analyzed in this Plan,
The GEO Plan shows how CCA in conjunction with H Bonds can be used to develop a cost-
effective, cleaner and more sustainable replacement of the South Bay Power Plant ("SBPP"),
This report identifies several specific opportunities available to Chula Vista, allowing a variety
of locally feasible technologies and partnerships, However, even if CCA is not pursued by
Chula Vista, other governance structures and initiative options are available for the City to
pursue some or all of the green energy options outlined in this report, Financial analysis of the
energy options has been performed with this in mind, to demonstrate the cost of electricity by
considering the portfolios as independent investments,
A critical facet of the GEO options is to include local power resources that require little or no
transmission facilities to deliver the power to customers, Chula Vista and the San Diego County
region offer opportunities to develop a variety of green energy resources, These opportunities
7
Locall'm-ver
AlternMive Energy Plan for Replacing the South Bay Power Plant
February, 2007
. 2. Introduction
The Green Energy Options (GEO) alternative energy plan has been developed by Local Power
for Environmental Health Coalition (EHC) to be considered by the City of Chula Vista and other
govemmental entities in the San Diego County region, The Plan identifies and analyzes local
opportunities for more sustainable, secure energy development in San Diego County in order to
reduce the need for, or the scale of, a natural gas generation facility to replace the South Bay
Power Plant (SBPP).
The GEO will include appropriately scaled renewable generation, energy storage, and energy
efficiency measures, More broadly, the GEO will develop opportunities for Chula Vista to act
singly, as well as inter-govemmental or regional opportunities to eliminate the need for any
power plant at the SBPP site, and to reduce the region's need for another large gas-fired power
plant. These options will support reliability of San Diego County's regional electric transmission
grid, which is run by the California Independent System Operator.
.
This report presents a series of scenarios, location- and time-specific opportunities that are
supported under current California and federal law, for Chula Vista to negotiate with energy
suppliers, undertake public works projects, and administer energy efficiency programs to reduce
or eliminate the need for a power plant at the South Bay Power Plant site, Every scenario and
proposal outlined in this report can provide opportunities for the City of Chula Vista to operate a
profitable energy facility and/or provide residents, businesses and agencies with competitively
priced energy services,
The profit structure will depend upon how the projects are financed, and implemented. For
example, the lower cost of capital for bond-financed wind farm or natural gas peaking plant
essentially locks in a long term price advantage over any private or utility competitor. The fact
that renewables are now being required by law for all utilities and Community Choice
Aggregators means that there is a built in market for the foreseeable future, The target
requirement for purchasing renewable energy grows each year, Twenty percent of all utility
company electric supply must by "green" by 2010, After that year a new target is likely to be set
at 33 percent, a level that is fully supported by the governor and all the regulatory bodies.
Legislation has been introduced that would write this higher goal into state law, and mandate that
it be achieved by 2020, Utility companies have complained that it has been difficult to access
sufficient renewable supplies; thus a growing market is wide open to those who can successfully
develop green energy projects,
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Municipalities are in a unique position to benefit from this arrangement. Renewables face certain
hurdles that municipalities hold the power to overcome, The first hurdle is financing, Private
developers are faced with the challenge of raising capital for projects with certain risks, For
example, wind projects may be eligible for special tax credits, but only if they are built by certain
dates. If those dates pass, because of delay for any reason, then the project loses its financial
viability, Municipal governments do not receive tax credits, and thus are not bound by such
considerations, Their low cost, tax free bonds provide superior benefit to the tax credit, and is
available to them at all times without being subjected to the risk of federal tax policies over
which they have no control.
12
Locall\nver
Altemative Energy Plan for Replacing the South Bay Power Plant
February, 2007
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A second financing risk is associated with finding a long term buyer for the electricity, While
renewable standards do provide some assurance, lenders want to see contracts running out into
the future as far as 10 to 20 years, This can be quite difficult to achieve, Municipalities that form
Community Choice Aggregations (CCAs) have a built in market integration that no private
developer could ever have, in that a CCA is both a seller and buyer of electricity, The market risk
is thus greatly reduced, since the CCA can agree to purchase some or all of the electricity
provided from its own renewable plant for up to 20 years into the future. This lowers borrowing
cost, a critical component for making renewables cost effective or profitable,
The fact that renewables greatly reduce reliance upon fuel means that once the capital expense is
paid off, the cost of generating electricity is reduced to relatively small operating expenses,
Electricity sold at full price from these facilities, after the financing cycle, will likely realize
higher prices on the market at the same time that ongoing costs are greatly reduced, In this sense,
renewables are an investment in the future, Renewables can also provide more near term benefit,
as valuable insurance against spikes in fuel prices, protection against liability for- and damage
from-pollution, and the possibility to benefit from carbon markets under California's new
greenhouse gas reduction law,
This GEO plan presents three South Bay Power Plant replacement scenarios with portfolios that
contain mixes of wind with pumped storage, solar concentrators with gas backup, as well as
photovoltaics and natural gas cogeneration, The GEO can be combined with conventional
electrical capacity from available wholesale markets.
Facilities are modeled according to two basic criteria: they would generate power at prices
competitive with wholesale market power prices, and could provide this power within the
portfolio of electric service under a Community Choice Aggregation. Thus, the GEO presents
these investments in an apples-to-apples comparison with both wholesale peak and base load
power prices, and reflects potential changes in natural gas and electric generation prices in
SDG&E's rates, which are subject to change every six months.' The purpose of this modeling is
to provide real, buildable, financable, and feasible investments that can eliminate the need of the
Independent System Operator for the South Bay Power Plant, and can also be sound public
investments in green power generation and conservation facilities,
--.
The investments are also described in a suitable manner for a CCA to incorporate these assets in
a larger portfolio to supply its full electric power needs and compare this to SDG&E retail rates,
This GEO may be adopted by the City of Chula Vista, and may be followed by drafting and
adoption of a CCA Implementation Plan and Request for Proposals to solicit bids from suppliers,
who will conduct a full CCA portfolio analysis and enter into a contract to build facilities and
provide power service to participating communities, What this report does establish is that
investments in a diverse set of peak power assets could benefit Chula Vista and surrounding
communities over a 30 year expected equipment lifecycle, especially in the context of a CCA,
and secondarily in the context of a municipally financed, locally developed green power facility,
This document contains forward looking projections about the prices of commodities and infrastructure;
Local Power in no way warrants or guarantees, or will in any way be held liable for, such investments. All
investments carry risks, and it is the responsibility of those who make such investments to verify all claims, and
assume all associated risks, express or implied.
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Altemative Energy Plan for Replacing the South Bay Povver Plant
fehruary, 2007
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If implemented, anyone of the proposed scenarios would form a landmark achievement
following a decade of growing leadership in energy independence and entrepreneurial
sustainability in Chula Vista, It would also be a positive, substantial contribution toward
international efforts to reverse the Climate Crisis,
The Proposed South Bay Replacement Project
The existing South Bay Power Plant, over 40 years old, is outdated, inefficient to run, and has
significant adverse water and air quality impacts. There is little disagreement that the existing
plant needs to be shut down. The plant has materially damaged the South San Diego Bay
ecosystem and creates significant air pollution. The power company LS Power, aU of whose
merchant power plants (including the South Bay Power Plant) were recently acquired by
Houston-based DynegyJ, is in the permitting process for a South Bay Replacement Project
(SBRP) which includes the demolition of the current South Bay Power Plant and the construction
of a new gas-fired power plant near the current site, The SBRP is proposed as a 620 MW net
combined cycle generating facility using two natural-gas-fired combustion turbine generators
and one steam turbine to be cooled with air cooling.
The proposed South Bay Replacement Project would not use Bay water for cooling, which
represents a significant environmental improvement. The SBRP would, however, still create a
substantial air pollution hazard for neighboring residents, Like the existing plant, the proposed
replacement plant would be directly upwind of residents and schools, and would perpetuate
degraded air quality for west Chula Vista residents, The west Chula Vista zip code registers
childhood hospitalization rates for asthma that are 20% higher than the overall county rate in
2003,' The SBRP is being promoted as a plant that will reduce air pollution impacts, Although
more energy is expected to be generated for the pollution produced, total pollution impacts to the
densely populated low-income neighborhood that is immediately downwind of its smokestacks
are not expected to be appreciably reduced, and in fact may even increase, Though a new plant
would be more efficient, it is planned to run far more often and burn more fuel, and so could
produce comparable if not greater total pollution, The California Energy Commission and the
SBRP project proponents have not yet come to an agreement on the estimated pollution impacts
from the proposed project. We estimate that total particulate matter pollution could increase
from about 73 tons per year to about 94 tons per year when comparing the existing South Bay
Power Plant to the proposed replacement plant (Appendix H), The LS/Dynegy project offers no
mitigation or additional offsets for impacts to air quality, and claims that particulates will remain
the same as the current plant without giving adequate information to back up this claim,
The existing South Bay Power Plant is a significant contributor to greenhouse gases, large
enough on its own to have a significant climate impact (approximately 11l0,000th of global
greenhouse gas emissions), The proposed new gas-fired replacement plant would continue to
contribute significantly to the global climate crisis, when excellent local solar and wind
On September 15,2006, Independent Power Producer Dynegy announced it has agreed to pay more than
$2B in stock and cash for the merchant plant portfolio of private equity fund LS power Group, including SBPP and
eight other power plants acquired from Dnke Energy for $1.6B in May. LS Power Group will retain a 40 percent
stake in the combined company. Dynegy's management team, including CEO Bruce Williamson, will run the
company.
4 California Office of State Planning and Development, 2003 Public Patient Discharge Data; 2000 Census.
14
Locall-\r\'ller
Alternative Energy Plan for Replacing the South Bay Power Plant
February,2007
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conditions are available for renewable generation of electricity, as this Plan has surveyed,
analyzed, and modeled,
The important question at hand is how the energy capacity provided by the existing plant will be
provided, This decision will shape the region's energy future and the health of Chula Vista
residents for decades to come, The current replacement proposal does not adequately assess
viable alternatives for the power plant design, as required by US and California state law, nor has
there been adequate assessment of the ability for other already permitted and proposed plants in
the region to meet the goals of the project.
Meeting the Appropriate Energy Needs
Any replacement of the plant with renewable resources must address regional power needs, The
scenarios for Chula Vista in this report will present model solutions on a graduated scale to
ensure that regional transmission grid requirements of the California Independent System
Operator (ISO), the non profit agency charged with maintaining transmission grid stability,
would be met in each proposed scenario,
The Green Energy Options portfolios presented here are designed to meet the energy service
provided by the existing South Bay Power Plant. The California Independent System Operator's
(ISO) designation of the South Bay Power Plant as "Reliability Must Run" ("RMR") requires
that it provide peak energy production to ensure regional electric system reliability, SDG&E has
built - and is still building - new power plants and transmission lines connected to the regional -.,
grid, As a result, the ISO's designation of need for power generation from the South Bay Power
Plant is changing. This report presents three portfolios that would replace 50%, 70% and 90% of
the existing 700 megawatt capacity of the 2006 RMR contracts on the plant. (the 2007 RMR
contract is lower, at 515 MW), The portfolios are designed to meet a range of possible RMR
demands so that changing ISO requirements can be met with little or no adjustment to the
portfolios.
The Reliability-Must-Run (RMR) role that the South Bay Power Plant serves is related to the
plant's capacity, or the most that the plant can produce at a given instant, measured in megawatts
(MWs), The plant's electricity service can also be thought of in terms of how much electricity
capacity it provides to the grid over a period of time, This is measured in Megawatt Hours
(MWh), The South Bay Power Plant currently runs essentially as a load-following plant that
ramps up output at times of highest demand in the afternoon and evening, and a large portion of
the plants capacity is rarely used. This is further explained in the next section of this report,
On a capacity basis, 700 megawatts of the South Bay Power Plant are under contract with the
ISO for 2006 (515 megawatts for 2007). On a megawatt-hour electric generation basis, the
current plant produces about \.9 million Megawatt-hours per year.s Notably, the proposed South
Bay Replacement Plant would only provide 120 megawatts of added peak energy, far less than
the current plant or the GEO options do,
LS Power. Application for Certification to the California Energy Commission for the South Bay
Replacement Project, Pg 6-2
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Local Power
Alternative Energy Plan for Replacing the South Bay 1'O\\'e1' Pl;mt
February, 2007
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3. ISO Reliability Must Run (RMR) Criteria Analysis & Scale of
Replacement Energy Needs
Other than a much cleaner and more sustainable power source and competitive pricing, the other
main criteria for the scenarios in this report are that each must conform to the ISO's Reliability-
Must-Run ("RMR") designation of the current South Bay Power Plant (SBPP), and that any
replacement portfolio must fulfill the current function of the plant, which is to provide power
during the peak hours of the day,
There are a number of variables that will impact the final ISO designation for the site, including
adjustments in predicted regional demand and other regional generation assets, These can change
significantly from year to year, and it is not uncommon for projected requirements to be revised
downward to lower levels, For 2007, the ISO will seek contracts on only three of the four units at
the South Bay Power Plant.' This will result in a reduction to 515 MW under RMR contract.'
In the recent past, opinions on the need for replacement power on the Bayfront have run the
gamut from nothing more than a substation to maintain grid stability, to massive power plants
upwards of 1200 MW, As utility forecasts often change, or may be manipulated, Chula Vista
should evaluate a range of options to fulfill the energy needs required to replace the existing
SBPP, Chula Vista would be free to pursue any of the scenarios described in this report with
projects that range from 10 Megawatts oflocal photovoltaics to a 400 MW wind farm, First we
will examine factors related to the current scale and use of the South Bay Power Plant, and then
discuss several variables in play that should be addressed prior to establishing the real size of the
RMR deficiency, if any, that is needed to be filled by a replacement plant.
Capacity factor is the normal way in which degree of plant utilization is measured, This is
expressed with a percentage, which is calculated by taking the number of megawatt-hours
generated over a year divided by the total number of megawatt-hours the plant could generate if
it operated full time at full capacity. Because "capacity factor" is a compound of total capacity
and hours of operation, the concept creates some ambiguity, For example, a power plant
operating at a fifty percent (50%) capacity factor could mean that it is running at half its rated
capacity all of the time, or it could mean that the plant operates at full capacity half of the time,
Or, it could mean any varying level of operation between these two extremes that created the
same mathematical result.
The operation of RMR facilities is complex, as they may run at various levels at different times
of the day and year. Then they may be suddenly asked in the summer, when other resources are
strained, to ramp up to full capacity for just a few hours,
, Motion: 2006-09-G I Decision on Local Area Reliability Services Requirements for 2007
, California Independent System Operator. Local Area Reliability Service 2007, Report of Gary DeShazo,
Augnst 31, 2006.
16
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Alte1l1at].ve Energy Plan for Replacing the South Bay Power Plant
February,2007
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Current Scale and use of the South Bay Power Plant
Any replacement facility or facilities will have to fill the specific role served by the existing
South Bay Power Plant. This plant is composed of four main generator units that together are
considered to have 690 megawatts of dependable capacity, The following table shows some
basic facts about the generating units at the South Bay Plant:
Table 1. Operating PronIe of the existing South Bay Power Plant.
Dependable , ,
U ' B 'I C ' Output per Year Capaclh FuellJse Heat Ratc
mt III t apaclty ,
CVIW) , (1\1\\ 11) Factor (MI\1Btu) (Btu/kwh)
1 1960 147 459,135 0.357 4,654,5 31 10,138
2 1962 150 466,098 0.355 4,400,057 9,440
3 1964 171 319,847 0,214 3,312,646 10,357
4 1971 222 84,940 0,044 1,023,633 12,051
Total 690 1,330,020 0.2208 13,390,867 10,068
Source: Resource, Reliability and Environmental Concerns of Aging Power Plant Operations and Retirements. .-,
California Energy Conunission, Aug. 13, 2004, 100-04-005D.
In addition, there is a 16 megawatt combustion turbine, bringing the total capacity to 706
megawatts. The 2005 RMR evaluation by SDG&E rates the units a little differently and comes to
a total of 689 megawatts for the four larger units, which would lower the plant total to 705
megawatts, In general, power plants as they age lose a small amount of rated capacity, For the
sake of this report we assume a rounded total of 700 megawatts for the rated size of the power
plant in 2009, The actual capacity requiring replacement is likely to be significantly less, and by
a much larger factor than this marginal adjustment, for reasons described in this report,
Since the South Bay Power Plant is old and inefficient, it is not desirable to have it running most
of the time, This is mainly because it consumes more fuel than competing plants, and thus cannot
recoup its fuel and other costs unless the price for electricity is high, High prices occur during the
peak hours of the day, when other expensive power sources are also brought on line,
The actual cost of running the plant is a function of the cost of natural gas fuel, the efficiency of
the generators, and the fraction of the time the plant is running, The less the plant runs, the more
expensive the electricity is, The fuel cost for natural gas is given in dollars per million British
Thermal Units (MMBtu), which is a standard measure of energy content. It is the energy in very
close to 1000 cubic feet of natural gas. Prices for natural gas on the New York Mercantile
Exchanges (NYMEX) are around $7,00 per MMBTU for near term futures contracts, This is
.-,
The SBRP AFC before the California Energy Conunission lists the current capacity rating as 30%.
17
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Alternative Energy' Plan for Replilcing the South Bay PO\1\ler Plant
February, 2007
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triple the prevailing cost of natural gas during the 1990s, but considerably lower than the
historical highs following hurricane Katrina in 2005.
Higher natural gas prices have a dramatic effect on the cost of generating electricity, particularly
for aging facilities like the South Bay Power Plant. The following table estimates how much it
costs to generate electricity from the four South Bay Power Plant units at different prices for
natural gas, The lowest price, of$6 per million BTU (about 1000 cubic feet) is on the low to mid
range for recent prices of natural gas for electric generators, while $81 million Btu is near to the
average projected price for natural gas by the US Dept. of Energy for the period until 2030, Most
analysts expect a long term trend of increasing natural gas prices, and the DOE projects a
nominal price of $II,74/million Btu in the year 2030, which is reflected by the upper range in
the table below, Because the fmanciallife of an electric generator built over the next few years
will continue in operation well beyond 2030, it is very likely that even higher prices will be seen
during that period. Note that a new power plant could have even higher costs, because the
increased efficiency would be more than offset by the increased capital cost:
Table 2. Approximate cost of generating electricity (in nominal cents/kilowatt-hour) with
the South Bay Power Plant and with a new gas-fired replacement peaker plant.
Unit lIeat Rate ('apacit~
(Btu/k\\h) Factor
Natural Gas price (per mmbtu) $6.00 $8.00 $10,00 $12.00
1 10,\38 0.357 7.8 9,8 11.8 \3,8
2 9,440 0.355 7.4 9,2 ll.l \3,0
3 10,357 0,214 9,0 ll.l \3,2 15.2
4 12,051 0.044 20,9 23.3 25,7 28,1
Total SBPP 10,068 0.220 8.8 10.8 12.8 14.8
Modern equivalent 9,4001 .220 11,9 13,8 15.7 17,6
Source: California Energy Commission
The capacity factor for the current four generators ranges between 4.4% and 35,7%, In general,
we have chosen to assume a 32% operating capacity for the GEO options for a variety of
reasons, It falls within a feasible range of performance of renewable facilities; it allows a
common baseline of comparison for economic purposes; and it allows financial targets to be met.
It may turn out, however, that the optimal capacity factor for any future plant may differ from
what we have assumed, The plant owner and operator should evaluate market conditions, such as
the value of peak power and the price of natural gas. It may also be advantageous in some cases
to sell power outside of the peak period for supplemental income. The wind plant is specifically
designed in this manner in that it is oversized compared to the needs of the pumped storage, This
will allow for additional electricity sales that offset higher cost peaking resources, Similarly, the
natural gas plant might be operated at a higher capacity factor to serve reliability needs of the
wind plant during hours when its peaking service is not required. This would supply additional
18
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Alte11lative Energy Plan for Replacing the South Bay Power Plant
February, 2007
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revenue that could offset the natural gas plant costs or improve the value of the wind plant by
providing firm electric generation.
Current RMR Contract with the ISO
Until 2006, the full South Bay Power Plant was bound by a contract with the California ISO, the
agency responsible for the operation of the state's electric grid. This contract, called a Reliability
Must Run (RMR) agreement, requires the plant to remain available up to its full capacity in order
to assure the reliability of the electric system in the San Diego County Region. However, in
January 2007, it was reduced by 174 MW to 515 MW, with the releasing of unit #3 from this
obligation. RMR contracts are effective for one year, and the contract on unit #3 could
potentially be reinstated in 2008 if the ISO and plant operator agree.
The RMR contact is particularly designed to assure that power plants are available during times
of high demand, when other grid facilities, including generators and transmission lines, are being
fully utilized and need extra support. The full power of all four generator units is rarely needed
for actual operation, but they all must be on call if needed. This is particularly true of generator
number four, the largest and least efficient of the units, which only operates a small fraction of
the time.
Variables that Influence RMR Calculations and Designations
There are a number of variables that influence RMR designations. These must be accurately
evaluated to establish the real size of the RMR requirement. --..
Peak Demand and Types of Power Plants
During the course of a day, electric power consumption reaches a low level around 3 to 4 o'clock
in the morning. Then demand rises like a great wave during the day until a peak demand occurs,
any time between noon and early evening. After the peak, the daily power demand wave ebbs
and then returns to its lowest level again early the next morning. This is a "typical" daily pattern,
though there is significant variation in different locations, on different days of the week and in
different seasons of the year.
It is the responsibility of the electric generators, state regulators, and the business enterprise that
purchases power for customers, to ensure that the available electricity on the grid always meets
or exceeds the demand. This is critical, since even a small shortfall in generation can cause
disruptions of service ranging from poor quality power, to rolling blackouts, or complete
collapse of the grid.
In response to this daily wave of demand for electricity, power plants are differentiated into three
main functional types. A generator is used most efficiently, and is cheapest to operate, if it is run
24 hours a day at a steady rate. Those that run 24/7 are called base-load plants.
A second type of power plant increases and decreases its level generation of electricity to follow
up and down the daily demand wave. These are referred to as load-following plants. Because
they are less efficient, the electricity from these plants is often more expensive than the ~
electricity from a base-load plant.
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The third type of plant is only turned on for short periods when the power needs spike upward,
and cannot be met by the base-load or load-following plants. These are called 'peaker plants'.
Since this is the least efficient way to use a power plant, this is the most expensive source of
electricity. Due to its extreme age and inefficiency, the South Bay Power Plant has been
essentially changed over time from a base-load to a peaking facility. However there is
considerable difference in the degree to which the four generator units are used.
Firming up the Capacity of Renewable Generation
Some renewable energy sources, such as wind and solar power, generate varying amounts of
electricity on their own schedule rather than in accordance with the needs of the electric grid.
For example, wind turbines in California tend to be most productive in the summer evenings
when the coastal winds pick up. This is usually after the time when solar energy facilities have
dropped out, but demand from residential customers is high. Yet, the wind often continues into
the night, long after the demand has fallen and thus does not fully match the peak needs for
electricity.
On the other hand, solar energy facilities typically are producing during peak hours in the middle
of the day. Flat plate, stationary photovoltaic modules pointing south and angled toward the
mid-summer sun will begin producing small amounts of electricity early in the morning, peak in
production around noon, and gradually decrease in output over the afternoon. Thus there will be
no solar power available to meet the high evening demand that often lasts to 10 or 11 pm.
On top of the above problems, individual solar energy systems can be interrupted when, for
example, the sun is behind a tree or a cloud passes overhead. Low winds can cause a wind plant
to produce little or no power, while short gusts can cause sudden spikes in output that cannot be
absorbed by the grid.
The three significant technical shortcomings to renewable electricity sources such as wind and
solar energy are:
· The production of electricity cannot easily be increased or decreased in response to
electricity demand.
· The resources are subject to short term, unpredictable fluctuations that may be difficult to
integrate into the grid.
· Natural cycles do not necessarily match the exact time, or full duration, when added
power is needed.
There are means to address all of these problems and "firm up" the supply of power. Renewable
generation facilities and other support systems can be joined together in a variety of ways to
cancel each other's idiosyncratic production patterns, and to supply power when it is needed:
. Geographic separation. Spreading out generation units, such as wind turbines, over a
wide geographic area helps greatly to regulate the combined output, since it is very
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unlikely that the wind will suddenly dip or spike in all locations at the same instant. In the
same way, if solar energy systems are widely dispersed, there is little likelihood that a
small cloud will cover them all at the same time.
. Integration of intermittent generators. This involves using different types of renewable
generation, such as solar and wind, together in a way that provides a more robust service.
The sun allows for production during the day, while wind picks up in the evening.
. Integration with conventional generation. A common practice is to back up the solar or
wind power with existing sources of power from the grid. This usually comes from a
peaking or load-following gas fired power plant that is coordinated to the measured
output of a wind or solar facility. In other cases, the gas generator may be built together
with the renewable facility, and share the same transmission wires. This maximizes
utilization of the power line, and can avoid the surcharges that are often levied against
wind plants that need to reserve more line capacity than they can reliably use. An even
better source for back up of renewables that produce intermittently is hydroelectricity,
which has the extraordinary capacity of being able to respond almost immediately to
changes in the electric system. It can use this ability to enhance the efficiency of wind
farms.
. Integration with power storage systems. Power storage, such as batteries or flywheels,
can absorb extra power from a wind or solar facility, and release it at times when the
power is most needed. This allows the solar and wind generators to be fully
"dispatchable", meaning that they can be tapped when they are needed most. Batteries
and flywheels are useful for relatively modest power needs, for a single building or for
very short periods of time on a larger scale. Much larger amounts of power can be stored
by using the renewable generation to pump large quantities of water from a lower to an
upper reservoir. When the power is most needed the water is allowed to flow downhill
through a turbine powering an electric generator. This sort of technology has been used
for many decades. Almost all conventional energy storage systems are efficient, but they
can add significant cost.
· Integration with demand response and energy efficiency. Photovoltaic facilities are
always better investments when combined with energy efficiency and conservation
measures. A more advanced application is to use these tools in a coordinated way to
provide reliability for the grid.
.-,
San Diego Regional Electricity Supply and Demand
San Diego County's electric system is essentially an island connected to the outside transmission
system at two points. One of the transmission connections is in northwest San Diego County
leading toward Orange County (WECC Path 44). Path 44 is the only connection into the rest of
the California ISO system. The other transmission connection, the Southwest Power Link
(SWPL), begins at the Miguel substation east of San Diego and heads through the east county,
just north of the Mexican border, and then leads into the Imperial Valley. This 500 kilovolt line
allows for power to be brought in from generator plants in Arizona. The total import capacity of
the two transmission corridors is 2850 megawatts. The 2005 projected peak electricity
-..
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generation requirement for SDG&E was 4370 megawatts, meaning that 65% of the summer peak
demand could be met by electricity imported through the transmission wires alone.
The electric resource potential is defined by the generation resources inside the country and the
import capacity at the two transmission entry points. ISO rules require that the regional grid be
resilient to some degree against failure of system components; specifically the grid must have
resources to withstand the removal of the largest generator and one transmission line. This is
referred to as the "G-llN-I" criteria.
These criteria require that all reliable resources be added up, and then the largest generator and
one transmission line are subtracted. For this purpose the 350 megawatt capacity of the
Southwest Power Link line is subtracted from 2850 megawatts of total transmission capacity to
result in 2500 megawatts of capacity that is considered to meet the reliability criteria. The main
generator resources are 945 megawatts of steam generators (of a total 971 MW) at the Encina
Plant, 689 megawatts of steam generators (of 706 MW) at South Bay. In 2005, there were
another 395 megawatts of capacity under RMR contracts, including the remaining capacity at
Encina and South Bay that are gas turbines. This brings the total RMR generator capacity to
2030 megawatts. In San Diego County the largest generator for 2005 was the 329 megawatt unit
at Encina, called Encina 5. The largest generator in the region contributes nothing to the
reliability requirements except to serve as the discounted resource. Similarly, one transmission
line is worth 350 megawatts of carrying capacity, and also gets subtracted from the total. The
available resources are then compared with assumed projections about future peak demand,
which is based upon a probabilistic model. The generators and transmission capacity are
supposed to meet a spike in demand that has a 1 in 10 year probability of occurring. The
following table shows in summary the region's 2005 resources as calculated by SDG&E.
Table 3. SDG&E 2005 RMR Resource Calculation
Capad!) Cumulathc
(MW) Total (\1\\)
Peak Demand plus line losses 4370 4370
Transmission Import capability -2850 1520
N-lloss of one transmission line 350 1870
QF generation resources -180 1690
Removal oflargest generator (Encina 5) 329 2019
Designated RMR units -2030 -11
While the above was valid for 2005, significant changes occurred in 2006. Specifically, the
Palomar facility was brought online, making it the largest generator in the region; Encina 5 lost
its designation as the subtracted generator. Since about 8.6% of the electricity produced by
generators is lost in the transmission and distribution system, this loss must be added to the peak
demand in order to figure out how much the generators need to produce. Thus, included in the
4370 megawatts is about 375 megawatts of power lost in the electric grid, mostly in the form of
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dissipated heat caused by the electrical resistance of power lines and transformers. This is
important, because the 8.6% loss is avoided whenever an energy resource is placed where the
demand is located. Partly for this reason, utility companies like to consider on-site generation,
like photovoltaic systems on a customer's roof, as removed load rather than as generation; it
makes the calculation of the power resource simpler for them.
When you take the total requirement to meet demand and subtract all available resources, then
the result for 2005 was a negative 11 megawatts. This means that there was 11 megawatts more
estimated electric system resource than was required to meet RMR criteria in that year.
Retirement of the South Bay Power Plants' 700 megawatts in 2009 would have to be replaced
with other resources in the form of new generation within the county, new transmission to bring
power into the county, or peak demand reduction. These resources not only must replace South
Bay, but they also must meet future growth in demand in the SDG&E territory. This
requirement can be met in a number of ways without any need to build new transmission
capacity that goes out of the county. In addition, at a meeting of the Energy Working Group
representatives of ISO and of the Resources Subcommittee stated that there were several options
to close any reliability gaps, and that building several smaller power plants would be a better
option than a large base-load plant.9
Addition of~ew Power Plants
Two new power plants have been brought on-line since the resource calculations were made by
SDG&E in 2005. A 44 megawatt peaking plant in Escondido (MMC) and the 546 megawatt _
plant at Palomar/Escondido built by Sempra. This adds a total of 590 megawatts to the region's
power generation; nearly the anticipated replacement capacity for the South Bay plant. Since the
Palomar plant is now the largest generator, the Encina 5 plant adds back its 329 MW.
Future Power Plant proposals
An additional 561 megawatts of capacity has been permitted and contracted at Otay Mesa, with
an anticipated on-line date of January, 2008. This project has been postponed a number of times,
leading to questions about when and if the power plant will be completed. Yet, if this power is
brought on-line, as is expected since a long-term contract was signed with SDG&E, then there
will be major implications regarding the South Bay Power Plant. So large is this addition that it
will certainly reduce, and may even eliminate, the need for an SBPP replacement. A 22
megawatt biofuel plant has also been announced, bringing the total possible additions to 612
megawatts in the SDG&E system by the 2009 retirement date of the South Bay plant. A
proposal by ENPEX for the Community Power Project could result in electric generation
capacity located at the Sycamore Substation of750-l500 MW, proposed to be operable by 2011.
9
"Ms. Hunter asked whether options to close the gap were evaluated in the CAISO study. Mr.
Shirmohammadi explained that there is a multitude of ways to address this issue but that large power plants were not
the solution to the problem. Mr. Shirmohammadi stated that if building more power plants were the decided route,
building several smaller one would be a better option." Minutes of SANDAG's Energy Working Group, July 27,
2006, p. 13
-.
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AlternativE' Energy Plan for Replacing the South Bay Powt:'r Plant
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. Local Targeted Upgrades in Transmission
The San Onofre Nuclear Generator Station (SONGS) has 2200 megawatts of capacity. The
SONGS facility is jointly owned by San Diego Gas and Electric (SDG&E), Southern California
Edison (SCE), and two municipal utilities. SDG&E's share is 20% of the power output, or 440
megawatts. Even though the nuclear plant is in San Diego County, it is not included in the
resource base. This is because it relies on the northern transmission line (WECC Path 44) for
moving its electricity into the rest of the county. Therefore it takes up transmission capacity and
effectively removes 440 megawatts of power from being brought into the region from out of the
county.
One option would be to add to the transmission system within the county, using existing rights of
way, to bring the SONGS electricity far enough south into the regional grid so it does not block
the northern imports. An additional factor to consider is the planned decrease in capacity of the
nuclear plant. The past 440 megawatt share is expected by SDG&E to be reduced to 377
megawatts by the year 2009, and to 311 megawatts thereafter. This means that the actual
capacity advantage of the new transmission line may be 311 megawatts in future years.
.
Energy Efficiency and Loading Order Requirements
New electric resource plans are required to follow the state's new concept of the "loading order."
The loading order requires utility companies to make energy efficiency resources their top
priority, above conventional generation. New resource planning since 2004 must include energy
efficiency resources that were not included in the earlier RMR calculations.
Energy efficiency may reduce resource needs, if the removed load occurs during times of peak
demand. Lowering the amount of street lighting, for example, would reduce energy
consumption, but does so mainly at night. It thus would be of little value in meeting RMR
requirements. A much better approach would be to implement higher efficiency air
conditioning, forced ventilation to cool buildings at night, or improve insulation and ductwork.
This form of efficiency usually corresponds well to patterns of peak summer demand, when
electric system resources are most strained.
Demand Response
Demand response is an agreement with the utility company, usually by large commercial or
industrial customers, who agree to reduce their electricity consumption during hours of peak
demand. This reduction may result in absolute savings in their consumption, or they may simply
defer electricity usage until hours when the demand reduction is not needed. Whether or not
Demand Response reduces electricity consumption, it does reduce the total load during peak
hours. This reduces the need for new power plant capacity. It also means that there is less need
for operation of power plants that would meet the peak demand. In fact, typically the dirtiest and
least efficient plants would be removed from operation first. So, Demand Response reduces fuel
consumption for power generation and reduces pollution. A Demand Response contract can be
considered equivalent to power plant capacity as far as reliability is concerned, and is actually
worth more than a power plant due to avoided electrical line losses.
.
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Alternative Energy Plan for Replacing the South Bay Pmver Plant
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Distributed Generation
Distributed Generation ("DG") includes any generation capacity that is installed near or at the
location where the electricity is consumed. Particularly relevant is any form of solar energy,
such as photovoltaics, that meets peak demand, or Combined Heat and Power (CHP) plants,
which generate electricity whenever it is required. The amount of CHP is unpredictable at this
point, but there is a major expansion in the works for photovoltaics in the state due to the
California Solar Initiative, which should result in the installation of 100 megawatts per year, or
more, over the next decade in the investor-owned utility regions.
As San Diego has excellent solar resources, and the highest utility rates in the state, it would be
reasonable to assume that up to 10 megawatts of photovoltaics will be installed each year in
SDG&E service territory. By 2009, this could add 30 megawatts to the region, of which 60%
might be considered to be reliable for the RMR criteria. This will add 18 megawatts of reliable
demand side resource, to which about 9% must be added to make it equivalent to generation side
resources. Thus, 18 megawatts of reliable photovoltaic capacity would be worth nearly 20
megawatts ofRMR capacity.
Existing and Future Energy Supply and Demand
The following table summarizes the existing and future potential resources by 2009 that have
been discussed above, none of which were included in the SDG&E forecasts in 2003 as
reliability resources. It shows the possibility for an additional capacity of 1848 megawatts,
without any more new power plants than those already announced, and without any additional
transmission projects for bringing in power from out of the region: -.
Table 4. Actual and Potential New Peak Resources for SDG&E between 2003 and 2009.
Strateg) Capacit)
New Power Plants (2003 to 2006)
Planned Power Plants (online 2007 to 2009)
Upgrading SOS transmission (within county)
Uncommitted Efficiency in 2009
Dispatchable Demand Response in 2009
Distributed Generation in 2009
590 Megawatts
612 Megawatts
311 Megawatts
55 Megawatts
260 Megawatts
20 Megawatts
Total New Resources by 2009 (actual plus potential)
1848 Megawatts
Of course, all these resources may not necessarily be up and running by 2009, but at least half of
this capacity, including power plants already built, demand response, energy efficiency and
distributed generation is a reasonable "base case" assumption. This would mean about 900
megawatts added to 2003 projected resources.
In order to detennine what level of resource is sufficient, the added capacity must be compared
to projected demand. This is complicated by the fact that past demand projections have been __.
overestimated. For example, in 2003 SDG&E submitted projections to the California Public
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Utilities Commission that in 2005 they would need to meet a demand of 4504 megawatts, and
that their resources could not meet this target. The projected shortfall was 69 megawatts. Two
years later (in 2005), they changed the 2005 demand figure to 4370 megawatts, a downward
revision of 134 megawatts. In addition, the 2003 SDG&E projection relied on tbe
assumption that no power generation in the San Diego basin would come on-line between
2004 and 2023. Both of tbese assumptions turned out to be false.
New resource requirements were all shown to be met by major new transmission lines that have
so far proven to be unnecessary, 700 megawatts in 2008 and another 1000 megawatts in 2013. In
fact, generation had come online before the end of 2005: revisions plus the 46 megawatt
Miramar plant pushed the new resource requirements downward by 180 megawatts in just 2
years. The result was a robust 2005 surplus of 111 megawatts rather than the projected 69
megawatt shortfall.
A comparison between projections is instructive. The revised November 2005 projection
removes 605 megawatts from the generation resource requirement in 2016, compared to the 2003
projection, roughly equivalent to a full replacement of the South Bay Power Plant. This shows
how changing from one projection to another can add or subtract the need for large power plants
with relative ease.
Table 5. Comparison of Demand Projections made by SDG&E in 2003 and 2005
2009 2010 2011 2012 2013 2014 2015 2016
Peak Customer Demand (2005 "base 3921 3984 4046 4109 4171 4232 4290 4348
case")
Reserve Margin (15% Demand) 588 598 607 616 626 635 644 652
2005 est. Firm Peak Requirement 4509 4582 4653 4725 4797 4867 4934 5000
2003 Projection (90/10) 4937 5031 5125 5219 5313 5408 5506 5605
2003 Demand Overstatement vs. 2005 +428 +449 +472 +494 +516 +541 +572 +605
Base Case Projection
Using the updated 2005 "base case" projection is thus equivalent to building a new South Bay
Power Plant replacement. Note that this does not say that a replacement plant is or is not needed.
Such a decision would depend on matching demand projection with actual resources brought
online, and must subtract the capacity of any power plants that are retired. Yet, tbe comparison
of projections just two years apart shows bow important it is to keep an eye on revisions in
projected demand.
During the same period, between 2009 and 2016, additional demand response, energy efficiency
and local distributed generation resources are projected, beyond the figures cited above. The
following table shows expected deployment:
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Table 6. San Diego Region Generation from 2009 to 2016
2003 Projected Generation (G-l) 1935 1935 1935 1935 1935 1935 1935 1935
New Generation 590 590 590 590 590 590 590 590
Retirement of SBPP -700 -700 -700 -700 -700 -700 -700 -700
Total Generation 1825 1825 1825 1825 1825 1825 1825 1825
Projected Transmission (N-1) 2500 2500 2500 2500 2500 2500 2500 2500
Transmission PIns Generation 4325 4325 4325 4325 4325 4325 4325 4325
(G-1IN-1)
Efficiency 55 118 175 225 278 345 417 486
Demand Response (DR) 260 264 267 271 276 279 282 286
Distributed Generation (DG)/ and - - - - - - - -
CHP (to be developed with CEC)
Total On-site Resources 315 382 442 496 554 624 699 772
(Efficiency plus DR and DG)
Total Resources 4640 4707 4767 4821 4879 4949 5024 5097
2005 Peak Requirement 4509 4582 4653 4725 4797 4867 4934 5000
(including 15% reserve)
Surplus/(Shortfall) 131 125 114 96 82 82 90 97
.-,
The above chart makes several assumptions. First, it includes only power plants and
transmission line that have been brought online to date. Second, it relies on current projections
for on-site resources, which excludes distributed generation and Combined Heat and Power
(CHP) that may be added in the future. Requirements for including distributed generation in
utility resources are supposed to be established this year by the California Energy Commission
and the California Public Utilities Commission. Both agencies place high priority on distributed
generation, so this should add significantly to the numbers on the resource side, or make up for
potential shortfalls in efficiency and demand response projections.
The scenario above also assumes that planned new in-basin generation, and the additional in-
county transmission line in the South of SONGS (SOS) corridor, is not built. These combined
equal another 923 megawatts of potential capacity, which if they were included could bring
regular surpluses in excess of 1000 megawatts even with full retirement of the South Bay Power
Plant. Yet, surpluses of 82 to 131 megawatts are projected even without the additional power
plants or the SOS added transmission. This also assumes full retirement of the South Bay Power
Plant, with no capacity replacement.
-,
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AlterniltivC' Energy Plan for Replacing the South Bill' PO\ver Plant
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In summary, the region has numerous options in addition to the Green Energy Options Portfolios
presented in this report to replace the energy capacity provided by the South Bay Power Plant; a
full capacity replacement should only be necessary if all the other options fail. The resources
listed below can be used to meet projected demand requirements, replace a shortfall in meeting
on-site resource targets, replace further generation capacity retirements, or meet an unanticipated
increase in future demand. These options in total can add more than 2300 megawatts of electric
system capacity, which should be able to meet the contingency needs of the county for years out
into the future. The options include:
. SDG&E fulfills its responsibilities to deploy demand response, energy efficiency,
distributed renewables and Combined Heat and Power Facilities, adding 772 or more
megawatts.'o
. Future additional electric generation capacity, such as the Otay-Mesa Generating Station,
and/or other smaller plants, results in 612 megawatts or more of new capacity.ll
. Construction of the South of Songs Transmission line adds 311 megawatts of capacity.12
10
SDG&E, Annual Aggregate Energy Resoorce Accounting Tables, Appendix 11A, Table B17, November 15,
2005.
California Energy Commission Energy Facility Statos, updated February 18,2004.
SDG&E, Annual Aggregate Energy Resoorce Accounting Tables, Appendix IIA, Table B17, November 15,
2005.
II
12
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Summary of ISO RMR status and Scale of Energy Replacement Needs
The RMR rating for the South Bay Power Plant is a moving target partly because of new
generation and transmission projects that are coming on line or that will be built in the future.
Weare presenting three scenarios that provide capacity for different RMR replacement levels, as
what capacity will actually be needed to replace the existing South Bay Power Plant's capacity is
highly uncertain.
Two different strategies are possible for addressing a high case RMR requirement. The first is to
apply the highest, 90 percent replacement scenario. The second would be to supplement a
smaller Bay front power plant with the smaller portfolio.
The ISO board has removed the RMR status from Unit #3 of the South Bay Power Plant for
2007. Unit #3 is considered to 174 MW of dependable capacity. This reduced the total RMR
burden on the SBPP down to 515. As the language of the Cooperation Agreement states the
replacement plant only has to be as large as needed to remove RMR from South Bay, the
solutions presented in this report will become significantly more affordable.
Finally, there are a number of resources that are not counted in the current RMR projections for
the San Diego region. Some of these resources, such as demand response, distributed generation,
and energy efficiency, are required by state regulation to come on line over the next three to ten
years amount to literally hundreds of megawatts of capacity. Others, such as insuring the proper,
full accounting for the Palomar Plant, and adding an extra transmission line on the existing -..
corridor to the San Onofre Nuclear Plant, are least cost solutions for adding capacity. Addressing
these issues is essential before any decision is made to commit hundreds of millions of dollars of
ratepayer funds into a new bay front power plant, particularly when other solutions to the
region's energy needs exist which are environmentally superior, carry lower risk, and represent a
far better investment than betting the entire bank on natural gas.
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Altt:'rnative Energy Plan for Replacing the South Bay l'mver Plant
Febru;;uy, 2007
. 4. Green Energy Options: Three Portfolios for Cleaner More
Sustainable Energy for the Region
This section outlines the Green Energy Options (GEO) portfolio alternatives to a new 620 MW
replacement power plant, for a range of possible RMR capacities for the South Bay Power Plant.
90% Replacement Capacity Green Energy Option
Portfolio that replaces 90% of 700 MW Capacity
. 400 MW Wind Farm with 150 MW Pumped Storage and Transmission project
. 220 MW Natural Gas Plant
. Solar Concentrator Plant powering a 160 MW Peaker with natural gas backup,
. 20 MW Photovoltaics
. 20 MW Peak Demand Reduction
.
70% Replacement Capacity Green Energy Option
Portfolio that replaces 70% of 700 MW Capacity
. 325 MW Wind Farm with 90 MW Pumped Storage and Transmission project
. 190 MW Natural Gas Plant
. Solar Concentrator Plant powering a 160 MW Peaker with natural gas backup,
. 20 MW Photovoltaics
. 20 MW Peak Demand Reduction
50% Replacement Capacity Green Energy Option
Portfolio that replaces 50% of 700 MW Capacity
. 150 MW Wind Farm with 60 MW Pumped Storage and Transmission project
. 90 MW Natural Gas Plant
. Solar Concentrator Plant powering a 160 MW Peaker with natural gas backup,
. 20 MW Photovoltaics
. 20 MW Peak Demand Reduction
.
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5. Description of Green Energy Technology Options
The three portfolio alternatives to installing 650-700 MW firm capacity generation replacement
on the Chula Vista Bayfront utilize technology and investment options that are viable and ready
for implementation, involving multi-year commitments of local jurisdictions that may be used to
finance alternative energy portfolios and accelerate renewable investment in Chula Vista and
throughout San Diego County. This section describes in detail these technology options and how
they could be developed here.
Hybrid Wind Farm & Pumped-Water Storage Facility
Size Range:
150 to 400 Megawatt Capacity Wind Farm,
60 to 150 Megawatts Pumped Storage
Cost Range:
$170 to $540 Million for the Wind Farm;
and $80 to $210 Million Pumped Water Storage
Est. Power Cost from Wind Farm:
Est. Power Cost from Wind plus
Pumped Storage:
(See Appendix A)
4.8 cents/kwb
9.6 cents/kwh
.-,
A wind farm and pumped storage serve as insurance against increasing natural gas prices, as the
cost is essentially fixed and is the part of the portfolio that is completely independent of fuel
prices. Wind power also partly serves to round out load requirements that are not fully met by
solar energy alone. While wind is intermittent, the pumped storage facility makes the electricity
generated by the wind highly reliable and usable at any time it is required. Thus the pumped
storage, while adding significant expense, also adds great utility and value.
Wind power is easily the lowest cost renewable generation option, in the last several years
globally averaging $1000 to $1200 per kilowatt of capacity for a large wind farm. High demand
has recently pushed the cost of wind farms higher, with a range between $1300 to $1750 per
kilowatt; the lower range should be achievable with good planning and also once manufacturing
capacity catches up to demand. In fact, 2006 DOE projections are that wind farms should return
to the previous low levels by the end of the decade, though our cost projections do not assume
this. Should this happen, then economics of the wind farm will become very favorable.
Wind turbines have become very reliable, and warranties on product defects cover investors from
the most serious capital risks during the early years of operation. With proper operation and
maintenance, wind turbines have a life expectancy of 20 to 30 years.
The most important factor in the cost of electricity from a wind farm is the available wind
resource. Wind power resource goes up geometrically in proportion to the cube of the wind .-,
speed. Thus, even small increments of average wind speed can make a significant difference in
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wind generation. It is critical fIrst to find areas with the best wind and then to follow this up with
careful measurements of at least one year at the locations under consideration.
Wind resources are conventionally measured according to "Classes" ranging from 1 to 7. A class
3 wind is the usually the minimum for commercial development. A class 3 site would ordinarily
only be used when other factors make it desirable, such as a location close to where the power
will be delivered. For sites that require transmission of electricity over a distance, a minimum of
class 5 is highly recommended.
Parts of Eastern San Diego County have some of the finest wind resources in California (Class 5
and Class 6). A considerable amount of this area is in national park, forest or other protected
areas, and thus is effectively off limits to development. However, there are high wind areas in
the Southeast County that may be more suitable for a large wind farm (Figure 1).
Figure 1. San Diego County Wind Resource Regions.
,..-.~,/."""'~-, ~_._~._----_I.!I'~~._-
The second major factor affecting the cost of wind is financing. Private developers require
significant rates of return that can add to the cost of wind. This is usually offset by the federal
wind tax credit, currently 1.8 cents per kilowatt-hour paid for the first 10 years of the wind
farm's operation. Since Chula Vista is not a tax paying entity it is not eligible for the tax credit,
however its low cost financing resources using municipal bonds can essentially equal the benefit
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of the tax credit. This means development plans can be independent of federal tax policy, a
frequent stumbling block for wind projects. In addition, the benefit of low cost financing extends
for the full life of the asset, while the tax credit is limited to 10 years.
Utilizing municipal financing for a large wind farm with class 6 winds would likely result in
wholesale electricity costs of 5 cents per kilowatt-hour or less. This makes wind power
competitive with the long-range expected cost of electricity generation from base load plants.
Wind powered electricity can be sent directly over the transmission grid, but its variability means
that it is not reliably producing power at the times it is most needed. To make the wind
generation reliable, it must be backed up with other generation resources. Vendors of contract
wind power usually make use of natural gas generation to provide a 24-hour base load service.
Since this off-peak character of wind power is not part of the service provided by the existing
South Bay Power Plant, selling the power to wholesale buyers or a CCA requires a way to
transfer the energy output to those hours when it is needed, and the design of this component
must be included (and is included in this Plan) in its financial modeling. In order to project the
competitiveness of the large scale solar concentrator turbine facility and wind turbine facility,
this Plan includes the fully integrated "Hybrid" packages rather than just isolated RMR-related
component, investment scale, and paybacks. An energy storage system, which takes the power
produced at night and makes it available during the day, is the way to achieve this functionality.
Pumped Storage is the only affordable, practical way to store this amount of energy, in which
water is pumped to the top of a reservoir at night when the wind blows, and the water is released
the following day to run hydroelectric turbines. Modem systems allow for a single unit to serve
both as pump and turbine, which reduces the capital expense.
.-..
The GEO's proposed Pumped Storage facility places an additional cost for peak power that can
add about 3 to 4 cents/kwh to the cost of energy that is used to pump the water into the storage.
At current and forecast future natural gas prices, pumped storage can be competitive to projected
peak power from competing natural gas power plants. Hybridizing the facility also enables the
lower-cost wind power to offset the higher cost Pumped Storage power. This is because only a
part of the power generated by the Wind Farm is used for running pumps on the Pumped Storage
Facility, with the remainder of the wind power being sold as part of a competitively priced,
stable energy supply. While pumped storage facilities can be expensive, their cost can be
reduced by using existing reservoirs. There are reservoirs in San Diego County, most notably in
the East County, which might be suitable from the standpoint of location, size and sufficient
elevation drop below the reservoir. Also, the Lake Hodges Pumped Storage project may provide
a feasible market for selling excess wind generation, and should be evaluated by Chula Vista and
any partners. Finally, while Pumped Storage adds substantially to the cost of the Wind Farm's
power, power delivered during peak hours has a large premium value in the wholesale power
market. This facility will serve as a hedge should natural gas prices increase in the future, which
is widely predicted. In addition, the pumped storage facility will outlast the wind equipment by
decades. Once financing costs have been covered during the financing period, the pumped
storage cost will be reduced to operation and maintenance, which means that the cost to generate
electricity will be very cheap and the profit margins quite large. In this way, the pumped storage
facility is a long term investment.
--
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Alternative Energy Plan for Replacing the South Bay I-\nvcr Plant
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Hybrid Solar Concentrator Turbine with Natural Gas Backup and
Cogeneration
Size Range:
Cost Range:
Power Cost without Cogeneration:
Power Cost witb Cogeneration:
(see appendix B)
160 MW
$350 to $450 million
10.2 to 12.2 cents/kwh
9.1 to 9.28 cents/kwb
Solar thermal generators have been reliably delivering hundreds of megawatts of power into the
California grid since the 1980s. This technology uses parabolic mirrors to collect light and
concentrate the heat of sun onto a long tube filled with a fluid. These mirrors track the sun, and
thus produce power all day long at a fairly consistent level in sunny locations. In one variation,
the fluid transfers the heat to a second fluid, such as water, that turns to steam and runs a
conventional turbine. The conventional turbine can also be run off of natural gas on days when
the sun is not available. This provides a very high level of reliability while greatly limiting use
of natural gas. Such a system can completely replace the functionality of the current South Bay
Plant.
One major problem with solar thermal generation has, in the past, been lack of availability. This
limitation is rapidly disappearing, as new solar thermal manufacturers and installers are
beginning to emerge all over the world, including in the US. Recently a one megawatt solar
thermal power plant in Arizona was completed, and a 64 megawatt plant in Nevada is under
construction. The 1 megawatt plant was quite expensive: at about $6000 per kilowatt it is 5
times more costly than equivalent sized wind farms. The larger plant in Nevada reduced the unit
cost by about 40%, due to improved design, experience, and some economy of scale. This
technology is expected to continue to decrease in cost, which will be necessary to make it
directly cost competitive with peak power from natural gas generators. However, it is easier to
acquire and permit real estate for Solar Concentrators, making it feasible in many areas of
California where there is sufficient relatively level land.
For a local resource, power prices from solar concentrators are expected in the next 5 to 10 years
to become a competitive, locally available power source, especially when transmission already
exists or no new significant transmission is required. The Nevada solar-trough thermal
generating plant costs about $3500 per kilowatt, but the installer says that a larger plant of 160
megawatts, such as Local Power is recommending for Chula Vista, will be significantly cheaper.
A combination of further development of the industry, and a larger scale project, should begin to
make solar thermal technology directly competitive with long-term expected cost of comparable
natural gas plants. The projection of $2500 per kilowatt is in line with industry expectations and
DOE price projections.
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Alternati"ve Energy Plan for Replacing the South Bay Power Plante
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We also strongly recommend tbat a solar tbermal project be co-located with a facility that
can use and purcbase the "waste" heat; an application referred to as co-generation or
combined heat and power (CHP). This can make solar tberma1 generation significantly
more cost effective, and also provide a secondary commercial development opportunity.
Solar concentrators have been around for over a hundred years. We estimate that a 160
megawatt project would require approximately 900 acres; however, if the cost for solar
concentrators continues to drop, a smaller facility may become economical. The sites mentioned
in this report, such as those near Sycuan, and Ream Field, have been initially evaluated and may
prove adequate in size and solar conditions to provide affordable local power. The resource for
solar energy is optimal in the East County, but a development nearer to Chula Vista would come
close to matching the effective cost to produce electricity if transmission charges can be avoided.
Further site acquisition and permitting analysis is warranted and land-owners would need to be
solicited about their interest in such a project in a timely manner.
A natural gas plant that provides assured power is an essential part of the portfolio. It provides a
benefit if natural gas prices are lower than the threshold required to make the fixed cost
renewables profitable. It is thus a kind of insurance should natural gas prices remain below
current levels of $6 to $7 per MMBtu. But even if prices are sustained at $5 per MMBtu, the
total portfolio cost of energy is only a fraction of a cent per kilowatt-hour above prevailing costs
to run a natural gas turbine generating at an equivalent capacity, an increment that is less than
half the premium that the renewables would have by themselves. This illustrates why the natural
gas component is a critical part of the GEO investment portfolio. This hedge is more valuable
than it would be for a private third-party investor, because the low return on municipal bonds
decreases the expense of owning a power plant. This margin of savings is larger for a peaking
plant than for a base load plant, since the cost of the plant becomes more significant as less fuel
is consumed. The relative savings due to municipal financing, however, are not nearly as large as
they are for highly capital intensive renewables like wind, pumped storage and solar thermal,
where the fuel cost is very low to non-existent.
.-.
-.
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Alternative Energy Plan for Replacing the South Bay Pmver Plant
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Photovoltaics with Energy Storage or Demand Response
Size Range:
Cost Range:
Power Cost:
20MW
$120 to 160 million
25 to 30 cents/kilowatt-hour after rebates; 8 to 12 cents/kilowatt-honr
for commercial owners who can also get tax credits.
(See appendix D)
Photovoltaic power is the direct conversion of sunlight into electricity using semiconductors. The
most common semiconductor is a thin wafer of silicon with minute amounts of boron and
phosphorous that gives the silicon an electric charge. The silicon wafers are mounted in panels
that generate electricity any time they are placed in sunlight. The materials are highly durable,
with some testing suggesting lifecycles as high as 80 years or more. Since the technology is
modular and flat, the panels can be placed almost anywhere. Frequently rooftops are chosen, but
shading structures over parking areas or placement in open areas are also frequently seen.
Present full installed costs for small residential systems average about $9500 per kilowatt, while
larger commercial or industrial sized systems average about $8000 per kilowatt, though some
facilities have been installed for as little as $5000 per kilowatt.13 Over the next five to ten years,
the cost of photovoltaics is expected to continue to decrease, and numerous technology options
and economies of manufacturing scale will facilitate this.
Photovoltaics are still one of the most expensive electric generation technologies, resulting in a
full cost of electricity (before rebates) ranging between 20 and 40 cents per kilowatt hour. Yet,
despite this fact, there are opportunities to make an investment in this technology cost effective.
Deploying photovoltaic systems at the location where electricity is consumed gives it a premium
value over the wholesale power which cost the utility company 5 to 8 cents per kilowatt hour.
SDG&E sells this power at 13 to 18 cents per kilowatt hour to customers, and this is much closer
to the cost of photovoltaic electricity. Photovoltaics, however, does not compete with the
present cost of electricity, but rather with the expected cost of electricity over the next decades
against which it represents insurance. This fact enhances its value substantially. (This point is
also an important factor for evaluating the other renewables in the portfolio.) NOTE: Since
photovoltaics, as envisioned in the GEO, are developed as generators at customer sites, and may
even be owned directly by customers, they are not included in the wholesale electricity price
calculations for the GEO portfolios.
If customers take advantage of state rebates and tax credits, then the balance can be shifted
decisively in favor of these solar energy systems. The fact that thousands of customers have
taken advantage of subsidies shows that the potential market is quite large. The recently enacted
California Solar Initiative provides rebates out to 2015, currently $2500 per kilowatt, and set to
decrease when specified benchmarks of solar installation are met. Solar energy systems over 100
kilowatts in size will receive a performance incentive, paid out over a few years based on the
electric generation of the system. Smaller photovoltaic installations will usually get their rebate
at the time of purchase. In addition, businesses can take a tax credit for 30% of the installed cost
13
Data: California Public Utilities Commission.
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Altemative Energy Plan for Replacing the South Bay Pm-ver Plant
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of the photovoltaic system until 2008. This will either revert to a 10% credit unless the 30%
credit is extended, which several bills in Congress propose to do. .
Building to larger scale is another way to save on cost, as small home-sized installations can be
about 10% to 20% more expensive on a unit basis. The economy of scale is not at present great
enough to make building large photovoltaic generating stations cost effective, though this may
change over the next decades as solar energy costs drop and electric rates continue to rise. Last
year 1.5 billion watts of photovoltaics were installed around the world, about a ten-fold increase
since 1995. During that time the average cost dropped by at least 35 percent. Installing two
megawatts per year would require development of multiple sites, since the cap for rebates is
likely to be 1 megawatt. Two megawatts was selected as an annual target as this is believed to
be the minimum demand required to attract a solar panel manufacturer to the region to support
part of regional goals for promotion and development of a green energy economy. Also, the
electricity must be usable on-site and few customers use this much electricity. The cost would
be about 12 to 15 million dollars per year, assuming large scale deployment and economies of
scale. This range is likely to be valid until the end of this decade, though technology
improvements will continue gradually to lower the cost over time.
Cogeneration for peak capacity
Cogeneration, also called Combined Heat and Power, uses thermal sources such as natural gas
for more than one purpose simultaneously. The heat is first used to generate electricity, which
typically only uses about 35 percent of the energy, though the most efficient modern combined ~
cycle base load plants can reach up to 60 percent efficiency. The rest of the heat normally is
wasted in the atmosphere, but cogeneration uses the heat to do further work. Normally this is for
an industrial process that would use the fuel in any case, but now the fuel does double duty. This
can raise the net efficiency to as high as 90 percent, which a substantial savings in both cost and
fuel. There are also environmental benefits, while C02 reductions can approach even the most
aggressive climate protection goals. The most efficient way to use combined heat and power is
to match it with the on-site needs for heat. But using it intermittently for peak power also
realizes significant savings and environmental benefits. This is an important way to help bring
down the cost of solar thermal and natural gas peak power generation, though the expected
efficiency levels are not as high as for base load plants.
Energy Efficiency, Demand Response and Conservation
Energy efficiency can also be turned into a peaking resource, if the load that is made more
efficient matches the peak periods. Determining this may require some research into local
demand patterns. Examining the load curves will show what sector the demand is coming from,
but it is equally important to find out what appliances are creating the load at the particular time
in question. Daytime loads might be offset by more efficient office lighting and other office
equipment. Evening summer peak load in California frequently comes from air conditioning.
Building insulation, sealing ductwork and building envelopes, measuring internal thermal flow
and pressure patterns, and installing more efficient air conditioning are keys to addressing this
late afternoon to early evening demand. Adequate training of personnel and inspection of air
conditioning refrigerants also help. Any efficiency program requires the most stringent .-,
monitoring, which just as important as prescreening. The program should set clear goals that
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match the load requirements that the power plant currently fills, and they should be monitored
for actual savings in kilowatt hours and peak building demand patterns. This is much more
efficiently done in large commercial structures, but addressing the residential sector may be
critical for offsetting the electric system's evening power demand.
Demand response is far more easily accepted by the ISO as a legitimate power resource,
particularly if customers in a demand response program are bound by usage contracts that
specifY when and how much demand curtailment will be applied. This is done by central
dispatch, using automated controls, though up to this point such dispatch can be rather brutal. A
CCA could create its own demand response program that allows for flexibility and customer
choice. Importantly, such a program can be implemented with little capital investment, and
forming an agreement with a customer is an ideal entry point for bringing in a wide range of
attractive energy services, including photovoltaics, efficiency measures, backup emergency
power, power conditioning equipment to assure high quality, and energy audits. Demand
response is much more cost-effective with large commercial or industrial customers. Programs
are more successful when the customer receives a financial reward, such as lower rates. Since
many of these customers are on time-of-use rates, there is built in support in their electric rate
structure. The key is to enhance this value while minimizing sacrifice from the customer.
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Alternative Energy Plan for Replacing the South Bay Power Plant
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6. Key Investment Mechanisms and Financing
This section identifies the process and programs by which the City of Chula Vista could recoup
their green investments and raise revenue. It contains an analysis of implementation structures
that would be needed, financing, and public programs that support or affect clean energy
projects.
Community Choice Aggregation (CCA)
Community Choice is a key strategy in Chula Vista's ability to develop the renewable energy
facilities on a scale that will reduce or eliminate the need for generation on the SBPP site.
CCA is technically easier to implement and less risky than a municipalization, but facilitates
local control over energy resource planning. Under a CCA, Chula Vista would procure power on
behalf of residents and businesses; SDG&E will continue to provide distribution, meter-reading
and billing services, and would remain the Provider of Last Resort.
CCA is an established, successful method of procuring competitively priced energy services.
Nationally, CCA uses economies of scale to leverage lower prices, cleaner power and better
service. Since 1997, CCA Laws have been passed by New Jersey, Ohio, Massachusetts,
California, and Rhode Island. All of Cape Cod formed the nation's first CCA in 1997, and has
provided electricity service and energy efficiency services at below-market prices since then.
The Cape Light Compact is a regional services organization made up of all 21 towns of Cape
Cod and Martha's Vineyard, and Barnstable and Dukes counties. The purpose of the Compact is
to represent and protect consumer interests in a restructured utility industry. As authorized by
each town, the Compact operates the regional energy efficiency program and works with the
combined buying power of the region's 197,000 electric consumers to negotiate for lower cost
electricity and other public benefits. The Compact provides
-.
1) Aggregated power supply
2) Consumer advocacy
3) Energy efficiency programs such as low income, residential, commercial and
industrial, and education programs
Cape Light Compact, emphasizes a comprehensive approach, undertaken with legal and
technical support - as the electric industry continues in its transition to a competitive market.
In Ohio, CCA represents nearly all of the state's competitive electricity market, with the
Northeast Public Energy Council serving approximately 500,000 customers since 2000, with a
70% cleaner portfolio than utility service at prices consistently lower, even after changing
suppliers. Forty California municipalities and counties are now evaluating Community Choice,
27 ofthem are seeking to double or more the state Renewable Portfolio Standard (RPS) targets.
Apart from providing revenue for the repayment of renewable energy investments, CCA offers
Chula Vistans transparent, structured rates. "Political rate-setting" may be avoided by requiring-"
prospective suppliers to "meet or beat" SDG&E's current rates, be selected through a
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Alterndtive Energy })Jan for Replacing the South Bay Power Plant
February, 2007
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competitive bidding process, and commit to a locally-set rate schedule. Chula Vista, or a regional
CCA, may set a Renewables Portfolio Standard (RPS) for the community and require suppliers
to design, build, operate and maintain renewable energy and conservation facilities as portfolio
components of the service. CCA enables a maximum level of performance risk to be placed on
the energy rather than the City's General Fund. With significant revenues secured under a CCA
contract, City program costs can be self-funded from a small increment of revenues. A single
supplier approach allows for greater performance accountability, protecting both the City's
General Fund and new customers against energy market risk. Double-Bonding may be used to
insure risks associated with both commodity services and facilities construction. Finally,
participation is voluntary. After the City signs a contract under specific terms, every customer
will receive four notifications comparing the CCA's deal to SDG&E's terms, and be free to opt-
out without penalty over a 120-day period.
The repayment of Chula Vista energy investment may be made directly through CCA, or
indirectly by selling power to another party. Directly, Chula Vista could provide for the power
needs of its own residents, businesses and public agencies, guaranteeing power sales from a
renewable energy facility integrated into the Specific Plan - delivering fixed prices and energy
independence to the local economy. Indirectly, Chula Vista could build a facility to sell power to
the Southern California Public Power Agency (SCPP A), or to the wholesale power market. With
other municipalities in the region considering CCA, power may also be shared among CCAs.
Either approach would enhance the uniqueness and sustainability of the renewable energy
facility development and deliver profits to the city and significant local economic development -
all at very low risk.
Community Choice is an authority granted by California law (AB 117, Migden) that allows cities
and counties to take charge of their own energy future. Under Community Choice, local
governments can serve as a virtual "electricity buyer's cooperative" for local residents,
businesses and government agencies. Unlike ordinary cooperatives, however, the day-to-day
management for securing electricity supplies is managed by a qualified and experienced third
party, while the local government is placed in the role of strategic planner.
The government entity, called a Community Choice Aggregator (CCA), contracts with
existing licensed suppliers called "Electric Service Providers" (ESPs). Other public entities, such
as SCPP A or other inter-municipal association, may also purchase and sell power. ESPs are often
the optimal vehicle because they are risk-bearing retail entities, in the business of providing
reliable and cost-competitive electricity for large businesses and government agencies. About 12
percent of California's electricity is currently purchased from Electric Service Providers.
If it were to desire to form a CCA Joint Powers Agency, Chula Vista should investigate
partnering with other municipalities, principally, National City and Imperial Beach. Imperial
Beach in particular has articulated interest in such partnering concepts.
Municipal Revenue Bonds (H Bonds)
The Chula Vista City Council has the authority to issue revenue bonds unilaterally, or to form a
partnership with other local government entities in a joint venture to share the risks and benefits
. of a renewable energy network with other governments on a regional basis.
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Altemative Energy Plan for Replacing the South Bay Power Plant
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Joint Powers Agencies, Native American Tribes, other cities and ports also have the authority to
issue revenue bonds, either based on a new revenue stream or existing assets or contracts. There
are several key entities in or near Chula Vista which should be considered for a potential
financing partnership. We have identified specific opportunities for Chula Vista to issue H
Bonds in conjunction with other local public entities, any of which could participate in a CCA,
co-finance and co-own green power facilities, and host facilities on their list of lands and
properties:
· Native American Tribal Governments in or near San Diego County have land suitable for
Solar Concentrator and Wind Power Facility, and are pursuing commercial green power
development;
. Southern California Public Power Agency members already co-develop power plants and
could partner to develop and take power from a Solar Concentrator or Wind Farm Hybrid
as municipal utilities;
. San Diego County owns reservoirs and land suitable for the proposed Wind and Pumped
Storage Facility;
. Port of San Diego could co-finance a green power facility and purchase power as a
member of a CCA;
. U.S. Navy is an active developer of solar photovoltaics, has land suitable for green power
facilities, and is a major energy user.
The specific scenarios involve an integrated use of H Bonds in conjunction with a CCA. H
Bonds are generic municipal revenue bonds used to finance renewable energy and energy
conservation facilities. Chula Vista, and any other city, has the opportunity to issue H Bonds
based on a new revenue source. There are three categories of H Bonds:
-.
. First, a municipality, JP A or public agency partnership may own its electric utility, and
secure H Bond repayment through the guaranteed monthly bill payments of captive utility
customers. This option has been foreclosed by Chula Vista's Franchise Agreement with
SDG&E in 2004, which appears to prevent Chula Vista from providing wires services
alone or with another party, including transmission;
· Second, a municipality may issue H Bonds to finance facilities that will operate without a
guaranteed retail customer, selling power with a degree of risk mitigated by long-term
contracts with public agencies such as the Southern California Public Power Authority in
a long-term agreement, and/or selling power in long-term contracts on the wholesale
power market.
· Third, a municipality may form a Community Choice Aggregator (eCA) formed
pursuant to AB117 (2002 - Migden) and secure repayment ofH Bonds based on monthly
electric bill payments of participating residents, businesses and public agencies.
H Bonds and CCA
H Bonds provide CCAs with considerable flexibility. They can be used to finance renewable
energy generating units and other revenue producing elements of CCA, such as storage facilities
and conservation facilities. H Bonds can be supported by existing public agency assets and """"
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Alternative Energy Plan for Replacing t.he South Bay Power Plant
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enterprises, or by new assets or enterprises such as renewable energy generating units. Finally,
revenues from a contract with an Electric Services Provider ("ESP") may support H Bond
repayment, with or without assets or enterprises.
H Bonds and CCA are extremely synergistic. Together, they (a) provide both the means to
develop renewable energy and energy efficiency resources, and the market to utilize and pay for
those resources; and (b) provide CCA with a secure base of resources with which to serve its
customers and, thus, avoid excessive dependence on a volatile energy market. Whether the H
Bonds will qualifY for tax-exempt status and other factors affecting their marketability are
dependent on the structure of the transaction being financed. Specific structures are discussed
below.
As a rule, in order to qualifY for tax exemption, the facilities that are financed must be owned by
a governmental entity or operated by Chula Vista or other governmental entity - or by a
nongovernmental entity on behalf of Chula Vista pursuant to a contract that meets certain
requirements prescribed by the Internal Revenue Service. Even if not tax-exempt, H Bonds
could still be issued to finance facilities which make solar and other technologies more
affordable to local residents and businesses, albeit at a slightly higher interest cost than
government-owned facilities would pay - but could also take advantage of significant federal tax
benefits.
Application of H Bonds to CCA 14
H Bonds can be used in a variety of ways. From a strategic business perspective, H Bonds and
CCA were developed to work together. Without CCA, renewable energy and energy efficiency
projects financed by H Bonds would have to search for a market for the power output. With
CCA, major recurring revenues from community-wide retail electric sales will repay the
investment in clean energy projects.
Alternately, without resources of the sort authorized by H Bonds, a CCA program could not
finance new green power facilities; moreover, without a secure base of resources, a CCA would
be extremely dependent of the energy market to serve its customers. The energy crisis of 2000-
2001 dramatically demonstrated the danger of over-dependence on a volatile energy market - a
lesson reinforced by fossil fuel price fluctuations this past year, and SDG&E's increasingly
volatile electricity rates, reflecting its predominantly natural-gas fired power plant fleet. The
specifics of how H Bonds are used in connection with CCA depend on what types of projects are
to be fmanced. Because a driving factor behind most local government's interest in CCA is to
utilize renewable energy and energy conservation, a number of projects that meet the parameters
for H Bonds would probably be part of a Chula Vista CCA energy plan. Those projects can be
financed with H Bonds.
The specific use of H Bonds to most effectively further CCA depends on the particular projects.
Three of the threshold questions that must be addressed are (i) what assets or programs would
best assist with the implementation of CCA, (ii) what revenue source will secure repayment of
the H Bonds, and (iii) whether the H Bonds are tax-exempt or taxable. These items are discussed
14
"How H Bonds can be used to implement an adopted CCA Implementation Plan," Nixon Peabody LLP,
"Analysis for San Francisco Local Agency Formation Commission," November 10, 2005, Accepted by San
Francisco Local Agency Formation and San Francisco CCA Task Force, 2006.
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briefly below. The first two are somewhat related in that if the items financed do not have an
independent or sufficient revenue stream to support the bonds to be issued, a separate revenue
stream for the H Bonds must be identified. The question of tax exemption will turn generally on
the specific facts relating to ownership and use of the financed items.
Chula Vista General Plan, Policy E 7.5 states that the City sets a goal of 40% clean renewable
energy by 2017.15 San Franciscol6, Marin County, and other cities implementing Community
Choice Aggregation have set goals of 50% or higher by 2017. To achieve this objective, Chula
Vista's Implementation Plan would contemplate a number of elements that should fall within H
Bond financing in order to provide for the development of renewable energy facilities, and could
also establish replacement capacity and power for the RMR -contracted elements of the South
Bay Power Plant.
The bond financing can cover renewable energy generation from wind farms, distributed
generation utilizing photovoltaic technology, an electrolysis hydrogen facility, and energy
efficiency programs. This can include the developmental costs such as preparation of requests
for proposals, environmental studies, and permitting, accounting and legal expenses, in addition
to "hard-costs" of construction.
Sources of Repayment
H Bonds are "revenue bonds" issued by a municipality, county or Joint Powers Agency, which
are to be secured by the revenues derived from fees and charges associated with the operation of --..
an enterprise. Revenue bonds are commonly issued by state or local governmental entities and
secured by the revenues of electricity or water enterprises or other revenue producing enterprises
such as ports. The major point is that H Bonds may not be secured by or payable from Chula
Vista's general funds. Rather, revenues from an operating enterprise must be the source of
security or repayment.
H Bonds allow, but do not mandate, the potential use of revenues produced by a facility to be
built with proceeds of H Bonds to secure and repay those bonds. But revenues from other
revenue producing enterprises may be used as security in lieu of or in connection with revenues
from an H Bond financed facility. Under California law, revenue bonds such as H Bonds are
excluded from the voter approval requirement of Article XVI, Section 18 of the California
Constitution if they meet the requirements of the so-called "special fund doctrine." Under this
exception, a debt otherwise requiring voter approval is not required if such debt is solely payable
from and secured by revenues produced by an appropriate enterprise. No general fund or other
tax revenues may be pledged to the repayment of such bonds.
In order to constitute permitted "revenue bonds," Chula Vista will need to identifY a dedicated
revenue source by which H Bonds are to be secured and repaid, whether revenues of a new
source or an existing source. As noted, Chula Vista can structure H Bonds to be secured by the
revenues from an existing revenue producing entity. Other financing scenarios also exist and are
discussed below.
"
16
Chula Vista General Plan, Policy E7.5.
San Francisco Community Choice Aggregation Draft Implementation Plan, San Francisco Local Agency
Formation Commission, May 13,2005.
-.
43
Loca I ['ower
Alternative Energy Plan for Replacing the South Bay Pmver Plant
February, 2007
.
.
.
H Bonds can be secured by revenues from a new enterprise such as the CCA or a facility such as
a renewable energy source that has not yet commenced producing revenues. This has the
advantage of a logical nexus between the bonds' purpose and source of repayment. A
disadvantage is the need to borrow additional moneys to pay interest on H Bonds during the
construction period until such time as the facilities can produce revenues to pay the bonds,
though obtaining a construction loan is a normal way of doing business for energy projects.
Such a structure also has "construction" or "completion" risk that may result in a slightly higher
interest rate on the bonds. In addition, the revenue production of a new facility to be built is
uncertain which may also affect the interest costs that are attainable.
Securing the H Bonds with the revenues of an existing revenue producing entity avoids the
disadvantages discussed above. However, such a structure does "tie up" a revenue producing
enterprise of the City. A potential "hybrid" structure is to use a combination of the foregoing
structures. Under this alternative structure the H Bonds could be secured by both a pledge of
revenues from an existing enterprise and from any new enterprise. The pledge on the existing
enterprise could be limited to the construction period during which the new facilities are not
producing revenues or could be for the life of the H Bonds.
Another possibility would be to secure H Bonds with revenues available from a contract with a
California-registered Electric Service Provider ("ESP") providing CCA services. Such revenues
could be structured to constitute revenues of the enterprise(s), which would be the security for
the H Bonds. For example, lease payments received from an ESP would constitute revenues that
could be pledged as security.
Ultimately, the projects Chula Vista desires to finance with H Bonds will have a strong bearing
on the security structure chosen. For example, if a significant portion of the proceeds of H
Bonds will be used to acquire or implement non-revenue producing programs, the use of an
existing revenue-producing enterprise will be required. On the other hand, if a significant
portion of the proceeds is used to acquire revenue-producing facilities, such facilities or related
activities could serve as the security and source of repayment for the H Bonds.
In any event, a bond rating will be required for H Bonds secured by new or existing enterprises
that do not already have a rating. The credit quality analysis conducted by the rating agency
will, among other things, focus on the "coverage" provided by the pledged revenues. Generally,
the rating agencies prefer pledged revenues that are 125% or more of the scheduled debt service
on the bonds.
Alternative Structures for using H-bonds and Implications for Tax
Exemption.
Chula Vista has a wide degree of discretion regarding the use of H Bond proceeds for renewable
energy and conservation projects. However, the particular programs and users of facilities
financed with the proceeds of H Bonds will impact whether the interest on such bonds will be
tax-exempt under the provisions of the Internal Revenue Code of 1986, as amended (the
"Code").
44
Loca 1 (\nver
Alternative Energy Plan for Replacing the South Bay Power Plant
February, 2007
-.,
In other words, Chula Vista could use H Bond financing to provide its residents and businesses
with the opportunity to purchase and own solar power with no money down.
In general, the "use" of facilities or items financed with the proceeds of H Bonds by an entity
other than a state or local government could result in such bonds constituting "private activity
bonds." In that case, under Section 141 of the Code, the interest is not tax-exempt. Such use is
often referred to as "private use". Private use is present where there are any types of privately
held "legal entitlements" with respect to the financed facility. Nongovernmental ownership
constitutes private use as do long-term contracts regarding the output to be produced by the
facility. For example, a long-term contract with a nongovernmental entity in which that entity
agrees to purchase the energy output of a facility will generally constitute private use. In
addition, contractual arrangements with nongovernmental entities regarding the operations and
maintenance of a financed facility will constitute private use, unless such contractual
arrangement is consistent with certain contract parameters approved by the Internal Revenue
Service and described below." Last, it should be noted that loans of the proceeds ofH Bonds to
a nongovernmental person or entity will generally cause the H Bonds to fail to qualify for tax
exemption. However, a tribal government could issue tax-exempt H Bonds in conjunction with
Chula Vista or a group of public agencies in order to develop or co-develop a renewable energy
facility and enter into power purchase agreements for the capacity and power of the facility
between the tribal government and the municipality or group of municipalities such as a Joint
Powers Agency.
Therefore, the facts regarding the ownership and operational structure of the financed facility
will determine whether the bonds may be issued as taxable or tax-exempt. If Chula Vista owns
and operates the facility, and if the power is delivered to customers of Chula Vista, then the
facility will probably qualify for tax-exempt financing. It will also be possible to qualify for tax-
exemption if Chula Vista contracts the management of that facility to a private party, provided
the management contract requirements of Internal Revenue Service Revenue Procedure 97-13
(discussed below) are satisfied. On the other hand, if an ESP or other nongovernmental entity
owns the financed facility or operates it pursuant to an arrangement that does not meet the
requirements of Revenue Procedure 97-13, it will probably not qualify for tax-exempt financing.
~
17
Generally, bonds constitute private activity bonds if they meet either of the following tests:
A. Both the private business use test ("Private Use Test") AND the private security or payment test ("Private
Payment Test" and together with the Private Use Test, the "Private Business Tests")); or
B. the private loan financing test "("Private Loan Test").
A bond issue meets the Private Use Test if more than 10 percent of the proceeds of the issue are to be used for
any private business use. A bond issue meets the Private payment Test if the payment of the Implementation
Plan of, or the interest on, more than 10 percent of the proceeds of stich issue is (under the terms of stich issue or
any onderlying arrangement) directly or indirectly --
A. secured by any interest in property used or to be used for a private business use, or payments in respect of
such property; or
B. to be derived from payments (whether or not to the issuer) in respect of property, or borrowed money, used or
to be used for a private business use.
For purposes of these tests, the term "private business use" means use (directly or indirectly) in a trade or
business carried on by any person other than a governmental unit. Use as a member of the general public shall
not be taken into account. A bond issue meets the Private Loan Test if the amount of the proceeds of the issue
which are to be used (directly or indirectly) to make or finance loans to persons other than governmental onits
exceeds the lesser of X) 5 percent of such proceeds, or Y) $5,000,000.
.-,
45
Loca 1 Power
Alternative Energy Plan for Replacing the South Bay Pmver Plant
February, 2007
.
.
.
H Bond proceeds can be used to fund energy conservation programs. However, to the extent
such purpose is accomplished through a loan program wherein residential and business
customers can make use of low-interest loans in a CCA program to make energy conservation
and efficiency improvements, the loans of bond proceeds will cause the program to not qualify
for tax exempt financing. Grants of bond proceeds could be made to individuals and businesses
for conservation and other expenditures so long as an adequate project revenue stream is
identified to secure and pay the bonds.
The fact that such H Bonds are not tax-exempt does not in and of itself make such a program
nonviable. Taxable rates on such H Bonds could potentially still be substantially less that the
rate of interest otherwise available on loans to residential and business customers; and with
longer lifecycle periods to facilitate a lower monthly payment.
There are a number of ways H Bonds could be used to finance renewable energy facilities. This
can be accomplished either in a structure wherein Chula Vista (or other local government)
undertakes acquisition, construction, ownership and management of the facilities or through
structures wherein an ESP undertakes some or all of the activities. As noted, the tax-exempt
status of H Bonds will vary depending on the structure.
Structures wherein an ESP takes on one or more of the roles present issues under the Private
Business Tests discussed above. Any lease or other similar arrangement with an ESP would
likely result in the H Bonds being categorized as taxable "private activity bonds." Again, such a
result would not prohibit the structure but rather would result in a higher cost for these
components of the program.
An alternative involving an ESP would be to utilize the management contract provisions under
IRS Revenue Procedure 97-13 ("Rev Proc 97-13"). Rev Proc 97-13 describes safe harbor
contractual arrangements that may be made with nongovernmental entities to provide
management, operations or other services with respect to a tax-exempt bond financed facility.
Pursuant and subject to the requirements of Rev Proc 97-13, Chula Vista could engage an ESP to
manage and operate renewable energy facilities financed with H Bonds without the ESP's
involvement being in violation of the Private Business Tests discussed above. As discussed
below, Rev Proc 97-13 would permit a contract between Chula Vista and an ESP for managing
and operating a renewable energy facility financed and owned by Chula Vista for as long as 20
years. Rev Proc 97-13 defines "management contract" as "a management, service or incentive
payment contract between a governmental person and a service provider under which the service
provider provides services involving all, a portion of, or any function of, a facility."
In this report, we assume a twenty-year maximum bond repayment within the context of a CCA
contract period. However, a 30 year period is used for economic evaluation of a project, since
this reflects the normal economic lifecycle. (see Appendix F, Financing). Rev Proc 97-13 focuses
generally on the term of the contract and the manner and amount of compensation paid to the
service provider. Generally, the more fixed in periodic amount the compensation paid to the
service provider, the longer the permitted term of contract. Contracts pursuant to which the
service provider's compensation is 80% fixed may be as long as 20 years in the case of service
contracts relating to "public utility property". On the other hand, contracts pursuant to which the
46
Local Power
Alternative Energy Plan for Replacing the South BilY Power Plant
Februilry,2007
service provider's compensation is 50% fixed may not have a term in excess of five years.
"Public utility property" is defined as property used predominantly in the trade or business of the
furnishing or sale of (i) water, sewage disposal services, electrical energy, (ii) gas or steam
through a local distribution system, and (iii) certain telephone services and communication
services.
,.-,
Thus, for example, if the ESP is paid an annual fee equal to 8x and is also paid additional
compensation in each year based on a variable component not in excess of 2x, then the contract
can be for as long as twenty years. In addition, the ESP may be paid a one-time incentive award
during the term of the contract, equal to a single, stated dollar amount, under which
compensation automatically increases when a gross revenue or expense target, but not both, is
reached. Further, a contract that satisfies the requirements of Rev Proc 97-13 may be renewed at
the expiration of its term.
A variety of the foregoing structures involving H Bonds could be used in tandem. For example,
Chula Vista could enter into an energy supply contract with an ESP, which would not directly
require the use ofH Bonds. Chula Vista could then issue H Bonds to construct renewable energy
facilities to be owned by the City. Chula Vista could then enter into a management contract
permitted under Rev Proc 97-13 to manage and operate the facilities. Such a structure could
allow for the H Bonds to be tax-exempt.
Engagement of CPUC and other funding
Several funding sources have emerged in the recent months. These or other programs should be _
accessed by the City to provide renewable energy for its residents.
Califomia Solar Initiative
Enacted by the California Public Utilities Commission, this program provides rebates for
photovoltaic systems less than 1 megawatt, currently set at $2.50 per watt and decreasing 25
cents per watt as target MW levels of installed solar are met statewide. For systems over 100
kilowatts the rebate will be paid in the form of a performance-based incentive based upon the
kilowatt-hours generated in the first years of operation. This will have an effect on financing,
since the payment is not made up-front. The CPUC is examining a similar program for smaller
photovoltaic systems as well.
The recently enacted SB 1, the former "Million Solar Roofs" bill, will place restrictions on the
California Solar Initiative, e.g., it rolls back the PUC photovoltaic system size limit of 5
megawatts back to 1 megawatt, and has strict requirements for locating photovoltaic systems at
customer sites. This may limit opportunities for a PV landfill project.
PGC Energy Efficiency Funds
These are currently administered by the utility companies in most areas of the state, except San
Diego. AB 117 requires opening up funds to community administration for programs of their
own design, and SDREO was able to take control of the funds away from SDG&E. This could be
quite advantageous for Chula Vista, as a regional planning agency is more likely to be open to a
systematic and creative efficiency program of the type necessary to meet grid reliability needs.
-"
47
Local l\nver
Alterniltive Energy Plan for Replacing the South Bay Power Plant
February, 2007
.
.
.
This will require coordination between the energy efficiency component and the renewable
energy systems, such as local photovoltaic systems and demand response capacity. A well
designed program will look at the load curves met by each of these and work to optimize
customer as well as system value.
Federal Energy Tax Credits
Private developers of energy projects may be eligible for certain tax benefits that are not
available to public agencies. For this reason, it is wise to consider different ownership and
financing models to determine which alternative can best meet the desired goals. In some
circumstances the low cost of public capital may result in lowest energy costs for publicly owned
and financed facilities. On the other hand, very generous tax credits may favor private, third
party ownership.
For many years there has been a 10% tax credit for solar installations purchased by commercial
enterprises. The 2005 National Energy Policy Act (NEPA) increased this credit to 30% of
installed cost of photovoltaic systems for commercial entities; but this will revert back to 10% in
2008 unless it is extended by Congress. Under the same law, homeowners can take up to a $2000
credit on solar energy systems. Public and non-profit entities are not eligible for this credit, since
they have no tax liability. In fact, if government agencies provide rebates, or extend credit, to
commercial enterprises for photovoltaic or other solar energy systems, they risk voiding
eligibility for part or all of the credit based upon the portion financed. Hybrid ownership or
financing models can be designed that optimize the balance between the benefit of public
funding (such as rebates) and the ability to take advantage of tax credits.
Commercial power project developers may take a 1.9 cent/kilowatt-hour production credit for
certain renewable energy generators, paid out over the first ten years of operation according to
the amount of electricity generated by the project. The rate of tax credit is indexed to inflation,
and thus has increased over time. Congress, in 2005, extended this production tax credit to other
renewables such as geothermal and solar projects; this is also due to expire at the end of 2007. A
payment system has been set up by the federal government to make equivalent payments to
public agencies as well, but this has mostly gone unfunded or underfunded in the past. There is
wide interest in extending the solar and renewable production tax credits in the energy industry,
in Congress and in the White House.
The production tax credit has existed for a number of years, but Congress only approves this for
a year or two at a time. This has created considerable instability in the US wind power industry,
with customers clamoring to get their project on line before eligibility ends. Then Congress lets
the tax expire for a year or so, and the demand for wind turbines completely dries up. Some
renewable projects cannot occur within this time frame, particularly since regulatory approval,
environmental review, planning and construction all have to be completed before the tax credit
expires. Wind farms are most suited to taking advantage of the tax credit, since the development
time can be as little at 18 months, assuming the process goes smoothly. But, in all cases, it is best
for a project to begin planning stages in advance, so the project is ready to go when the tax credit
opens up agam.
48
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Alternative Energy Plan for Replacing the South Bay Power Plant
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.-...
Supplemental Energy Payments (SEPS)
This payment structure covers the excess cost of renewable electricity over the prevailing price
of natural gas generation. It applies to wholesale power purchased by utilities through contractual
agreements that must be approved by the CPUC. This program may be changed or eliminated in
the fUture, so it may not necessarily be relied upon for project planning. However, the
elimination of SEP payments may leave Chula Vista's renewables at a competitive advantage
compared to privately developed facilities. The principle concern is not if the SEPs are
eliminated, but rather if they are retained. In this case, it will be important to make sure the city's
renewable facilities are eligible for the same payments as any potential competitor.
........
~,
49
Locall\nver
Altt'mative Energy Plan for Replacing the South Bay PU\\"er Plant
February, 2007
. 7. Benefits Comparison of GEO Options to Gas-fired Replacement
This section provides a brief comparison of the risks and rewards of investment in a new gas-
fired plant vs. the portfolios outlined above. The three GEO options have significant projected
benefits over their lifecycle. Criteria for this comparison include the protection of public health,
environmental justice, enhancing energy security, and competitiveness with SDG&E's projected
conventional power prices. Financial analysis of renewable facilities is provided in the
appendices and supporting spreadsheets. In the analysis it is shown how the lower cost of capital
of a municipality achieves a significant long term cost advantages over municipal or private
investors in similar projects.
Economic Benefits
.
Financial Return on Investment
The interest on a commercial loan, and the high rate of return demanded by private investors,
imposes a cost on renewables that can be much larger than the original cost of the power plant.
For example, a favorably priced large wind plant today might cost about $1.3 million per
megawatt (and an unfavorably priced version would likely not get built), which implies that the
first GEO portfolio option of a 400 megawatt wind plant would cost $520 million. A private
investor, averaging in loans and profits, might require over 11 percent rate of return every single
year on the entire capital investment. The interest rate on a municipal revenue bond places a
much smaller cost of money on the project, and such bonds are modeled to bear a 5.5 percent or
less rate of return. (Current long term municipal revenue bond rates, for well rated bonds, are
closer to 4.5 percent). The municipal owner's cost of money is thus half that of a private
investor, as the following table shows:
l11\CStOt ( os! oj' WlI1d Cost of I crill lotal Rate I o(allntelc,! rillS ROI
I arm MOIlCy (yl's)
Private $520,000,000 11% 20 220% $1,144,000,000
CCA Revenue $520,000,000 5.5% 20 110% $572,000,000
Bond
The private investor pays twice again the cost of the wind farm over a 20 year period, over a
billion dollars. The cost of interest on the municipal bond is exactly half as much, which saves
$570 million. This savings is worth more than the entire wind farm. While the private developer
does have tax credits to offset some of this difference, the main tax credit only lasts for the first
10 years. This gives the municipal investor a large advantage that is difficult to overcome. Since
both SDG&E and a CCA would need to procure renewable power, the cost incurred on the
customers of SDG&E for a similar supply would be higher. Given that few renewables cost less
than wind, this would make it difficult for SDG&E to match the price of such a power supply.
This extra cost is embedded in customers' rates one way or another.
.
The cost of wind power also intersects the likely cost of power from natural gas, even for a
private investor. This is partly because of expected increases in the price of natural gas over the
next 20 to 30 years, which is the financial life of a wind farm. The DOE expects that natural gas
50
Local I'ower
Alternative Energy Plan for Replacing the South Bay Power Plant
February, 2007
--..
will decrease in price over the next several years, reaching a low of $6.30/mmbtu in 2011.
Thereafter, it is projected to increase in price at about 2% per year for the foreseeable future,
roughly following general inflation, eventually reaching $11.74/mmbtu. An average price of
$8.40/mmbtu during the period implies a cost of natural gas fueled base load electric generation
of about 6.6 cents per kilowatt-hour. By comparison, a 20 year investment by a CCA in a wind
farm would lead to a cost of 5.5 to 6 cents per kilowatt-hour, to which one must add about half a
cent to firm up the capacity so that the power can be sold on the market. If the wind farm is
financed using 30 year bonds backed by the capital value rather than a CCA revenue stream, then
the cost of the wind power could drop below 5 cents per kilowatt-hour.
Clearly wind is a good investment if you expect the price of natural gas to increase by anywhere
close to the rate of inflation or higher. This is one reason why wind is one of the larger elements
of the portfolios. But this also illustrates some of the reasons why a CCA or municipality can
maintain wholesale energy costs competitive with the utility company. In fact, the CCA might
find at some point that the utility company will wish to purchase some of the CCA's lower cost
wind power for its customers, too, particularly since SDG&E is required by law to have 20
percent of its electricity supply come from renewables. While an analytical comparison between
the GEO portfolio and SDG&E future wholesale power costs is outside the scope of this project,
the above discussion shows in principle why CCA's can remain competitive. Reports by
Navigant Consulting have demonstrated how nearly every municipality of reasonable size can
achieve substantial savings, usually in the tens of millions of dollars or more, by this sort of
financial leverage.
In general, our methodology has been to compare the cost of GEO portfolio elements with the
comparable electric supply product derived from natural gas power plants owned by private
investors. This is the basic method of analysis used by the CPUC, in which the price of natural
gas is a benchmark for calculating what a typical generator must charge to recoup its money and
make a standard rate of return. This, however, is not necessarily the same as calculating whether
an investment will make or lose money. It is an important guideline in California, because so
much of our energy comes from natural gas, yet it must not be forgotten that most of the
electricity comes from other sources, including renewables. So, the natural gas benchmark
cannot be used as the only guide.
-..
An additional factor is that a low carbon portfolio may become a carbon asset, with the ability to
sell carbon credits. This could become a significant revenue stream if carbon prices rise, as many
analysts expect.
More Local Jobs
Renewable energy systems create several times the level of ongoing employment than fossil fuel
generation. This is partly a function of the fact that money is not being expended into high fossil
fuel commodity costs that will be lost from the local economy. A 180 MW solar thermal peaking
plant can be expected to produce about 70 ongoing jobs, while a large wind farm about 16
employment positions for each 100 megawatts of capacity. Thus a 400 megawatt wind farm
would provide about 64 ongoing jobs. The natural gas peaking facility will produce between 15
and 20 jobs while the Pumped Storage facility will produce about 10 jobs. Thus the total direct
employment would amount to approximately 164 people. This compares with approximately 22
-..
51
LocalPm,ver
Alternative Energy PJi'lll for Replacing the South Bay Power Plant
Februcuy, 2007
.
employees that would be needed to run a 500 to 600 MW natural gas-fired power plant such as
the SBRP.18
More Money in the Local Economy
The amount of money saved on fuel expenditure is likely to be large, as the investment in
renewables is a 20 to 30 year commitment that avoids most of the fuel that would be necessary to
produce the same amount of electricity. A new natural gas plant running at the same capacity as
the existing SBPP would use about 18.5 million MMBtu/year. This energy content translates
into about 18 billion cubic feet of natural gas per year. At a cost of $6 per thousand cubic feet,
this represents $110 million of fuel cost per year. Over a 30-year period this would be $2.3
billion worth of fuel, assuming fuel costs were to remain at current levels. Even the most
optimistic cost projections do not assume decreasing nominal prices for natural gas, so an
increase in fuel cost of about 2% per year or more is reasonable. Since not all the capacity of the
plant will be replaced with renewables, the exactl9 amount of fuel savings will depend on the
scenario chosen, as well as the future price of natural gas.
Decreased Reliance on Natural Gas
The GEO portfolios provide more energy security than continued heavy dependence on gas-fired
power plants. A replacement plant would consume 18 million MMBtu of natural gas per year.
The GEO options would use far less than that, about 4-7 million MMBtu per year, and would
considerably reduce ratepayer exposure to natural gas price volatility.
. Figure 2. New York Mercautile Exchauge Futures Prices for Natural Gas.
NYMEX Henry Hub Natural Gas Futures
512,00
510,00
58,00
$4,00
il
~ $6.00
~
52,00
50,00
,,<i',,<f;.
~ ~
",'b
~~
,,<f>
~
",<Sf'
,,~
","
,,~
');
"of?
');
"if
');
,,<!?
');
.
18 Comparative Cost of California Central Station Electricity Generation Technologies, California Energy
Commission Staff Report, August 2003, Doc. 100-03-001.
19 California Energy Commission Staff Report, August 2003. Natoral Gas Market Assessment.
htlp:/ /www.energy.ca.gov/reports/2003-08-08_100-03-
006.PDF#search-%22natural%20gas%20market%20assessment%22. Accessed October 2006.
52
Local Power
Alternative Energy Plan for Replacing the South Bay Power Plant
February, 2007
-.
Overexposure to one fuel makes SDG&E's monthly electric bill also volatile. In 2000, gas spot-
market prices quadrupled in less than nine months peaking in January, 2001. Domestic gas
supplies are constrained, yet SDG&E is planning new gas-fired power plants and seeking to
obtain the gas via its holding company, Sempra, from overseas. By focusing resources on
accelerated renewable energy and conservation development, Chula Vista can reduce ratepayers'
exposure to increasingly volatile natural gas prices, and steer away from SDG&E' s new
dependency on Liquefied Natural Gas imported from overseas at great expense.
Environmental Benefits
The Green Energy Options outlined in this report would provide a number of significant
environmental benefits, including improved air quality, environmental justice, and reduced
global warming emissions. In this section, we evaluate the operating impacts in these areas of
the GEO options compared to the proposed South Bay Replacement Project, and to a load-
following natural gas plant.
In comparing the Green Energy Options to natural gas burning plants, it is important to
understand that the manner in which a natural gas power plant is run determines its air pollution
and greenhouse gas emissions. Like a car, a plant's efficiency will be different if it is run
steadily, (as in freeway driving) as opposed to ramping up and down (as in City driving or
driving in stop and go traffic). Thus, when we compare air pollution and greenhouse emissions
from the Green Energy Options to those from a natural gas plant, we must be clear about what
energy needs and market conditions the GEO portfolios and the natural gas plants are designed -.
to meet.
As is explained in Section 3, the GEO portfolios are designed to meet the energy needs currently
being met by the South Bay Power Plant. The SBPP runs as a load-following plant that ramps
up during periods of high demand, which usually occur from midday through the evening, with
highest demand typically needed to meet air conditioning needs on hot summer days. For this
reason, we compare the GEO options to a new state of the art load-following natural gas plant,
whose energy production 'follows' the daily and seasonal fluctuations in energy demand 'load'.
We also compare the GEO portfolios' environmental impacts to those of the proposed South Bay
Replacement Project (SBRP). The SBRP is proposed to be a base-load plant, that is, a plant that
runs relatively steadily to meet 24-hour daily energy demand. The plant will, however, have a
duct- firing component to it, which would allow a part of the plant's capacity to run more as a
load-following or peaker plant. The plant's efficiency is much lower when it is producing
energy through duct firing. It is unclear at this point how much duct firing the plant is planning
to use, but we have used the best available information on the plant as provided in LS Power's
CEC permit application (AFC) to estimate emissions from the SBRP.
The GEO options are designed to meet RMR needs, and provide dispatchable energy on demand.
To meet the RMR criteria, the GEO options rely in part on some natural gas capacity that can
kick-in when the solar and wind components of the portfolios are unavailable. This is why the
GEO portfolios would create some emissions of air pollution and greenhouse gases, though far
less than either the current or proposed replacement plant. .-,
53
Local Power
Alternative Energy Plan for Replacing the South Bay Pmver Plant
February, 2007
. Air Quality Benefits
Chula Vista's air quality is currently unhealthy, and particulate matter emissions are a major
concern. Levels of particulate matter (PM) measured at the San Diego Air Pollution Control
District's Chula Vista monitor exceed state and national air quality standards.20 While there are
many sources of PM - including cars and trucks - a power plant can be a significant source of
this pollutant, especially in a localized area near the plant. The manner in which the SBPP is
replaced will thus be an important factor in determining future air quality in Chula Vista.
The size of particulate matter from natural gas plants is almost all 2.5 microns or less, which is
designated PM2.s. PM2,s particles travel deep into the lungs where they can seriously damage
lung tissue. They are so small that they can get into the blood stream through the lungs, and
carry pollutants that are adsorbed to the particles throughout the body.21 A battery of studies has
linked PM to a number of health hazards, including a~?avated asthma and lung disease,
decreased lung function, heart attacks and premature death. Natural gas power plants also emit
nitrogen oxides (a precursor to ozone or smog) as well as other air pollutants.
.
The South Bay Power Plant is a major source of air pollution. In 2003 (the most recent year for
which a San Diego Air Pollution Control District inventory is available), it emitted nearly 95
tons of particulate matter (PM) and 86 tons of nitrogen oxides (NOX).23 LS Power, the developer
of the South Bay Replacement Project (SBRP) has proposed that the new plant will emit no more
pollution than the existing South Bay Power Plant,24 The California Energy Commission has
raised concerns about the methods used in LS Power's CEC permit application to estimate
emissions from the existing and proposed fslant. It is thus unclear at this point what the actual
emissions from the SBRP are likely to be. 5 LS Power has estimated the existing plant's actual
PM emissions are at 69 tons per year and the proposed SBRP's maximum emissions to be about
69 tons PM per year. Our estimates put the SBRP's likely emissions at about 94 tons per year,
running as a typical base-load plant (at 80% capacity factor) with intermittent duct firing (at 9%
capacity factor).
A new plant could emit a comparable amount of pollution as the existing plant because, although
the new SBRP will be more efficient than the existing plant, it will be run more often. Therefore,
under the current proposal, the West Chula Vista community could see no improvement in air
quality with the shutdown and replacement ofthe South Bay Power Plant, and might even see an
increase in air pollution.
20
.
San Diego Air County Air Pollution District. Monitoring data from the Chula Vista monitoring station 2000-
2005. Available at: http://www.sdapcd.org/air/reports/smog.pdf
Lipmann, M. et. al. (2003). The U.S. Environmental Protection Agency Particulate Matter Health Effects
Research Centers Program: A Midcourse Report of Status, Progress, and Plans. Environmental Health
Perspectives III (8) 1074-1092.
22 US Environmental Protection Agency. Health and Environmental Effects of Particulate Matter
http://www.epa.gov/ttnloarpg/naaqsfinlpmhealth.html. Accessed February 17, 2006.
23 SDAPCD Emission Inventory at http://www.sdapcd.org/toxicslProjectllSourceEmissions.html Accessed
111812006.
LS Power. 2006. Application for Cettification to the California Energy Commission for the South Bay
Replacement Project. Page 8.1-54, Table 8.1-34.
25 CEC Data Requests to LS Power Generation LLC as of October 31,2006, Docket 06-AFC-3.
24
21
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If the existing SBPP were to be replaced with a load-following plant that generated a comparable
amount of electricity as the existing plant (32% capacity factor), its total PM emissions would be
slightly lower than the existing plant's, at about 68 tons per year?6 The GEO portfolios would
only emit from 14 to 27 tons per year27 The GEO portfolios would thus emit 60-80 percent less
particulate matter than a load-following natural gas plant. The portfolios would emit 70-85
percent less pollution than would the proposed SBRP. (Appendix H)
The air quality impacts that are created by a given project's emissions are a product of the
project's location and other project-specific factors. The SBRP is proposed to be located next
door to the existing SBPP on the Chula Vista Bayfront, directly upwind of the residential and
densely populated area of West Chula Vista. While it is not clear if any natural gas capacity is
needed on the bay, the preferred option would be to have no, or very little, capacity at this site.
Nonetheless, even if all the natural gas portions of the GEO portfolios were located at this site,
the PM emissions would still be much lower than the SBRP's.
Environmental Justice
For over 40 years, the community downwind of the existing power plant has borne the pollution
burden of a facility that serves the energy needs of a good portion of the County. The proposed
plant would generate far more electricity than is needed by the City of Chula Vista. Even if we
look into future energy demand in Chula Vista, and assume minimal energy efficiency
improvements, projected energy demand in the City of Chula Vista is estimated to be 1,345
GWh by the year 2023.28 The proposed SBRP would produce about 3,600 GWh per year, so .-,
West Chula Vista residents would continue to bear the pollution burden for others' energy use.
Locating another large plant near the site of the existing power plant would perpetuate
environmental injustice. The community living within a six-mile radius of the South Bay Power
Plant is 77% Latino, with 21 % of residents closest to the plant living below the poverty leve1.29
As does everyone, residents in West Chula Vista deserve healthful air to breathe. Replacing the
energy currently being provided by the SBPP with the GEO options would move Chula Vista in
the right direction, toward attaining air quality standards and environmental justice.
Reduced Global Climate Change Impacts
The GEO portfolios would avoid significant emissions of greenhouse gases, and reduce the
region's contribution to the global climate crisis. The predicted impacts from Global Climate
Change are severe. In California, global warming is predicted to create more severe heat,
worsened air quality, threatened agriculture, coastal flooding, increased wildfires, and decreased
Sierra snow pack which provides water resources to much of the State, among other serious
26
Assuming a 32% capacity factor and a heat rate of9,400 MMBtulkwh, a typical heat rate for a new load-
following plant.
27 Also assuming a 32% capacity factor and a heat rate of9,400 MMBtu/kwh for natoral gas portion of the GEO
portfolios.
28 Navigant Consnlting, Study for City ofChula Vista on MEV Feasibility. March 19,2004. Based on
SANDAG growth projections.
29 Western Chula Vista Revitalization Population, Market, and Housing Trends, City ofChula Vista, Feb 2, 2006,
p.9
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threats.3D The GEO portfolios offer Chula Vista and the San Diego regIOn an excellent
opportunity to reduce this major threat to our State and the World.
If the proposed SBRP were running as a typical base load plant with intermittent duct firing, it
would produce about 1.5 millions tons per year of carbon dioxide (C02), A load following
natural gas plant would produce about 1.1 million tons/yr of CO2. In aggregate, the SBRP would
produce more carbon dioxide, but per unit of energy produced, the load-following plant would
produce about 1100 tons per megawatt hour of electricity produced as compared to about 830
tons/MWh for a base-load SBRP (Appendix H).
The GEO portfolios would emit far less carbon dioxide per year than either the SBRP or a
natural gas burning load-following plant: about 220,00-420,000 tons of CO2 per year. This is 60-
80 percent lower than a load-following natural gas plant and 70-85 percent lower than the
proposed SBRP. The annual savings in carbon dioxide emissions provided by the GEO portfolios
is equivalent to taking 200,000 - 250,000 cars off the road.3! On a CO2 emissions per unit of
energy basis, the GEO portfolios would also emit far less, with emissions of from 382 to 386
tons of CO2 per megawatt hour, or about only Y, to Y, of the emissions from the exclusively
natural gas options.
Chula Vista has been a leader in pursuing local initiatives to reduce the City's contribution to the
global climate crisis. In 2000, the City adopted a CO2 reduction plan as part of its participation
in the International Council for Local Environmental Initiatives (ICLEI). This plan directs the
City to seek green power purchase options. The City's facilitating the development of the Green
Energy Options outlined in this report would set the City firmly on a path to global climate
responsibility and leadership.
3OCalifornia Climate Change Center, a project of the State of CA. July 2003. Our Changing Climate,
Assessing the Risks to California.
31US Climate Technologies Cooperation Gateway, Greenhouse Gas Equivalency Calculator.
http://www.usctcgateway.net/tool/ Accessed October 2006.
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GEO Report Findings
The Greener Energy Options Portfolios are economically viable
The low cost financing available to a city through municipal bonds can leverage significantly
lower cost for renewable generation. Also, the he largely fixed cost of the renewables provides a
hedge against substantial risk of increasing natural gas prices over the next 20 to 30 years. There
are essentially two scenarios examined here. The first assumes portfolio costs under a 30 year
capital or revenue bond, which would optimize cash flow in the earlier years of the investment.
This is how the different projects are evaluated as separate investments.
This contrasts with the second scenario examined in the report, a 20 year term investment under
a CCA revenue bond, where the cost to own and operate a plant on a per kilowatt-hour basis is
significantly higher during the bond period. Once the bond is paid off, however, the capital cost
is removed. The result is that, from year 20 to year 30, the only real cost will be operation and
maintenance, and possibly some equipment replacement. This will mean very inexpensive
overhead, especially when compared to the earlier years, which may amount to only a few cents
per kilowatt-hour for peak power generation. The result is that substantial returns on the
investment can be made during these "out years", when cost of operation is low and fuel and
retail electric rates are likely to be higher than today. It may well be worthwhile for Chula Vista
to invest in the capital asset to accumulate an equity position at a rate that preserves the cash
flow of the projects during the 20 year CCA revenue bond period. The return on this investment .-..
will then be achieved in the out years (year 20 to 30).
A full economic evaluation of a CCA is outside the scope of this report, and would involve base
load power supplies, transmission and distribution, and other operating expenses not considered
here. These in turn would need to be modeled against expected future SDG&E rates. While some
renewables owned by the CCA may cost more than natural gas power plants, this 'higher price"
will be offset by similar renewable requirements for SDG&E. Thus it is unlikely that the
portfolio considered here would result in any higher cost than for any other customers in the
region. In particular, the low cost financing is likely to provide the least cost option for the
renewable portion of the portfolio that will significantly offset the compressed timeframe (20
year CCA bond term) for repayment of the assets.
We have used the Market Price Referent (MPR) methodology, derived from the price of natural
gas electric generation, as a basis for comparison between GEO energy supplies and to provide a
general sense of the viability of an investment. Yet the investments are not taken in isolation;
they serve as hedges one against the other. A significant portion of natural gas generation is
included for reliability of power supply, but also to take advantage of any drop in natural gas
prices. The wind and solar components protect against any increases in the price of natural gas.
Losses that may occur in one segment are offset by other parts of the portfolio; and the losses
should not be examined in isolation, since a change in market conditions may reverse the loss. In
general the natural gas component is designed either to make money on the open market, or save
CCA ratepayers on their bills, under all scenarios. That is because, first, the price of natural gas
is similar for all generators over the long run, but the CCA has lower cost of money. This locks -..
in a differential with other natural gas generators with which the CCA gas plant is competing.
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Second, the plant is intended to operate as a cogenerator, which means that waste heat is capture
and sold at or below cost. Most commercial power plants do not operate in this way, and older
cogeneration plants will be less efficient than a modern one. Thus the CCA natural gas plant can
provide a double revenue stream, while conserving natural gas.
The GEO Portfolios offer significant benefits
As is detailed in the preceding section, the GEO portfolios offer a number of benefits over a gas-
fired plant. The GEO portfolios would result in 60-80 percent less emissions of particulate
matter air pollution and would promote environmental justice. The GEO options would also
produce more local jobs, decrease the region's over-reliance on natural gas, and keep more
money in the local economy. Pursuing the GEO options would get us firmly down the road of a
more secure and sustainable energy future for the region, and would lessen the region's
contribution to the global climate crisis.
The initiative must be led by Cbula Vista
Over the past four years, the City of Chula Vista has prepared extensively for the implementation
of Community Choice Aggregation ("CCA") and/or development of green and renewable power
generation facilities. CCA would allow Chula Vista to find an alternative electricity supplier to
SDG&E, and to decide what kinds of electricity to purchase. In addition, municipalities and
other local public agencies like Chula Vista may issue municipal revenue bonds ("H Bonds") to
finance renewable energy and conservation facilities. These mechanisms will be analyzed in this
Plan.
A strong argument can be made that CCA in conjunction with H Bonds allows the greatest
potential for cost-effective, cleaner and more sustainable replacement of the South Bay Power
Plant ("SBPP"):
. First, as a Community Choice Aggregator (CCA), Chula Vista would be poised to solicit
competitively priced power from competitive suppliers for its residents, businesses, and
municipal facilities."
. Second, Chula Vista may profitably develop a revenue-producing renewable energy
facility with pumped storage or gas-fired facilities for capacity balancing. Using the
unique leverage that municipal revenue bonds and CCA facilitates, it is now possible to
serve Chula Vista residents, businesses, and public agencies with this qualitatively
superior, greener, more reliable energy source. New, city-owned, facilities could
generate electricity, at rates equal to or lower than SDG&E's rates, both for local use and
profitable sale of excess power in wholesale markets or to other public agencies. As
stated above, this level of analysis is beyond the scope of this report. However, the
conclusion is supported by the fact that both the CCA and SDG&E will require a
substantial renewable portfolio, and the CCA has at its disposal a significantly lower cost
for capital that places it at a significant advantage. In addition, if the city elects to sell
power, it will be able to command a market price comparable to private vendors, and any
32
Chula Vista commissioned Navigant Consulting to prepare a Feasibility Study on CCA in Chula Vista,
conducting peer review with several public hearings.
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Alteluative Energy Plan for Replacing the South Bay Power Plant
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"over market" costs (i.e. costs above natural gas generation) will thus be rate-based for
SDG&E customers, since SDG&E will need to meet its renewable obligation.
This report identifies several specific opportunities available to Chula Vista, with a variety of
locally feasible technologies and partnerships. However, even if CCA is not pursued by Chula
Vista, other governance structures and initiative options are available for the City to pursue some
or all of the green energy options outlined in this report
Community Choice Aggregation (CCA) and Public Investment is the best
Approach
Unless Chula Vista forms a CCA, any transmission facilities must either be owned by SDG&E
or some other transmission entity such as a Tribal Government. The City of Chula Vista signed
a 20-year franchise agreement with SDG&E in 2004 committing "that the City will not
participate in the provision of electric or natural gas Distribution Services by itself or others
within its jurisdictional boundaries for the term of the franchises." Thus, Chula Vista may not
sell "distribution" services to consumers. The MOU defined "distribution" as "the ownership
and/or operation by the City itself, or with or by any third party, of any facilities, including
pipes, wires, and electric and gas utility plant and related services for the transmission or
distribution delivery of electricity or natural gas to consumers within the boundaries of the City
of Chula Vista." The MOU excluded from this rule the ''performance of (i) those rights and
duties specific to Community Choice Aggregation... within or outside CITY limits if authorized
and as approved and implemented by the CPUC, if such is required or (a) generation of electric --..
power. "33
However, a CCA and renewable generation project would enjoy a full range of options. Thus, if
Chula Vista forms a CCA or builds a power generation facility, it may elect to sell transmission
services within or outside Chula Vista. There are at least two options to accomplish this.
The first option is to develop future renewable energy and conservation facilities that require
transmission service by taking action to:
. Acquire access to existing transmission capacity;
. Arrange with SDG&E to provide transmission access, pursuant to Federal Energy
Regulatory Commission (FERC) Order 888, or;
· Arrange to purchase transmission services from another party such as a tribal
government.
The second, and probably more important, option is to develop local power resources that require
little or no transmission facilities to deliver the power to customers. As this report will show, the
Chula Vista region offers opportunities to develop a large solar concentrator and other
renewables in the immediate Chula Vista and neighboring areas interested in participating in the
development of the facilities and/or the purchase of power from such facilities.
33
Memorandum of Understanding Between San Diego Gas & Electric Company and the City ofChula Vista,
October 12, 2004, p. 11, Section 1.I4.A.
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Both options are more local in nature than the power supply now being provided to residents and
businesses in Sempra's service territory. Both options are financially feasible at competitive
wholesale and retail prices, with either a CCA or a city-owned merchant facility, or both, being
the structuring principle of the project.
CCA is by far the best way to ensure success and achieve the kind of scalability needed to
physically alter the need for generation in this part of the electric grid. Photovoltaics (PV) on
Chula Vista rooftops, energy efficiency, demand response may be fundable with existing
ratepayer funds if a CCA is formed and the opportunity to administer the funds is requested at
the California Public Utilities Commission.34
Other distributed generation may be undertaken within the City under a CCA or a revenue bond
funded ("H Bond") program, and may invest General Funds in renewable energy projects for
non-CCA customers if the City wishes to operate the plant as a public enterprise. Because scaled
projects such as those presented in this Plan are necessary to eliminate multi-hundred Megawatts
of regional demand in order for the Independent System Operator (CAISO) to accept a
downscaling of new power generation on the South Bay site, this report identifies several
physically viable, legally developable and economically competitive green power facilities,
estimates facility costs, schedules for payback and power pricing. Specific facility scales in
each Scenarioare based on a variety of potential market structures, including Community Choice
Aggregation (CCA) the use of H Bonds, and potentially available state of California funding for
energy efficiency programs pursuant to the Community Choice law, ABI17".
The ability to eliminate or reduce the need for power generation at the South Bay Power Plant
site depends on the municipality's degree of public investment, as well as investment by
potential strategic partners in the region. This investment may be structured as follows:
. Municipal Enterprise. Chula Vista can meet their interest in an entrepreneurial energy
venture by owning renewable energy and conservation facilities as a municipal enterprise
while also meeting its mandate for first-class environmental leadership;
. Creation of a CCA adds even larger-scale private sector purchasing power to public
financing, enables a commensurate scaling-up of renewable energy development, and
provides a secure revenue stream for the H Bonds that the city and/or its other public
partners elect to issue for solar photovoltaics and the other locally feasible investments in
the Chula Vista area and East County;
. Chula Vista investment in renewable energy and conservation facilities involves a lower
degree of municipal risk than investment in a 100% natural gas generation power plant,
because there is reduced exposure to the highly volatile price of natural gas that
constitutes 50% to 80% of the life cycle cost of a gas- fired power plant.
34
35
CPUC Proceeding R.Ol-08-028.
Migden, 2002
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Such investments can provide benefits including:
· As free-standing investments, any profits realized from renewable energy or conservation
facilities, they can benefit taxpayers by contributing funds to the City of Chula Vista
General Fund.
· If the renewable energy or conservation facilities are incorporated into a CCA, then they
can realize long term savings for ratepayers compared to market prices for similar energy
supply.
. Renewable and conservation facility assets will retain their market value and generate
revenue for decades after H Bonds or other financing are repaid, offering both returns on
public investment and a lower cost of energy for local residents and businesses.
The CEO Portfolios are consistent with existing local, state and federal
policy, regulations, and law
All alternatives proposed in this Alternative Energy Plan meet the stated project objectives in
the AFC for the South Bay Replacement Project. These are:
· Commercially-viable and capable of supplying economical electrical services - capacity,
reliability, ancillary services, and energy supply - to the San Diego Region. .-..
. Capable of ensuring the timely removal of the existing South Bay Power Plant and that
fulfills the obligation found in Article 7.1.a of the Cooperation agreement, which states,
"use commercially reasonable efforts to develop, finance, construct and place into
commercial operation a new generation plant replacing the South Bay Power
Plant... which shall have a generating capability at lease (sic) sufficient to cause the ISO
to terminate (or fail to renew) the must run designation application to the South Bay
Power Plant on or before termination of the lease" 36 and upon which the size of
replacement power is based.
· Meets applicable laws, ordinances, regulations, and standard (LORS) of the California
energy Commission, Chula Vista, the Unified Port of San Diego and other agencies, and
complies with the Applicant's Environmental Policy.
· Consistent with the objectives, guidelines and timing goals of the emerging Bay Front
Master Plan.
· Assists in maintaining and/or increasing the regional electrical systems' efficiency and
reliability.
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36
LS Power. 2006. Application for Certification for the South Bay Replacement Plant, footnote 5, page 1-7
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. Supports attainment of the state-mandated 20 percent Renewable Portfolio Standard
(RPS) requirements for renewable energy, which will be required if a Chula Vista CCA is
formed.'? The renewable generation could also support SDG&E to achieve compliance
with its RPS requirements under potential power purchase agreements.
. The GEO options would have a lower cost of electric generation over the life of the assets
than if Chula Vista CCA or SDG&E were to purchase similar legally required renewable
power supplies on the open market, due to the low cost of municipal financing. This
meets one of the key requirements of state regulation (CPUC) that electric generation
resources be "least cost".
. The GEO options can replace the function of the current plant, to provide urgently
needed power during times of peak demand, when the stability of the electric grid is most
at risk. The proposed "all natural gas" replacement on the bayfront would achieve this to
a much smaller degree, since it is mainly designed to supply 24 hour a day base load.
Thus, the GEO meets the other key requirement of the CPUC that electric generation
resources be "best fit".
37
Application for Certification for the South Bay Replacement Plant, page 1-7
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Recommendations
. Chula Vista should present evidence to the ISO and other regulatory bodies, proving why
a replacement for the current plant is not needed on the Bayfront. This report shows that
about 2000 megawatts of alternative options exist within San Diego County, some of
which would cost far less than replacement of the South Bay Power Plant at its current
site. In some cases merely changing regulatory status or evaluation of existing or planned
resources, or the need for them, is all that is required. It is unlikely that replacement of
more than a fraction of the current plant is really necessary to meet the needs of the
region for years into the future. That is the most important reason why a range between
50% and 90% replacement of existing capacity has been proposed in this report.
· Chula Vista should further investigate the options identified in this report to begin
discussions with potential site owners, financing sources and partners for different
projects. Scoping needs to move as soon as possible to the next level of specificity to
answer critical questions.
· Chula Vista should fund and prepare an Implementation Plan and draft a Request for
Proposals for Community Choice Aggregation and H Bonds that includes designing,
building, operating and maintaining a solar concentrator, wind and pumped storage
facility in conjunction with local solar photovoltaics, distributed generation, energy
efficiency and conservation. These measures should be supplemented with natural gas
fired co-generation to balance out the portfolio risk and energy costs, as well as to insure
the full reliability requirements are met.
---.
· Chula Vista should only entertain sites for facilities that minimize the need for new
transmission, and only allow transmission that is placed on existing rights of way. Any
new lines should be occupied only by clean energy capacity. No major power lines on
new corridors are needed, as they will impose billions of dollars in costs on ratepayers as
well as make the region even more dependent upon energy imports. These imports send
dollars and jobs out of the region while new transmission corridors would spoil the
county's landscape and natural beauty.
· Chula Vista should participate in the ISO RMR designation to ensure the RMR IS
calculated appropriately to include all renewable and other green energy sources.
· Chula Vista should participate actively at the California Energy Commission,
Independent System Operator (CAISO), California Public Utilities Commission, and
Federal Energy Regulatory Commission to propose the options identified in the GEO as
preferable to repowering the South Bay Power Plant site.
· At present two of the largest generating plants in the region, representing nearly 1000
megawatts of capacity, contribute nothing to grid reliability, according to ISO evaluation. .-,
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Local Power
San Onofre Nuclear Generating Station is not counted at all toward regional generation,
even though it supplies over 400 megawatts of power, 24 hours a day, to San Diego
County. That is because it uses up capacity on the same transmission line that is used for
importing electricity. And the new Palomar plant, at over 500 megawatts, does not count
either due to a mere technicality. Chula Vista should urge the ISO, CEC and CPUC to
move forward with assuring that the Palomar power plant is fully accounted for as
reliable generation capacity, and that a short transmission line be added to the existing
South of SONGS (SOS) corridor to connect the plant directly to the regional grid without
casting a transmission shadow for electricity imports from the north. These two tasks
would together supply approximately 500 megawatts of additional reliable capacity to the
region for by far the least cost and environmental impact.
.
Chula Vista should challenge the "bait and switch" tactic of justifying a new 24-hour a
day "all natural gas" powered base-load replacement plant on the bay, based upon the
ISO reliability contract on the existing plant. The current plant is considered necessary
for meeting peak demand when power is urgently needed for grid stability, and only runs
its generators part-time. The function of the current plant is completely different from the
one proposed to replace it, and should require a separate evaluation of need.
.
Chula Vista and other local and regional land use authorities should adopt stringent
building standards that maximize energy efficiency, demand response, and development
of clean, renewable energy sources integral to new and renovated building construction.
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Appendices
Appendix A
Appendix B
Appendix C
Appendix D
Appendix E
Appendix F
Appendix G
Cost Factors for a Wind Farm ..................................................................... 1
Solar Thermal wi Natural Gas and Cogeneration .....................................6
Natural Gas Costs .......................................................................................11
Photovo1taics ................................................................................................ 19
SDGE&E Rates and San Diego Electric Resources .................................21
Portfolios and Financing............................................................................. 24
Pollution Comparison Calculations........................................................... 29
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List of Tables in Appendices
Table A-I. Wind Cost Summary ........................................................................................................... 3
Table A-2. Wind Farm Electric Generation Cost with Private and Public Financing...........................4
Table B-1. Concentrating Solar Thermal Power ................................................................................... 7
Table C-1. Natural Gas Price Projections to 2040...............................................................................12
Table C-2. New Combustion Turbine Peaker, CCA Ownership......................................................... 14
Table C-3. New Combustion Turbine Peaker, Private Ownership...................................................... 15
Table C-4. New Combined Cycle, Base Load, Private Ownership..................................................... 16
Table C-5. Cost of operating a natural gas peaker plant at low, base, and high natural gas projections
under private ownership.......................................................................... ..17
Table C-6. Cost of operating a natural gas peaker plant at low, base, and high natural gas projections
under public ownership.......................................................................... ..18
-....
Table D-1. Photovoltaic Power Production Full Lifecycle Accounting: Commercial Ownership ..... 20
Table E-1. SDG&E Energy and UDC Charges as of 2/1/2006........................................................... 22
Table E-2. San Diego County Power Plant Construction 2001-2009. ................................................ 23
Table F-1. Green Energy Options- South Bay Power Plant Replacement Generation Portfolios....... 25
Table F -2. Financing Assumptions........................................................................................... ........... 28
Table G-1. South Bay Power Plant Replacement Options, Comparison of Air Pollution and
Greenhouse Gas................................................................................................................ 29
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Appendix A
Cost Factors for a Wind Farm
The cost of wind power has dropped from a range of 30 to 50 cents per kilowatt hour in the
early 1980s to between 5 and 8 cents per kilowatt hour today. This is now competitive with
other forms of electric generation, especially natural gas and nuclear power. On the low end
of its price range wind may even compete with new coal plants, due to pollution control
requirements, and long term risk of carbon emission liability.
There are three key factors that determine the cost of the electricity generated from wind
power: the installed cost of the wind farm, the financing cost, and the wind resource. The
installed cost of wind farms was between $1000 and $1200 per kilowatt in 2003; however a
few factors have combined recently to increase that cost. The unpredictable US production
tax credit for wind causes a "boom and bust" cycle in demand for wind turbines in this
country. The credit has been in effect for the last two years, which has pushed up demand to
historical highs with a new wind farm being built every two to four weeks. In fact, far more
wind than coal capacity is currently being added.
.
State policies requiring utilities to put renewable electricity sources into their portfolios, as
well as increases in the price of natural gas and higher retail electric rates, has helped drive
growth in wind power. In the late 1990s only a few hundred megawatts of wind were
installed each year in the US; this reached 2431 megawatts in 2005 and 2454 megawatts of
new capacity was added in 2006. Manufacturers can barely keep up, and most production
capacity is reserved in advance for the next two years. Increased demand, higher raw material
prices, and the low value of the dollar have caused the price of wind turbines to go up. The
result is that wind farms in the US now range from $1300 to $1750 per kilowatt. We project
a lower end cost, assuming that the project will be well planned, and that the current
overheated market will cool as manufacturing capacity catches up to demand.
There are important factors that can offset this recent trend. The cost of the tower and turbine
is only about half the installed cost, which also includes labor, access roads, power lines, etc.
Thus, even a 50% increase in material costs will result in a smaller impact on a total project.
Manufacturers are also helping in important ways. The size of individual wind turbines is
increasing, which lowers unit costs. Efficiency and performance of wind turbines is steadily
increasing year by year. This is a function of improved design, careful measurement of wind
resources, and better placement of wind turbines. The effect has been dramatic. The electric
generation from a given sized wind farm has increased by more than 50% since the early
1980s. There have also been great improvements in quality and durability, with the result that
wind turbines need less servicing, and are available 98% of the time for generating
electricity .
.
An opportunity may come for Chula Vista when the Federal wind tax credit expires, and the
city should prepare to take advantage if a window opens up. The tax credit is paid to private
investors in wind farms, based on the electric generation of the facility, at the rate of 1.9
Appendices
1
..........,
cents per kilowatt hour presently, but this is indexed to inflation; we project a rate of 2
cents/kwh by 2009 if the credit is reinstated. Since government entities do not get tax credits,
Chula Vista is not dependent on the credit to make wind power an attractive investment. The
low-interest fmancing from municipal bonds can bring the cost of wind power to an even
lower level than a private investor would achieve with the support of the credit, Because the
private investor's tax credit expires after the first ten years of the project's operation, a
municipal owner of a wind farm has a long term competitive edge over other owners.
The value of low cost financing is substantial. A 400 Megawatt wind farm installed at the
rate of $1350 per kilowatt will cost $480 million. A private investor that has an average cost
of capital of 11.8% will incur about $1.9 billion in expenses to cover interest on borrowed
funds and profit for investors over a 30 year period. By comparison, a publicly financed wind
farm need not provide any profit for investors, and is only obligated to repay the bond
principal and interest. At 5.25 percent interest over 30 years this will cost about $850 million.
The low-interest municipal financing saves over $1 billion dollars over the 30 year period,
far more than the entire installed cost of the wind farm. This demonstrates the huge effect of
low cost borrowing on renewable generation sources like wind, and why there is a unique
opportunity for municipalities.
At the time when other investors will be leaving the market, municipalities will retain their
low cost financing advantage. This places them in a unique position when tax credit expires
to take advantage of any price reductions in wind farms.
-.
Wind resource is also vitally important for project viability. The East County has class 5 and
class 6 winds. By placing a wind farm in the higher class region, a significant improvement is
performance is very likely. Improving the output of a wind farm from a 32% operational
capacity (capacity factor) to 35% would reduce the cost of the electricity generated and
achieve a more rapid payback on investment. It also increases the cost threshold for a viable
project.
Maintaining a high capacity factor is important for economic viability not only of the wind
farm but also of the pumped storage portion of the facility. The cost assumption for the
pumped storage of $1000 per kilowatt is conservative to high if an existing reservoir is used,
but may be low if a new reservoir must be built. We recommend using existing reservoirs in
the San Diego region, of which there are several. The given price is the maximum that would
make the proposition viable for a CCA, thus it is only likely to make sense as an investment
if an existing reservoir is used. There are also considerable environmental advantages when
compared to building a new reservoir, creating an alignment between environmental and
economic goals.
-.
Appendices
2
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Appendix B
Solar Thermal wi Natural Gas and Cogeneration
The cost of solar thermal power has decreased in the last two years, and there is general
agreement that it will continue to drop. Current cost of solar thermal generation can range
between 13 and 25 cents per kilowatt-hour, depending on scale of the installation, financing
and availability of tax breaks. Private developers can take a generous 30% tax credit until
2008, which will revert to 10% unless the higher credit is further extended.
DOE projects that solar thermal electric generation will fall to about 4 cents per kilowatt-
hour within a decade, but Local Power considers this projection too optimistic. Those in the
industry currently consider it reasonable to expect that the price will fall below 10 cents per
kilowatt-hour, a range that will make solar thermal potentially cost competitive with the peak
power generated by natural gas power plants.
The first spreadsheet analyzes the cost and performance of a Concentrating Solar Thermal
power plant. The first column shows the economics of a privately financed facility to allow
comparison with a publicly financed one. The proposed solar thermal project would have
about 10% to 15% lower solar resource than the recently developed solar thermal plants in
Nevada and Arizona if located in the East County, and 20% to 25% lower if placed in the
vicinity of Chula Vista. It would also not be eligible for a tax write-off due to the fact that it -...
would be owned by a municipality. Countering this disadvantage is the much lower cost of
capital, which is only the interest payment on the bond. Recycling the heat through a
cogeneration system will bring the cost down further.
The net cost to produce a kilowatt-hour, and the profitability of the plant, is significantly
influenced by the efficiency with which the heat can be recycled. The assumption is only
50% of the waste heat can be recovered and sold at prevailing energy rates. This is very
conservative, as such systems can achieve 75% to 80% recovery on the high end. If the
recovery is efficient enough, then the heat can be sold at a discount to make the proposition
attractive to a commercial venture.
A solar thermal plant's economic viability is to a large extent locked in at the time of
purchase. Unlike a natural gas power plant, very little of the long term cost is bound up in
fuel. The major expense is the purchase cost itself, and the cost of financing. Whether this
will be competitive with natural gas peak power depends on the future cost of natural gas.
The second sheet shows the breakeven costs for the solar plant assuming a range of average
prices for natural gas. In this sheet, the assumption is that the plant is financed over a 30 year
period by a capital bond as a "self supporting" investment.
-...
Appendices
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.
Appendix C
Natural Gas Costs
Table C-l uses DOE projections for natural gas prices until 2030, and extrapolates these to
2040, showing fixed 2004 dollars as well as the corresponding higher nominal inflated dollar
equivalent. This places natural gas at a nominal average of $10 per MMBtu between 2009
and 2040, which we use as a HIGH natural gas price scenario. The BASE CASE price is set
at $6.50 per MMBtu, while the LOW CASE is $5.00 per MMBtu. We see this as
conservative, particularly for a date range running from 2010 to 2040. It is important to take
into account this conservative basis when evaluating the investments in the renewable
portfolio, as this offers opportunity to profit from upside natural gas risk. Since a significant
part of the portfolio is also tied to natural gas, any decreases in natural gas prices will partly
offset the renewables that would become relatively more expensive. On the other hand, if
natural gas prices rise above current levels, as reflected in the base case, then the renewables
will be the lower cost investment. Diversification of the portfolio leads to a double hedge.
The gas price figures are input into a model for electric generation cost for a peaking plant,
assuming a heat rate of 9400 Btu per kilowatt-hour for a simple cycle combustion turbine.
Variable and fixed costs are set for a plant that operates at 32% capacity factor.
.
A higher natural gas price will tend to favor renewable facilities, making these investments
into natural gas price hedges, as they lock in the cost of generating electricity just as a fuel
futures contract would. The difference, however, is that renewables provide this hedge out to
30 and 50 or more years, much longer than any available natural gas contract. By this time, it
is expected that the US may face serious depletion of natural gas fuel. Facilities that either do
not rely on natural gas, or that rely on it minimally, will be at a great advantage.
Tables C-2 through C-4 compare a variety of natural gas plant investments. The current plant
is relatively cheap to run, (with the exception of unit #4), because the capital expense is
mostly paid off. A newer peaking plant is not necessarily much more efficient in fuel
consumption, as heat rates for simple cycle combustion turbines range from about 9000
Btulkwh to 10,000 Btulkwh, with the higher end quite close to the existing plant. For this
reason, a new natural gas plant is not likely to avert any future fuel consumption or expense.
The economics of a peaking plant is only partly determined by the heat rate. More important
is how many hours per year it is run. The fewer the hours, the more expensive the power,
since capital cost becomes more important than fuel as capacity utilization drops. A simple
cycle plant is modeled here, because the report examines a functional replacement for the
current plant. However, it would be possible to purchase a combined cycle plant with
baseload or multiple functionality.
.
The other major factor is financing cost, as for the renewables. The CCA, using low cost
bonds, is at a great advantage in this regard, and can use the natural gas peaker to offset some
of the potential near term losses for the fixed cost, renewable generators. Tables C-5 and C-6
show the cost of operating a natural gas peaker plant under private and CCA ownership at
low, base, and high natural gas price projections.
Appendices
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Table C-2. New Combustion Turbine Peaker, CCA Ownership
Natural Gas to Generate 1 KWh
Cost/MMBto $6.50 Size of Plant 160,000 kw
conversion to kwh 3419 btolkwh Annual Generation 448,512,000 kwh
Lifecycle
fuel-cost/kwh $0.022 Generation 8,970,240,000 kwh
heat rate 9400 btolkwh
efficiency 36.4% Lifecycle Costs
factor 2.75 Capital Cost $76,000,000
electricity fuel-cost/kwh $0.061 Cost of Money $83,600,000
Lifecycle Fuel Cost $548,081,664
Cost of Gen Facility Variable Cost $51,918,348
Total Lifecycle
Cost of Equipment $0.48 per watt Cost $759,600,012
lifecycle 20 years
Savings V s. Private
capacity factor 32% Ownership -$30,720,384
output rate 2803 kwh/kw-yr
life output/watt 56.06 kwh
unfinanced cost $0.008 per kwh
interest rate + ROI 5.5%
cost of money $0.009 per kwh
total cap cost $0.018 per kwh -.
Variable costs $0.006 per kwh
Total Gen Costs $0.085 per kwh
-.
Appendices
14
. Table C-3. New Combustion Turbine Peaker, Private Ownership
Natural Gas to Generate 1 KWh
Cost/MMBto $6.50 Size of Plant 160,000 kw
conversion to kwh 3419 btolkwh Annual Generation 448,512,000 kwh
fuel-costlkwh $0.022 Lifecycle Generation 8,970,240,000 kwh
heat rate 9400 btolkwh
efficiency 36.4% Llfecycle Costs
factor 2.75 Capital Cost $76,000,000
electricity fuel-costlkwh $0.061 Cost of Money $179,360,000
Lifecycle Fuel Cost $548,081,664
Cost of Gen Facility Variable Cost $51,918,348
Cost of Equipment $0.48 per watt Total Lifecycle Cost $855,360,012
lifecycle 20 years
capacity factor 32%
kwh/kw-
output rate 2803 yr
life output/watt 56.06 kwh
unfinanced cost $0.008 per kwh
interest rate + ROI 11.8%
cost of money $0.020 per kwl)
total cap cost $0.028 per kwh
Variable costs $0.006 per kwh
. Total Gen Costs $0.095 per kwh
.
Appendices
15
-.
Table C-4. New Combined Cycle, Base Load, Private Ownership
Natural Gas to Generate 1
KWh
Cost/MMBtu $6.50 Size of Plant 500,000 kw
conversion to kwh 3419 btulkwh Annual Generation 3,591,600,000 kwh
Lifecycle
fuel-cost/kwh $0.022 Generation 107,748,000,000 kwh
heat rate 6200 btulkwh
efficiency 55.1% Lifecycle Costs
factor 1.81 Capital Cost $325,000,000
electricity fuel-cost/kwh $0.040 74.27% Cost of Money $1,150,500,000
Lifecycle Fuel Cost $4,342,244,400
Cost of Gen Facility Variable Cost $243,367,254
Cost of Equipment $0.65 per watt Total Lifecycle Cost $6,061,111,654
lifecycle 30 years
capacity factor 82%
output rate 7183 kwhlkw-yr
life output/watt 215.50 kwh
unfinanced cost $0.003 per kwh
interest rate + ROI 11.8%
cost of money $0.011 per kwh
total cap cost $0.014 per kwh ,-.,
Variable costs $0.002 per kwh
Total Gen Costs $0.056 per kwh
--..
Appendices
16
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Appendix D
Photovoltaics
Table D-l examines the effect of various financial inputs into the cost per kilowatt-hour of
electricity generated by solar photovoltaic system. One assumption here is that commercial
entities will purchase the photovoltaic systems, and be eligible to receive tax credits and state
rebates. The federal tax credit is conservatively assumed to revert to 10%, as it will naturally
do after 2007 if no legislative action is taken. If the current 30% credit is extended, then the
economics of photovoltaics will significantly improve for commercial/industrial sector
customers that have a tax liability. The model assumes that commercial customers will
borrow money for a 5 year period, paying 7.5% interest on a conventional commercial loan
with a declining balance. The interest is taken on the full purchase price, not the after rebate
price of the solar system. That is because we expect the new rebate program under the
California Solar Initiative to payout performance incentives over a 5 year period, so they
will not affect the amount of the initial borrowing. However, upfront rebate payments under
the current program design will be offered for photovoltaic systems smaller than 100
kilowatts.
.
The model also makes some generic assumptions about electric rates, such as a 5% local tax
on sales of electricity and an initial 12 cent a kilowatt-hour rate. These only represent
approximations for comparison sake. The lifecycie costs are modeled for a medium to large
(10+ kilowatt) sized commercially owned photovoltaic system, and would have to be
significantly modified for publicly owned or publicly fmanced systems, or for small home
sized systems.
The analysis uses a range of cost per watt for capital expense as the basic input on the left
side, running from $6.00 to $9.00 per watt of direct current electric generation capacity, a
range that most photovoltaic systems would fall into. This installed capacity cost is then
translated, using the various input values for performance, tax credits, loan terms and rebate,
entered in the boxes in the lower part of the spreadsheet, into an effective electric rate
expressed as a cost per kilowatt-hour over the life of the photovoltaic system. The lifecycie is
assumed to be 30 years, which is likely to be conservative since photovoltaic modules can
usually produce electricity for many more years. Most of the cost is upfront, but there is a
small ongoing operation and maintenance expense, and every 10 to 20 years the inverter
needs to be replaced. The larger the system, the longer the inverter is likely to last (and the
lower the unit cost for replacement).
.
Appendices
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Appendix E
SDG&E Rates and San Diego Electric Resources
Tables E-1 and E-2 give some basic facts about electric generation in San Diego County.
Table E-l shows current rates for electric commodity charges by SDG&E, which pulls out
the cost of electricity at different times of the day and year for time of use customers. These
rates shown in the upper part of Table E-l exclude distribution and service charges, as well
as surcharges and taxes, which form the rest of the bill. These costs tend to reflect the
average wholesale cost of generating electricity, and range from 4 to over 11 cents per
kilowatt-hour.
The bottom part of the table adds the full charges back into the rate, showing an annual
average cost of electricity of 15.44 cents per kilowatt-hour for customers on this rate
schedule. It is noteworthy that the full cost range for photovoltaic electricity in Table D-1
falls below this rate, which makes photovoltaics an excellent hedge against future electric
rate increases, effectively freezing a commercial customer's rate below what they are
presently paying.
.
Table E-2 shows new power plants in San Diego County since 2001, and planned through
2008. A total of 1437 Megawatts of capacity will have been added during this period. This is
likely enough to supply all the electricity needs of San Diego County's one-million-plus
residential customers. *
.
... According to the California Energy Commission, San Diego County had 1,013,799 residential customers in
2000 that consumed a total of 6,041 million kilowatt-hours, which equates to 5959 kilowatt-hours per account
per year. This represents an average load of 5959 I 8760 ~ 0.68 kilowatts. Therefore, 1437 Megawatts of
capacity would provide 1,437,000 divided by 0.68 ~ 2,113,345 customers' average load, about double the actual
total number of customers. Of course, the electric system capacity has to be sized for maximum, not average,
load. Yet,just the added capacity from 2001 through 2008 should meet all the needs of the county's one million
residential customers, both base and peak load.
Appendices
21
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Appendix F
Portfolios and Financing
Table F-l shows the cost range of three different portfolio options, the expected annual
electric generation, and the effective load carrying capacity of the facilities individually and
in each of the portfolios. Some of the elements, such as photovoltaics, and perhaps wind,
may not be counted by the ISO for reliability purposes. Partly for this reason, each portfolio
is rated a bit higher than the stated level, but it would be possible to add to the size of the
natural gas plant to make up for the difference. This would incur the least capital cost as a
remedy. In addition, adjustments in the natural gas plant size may be necessary as different
models come into production. If the City elects to get a mixed-use combined cycle natural
gas plant, then the cost for a given size plant will likely be about 25% higher. On the other
hand, the fuel efficiency may also be significantly higher.
On the other hand, adding capacity to a natural gas power plant should be a last resort, used
only if other strategies do not meet the requirements. We recommend meeting the resource
needs by 1) examining the full range of resource options within the county using updated
demand figures, 2) evaluating construction of the appropriate Green Energy Option, and 3)
challenging the ISO to account adequately for the full range of clean energy sources.
The financing assumptions are contained in Table F-2. It shows four different investor
categories for power plants. These figures are used for all the plants evaluated, such as wind, _
pumped storage, concentrating solar thermal, and natural gas:
1) A 3'd party, private investor that borrows half the money from a bank and invests the other
half out of their own resources. The expected rate of return for the portion they own is 14%;
in reality this is likely to vary depending on the perceived risk. Halfthe money is assumed to
be equity and half on borrowed funds from a bank. When the return on equity is averaged
with a bank loan of7.5%, the average cost of money is shown to be 11.8%. These figures do
not account for the effect of taxes.
2) Utility owner. These have lower borrowing rates than private investors, and lower rates of
return on equity in the power plant.
3) City or JP A ownership. This is a 30 year bond financed facility based upon the capital
asset and long term contracts to sell power. The rate of return, 5.25 percent, is interest paid
annually on the full amount of the bond, which differentiates a bond from the standard
declining balance mortgage or credit card loan with which most people are familiar. Current
interest rates on municipal 30 year bonds are about one percent lower. This reflects
conservative assumptions, as well as embedded finance costs.
4) CCA ownership. This would be a revenue bond, limited to 20 years, with repayment based
on the general ratepayer revenue stream from electric bills to the CCA. The interest rate is
shown as Y. point higher at 5.5 percent, to reflect the higher rate of return required for
revenue bonds compared to bonds that are secured by a capital asset. -.
Appendices
24
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Table F-2. Financing Assumptions
Private Utility Public CCA
Equity 50% 50% 0% 0%
Annual Return on Investment (ROI) 14.0% 10.5% 0.0% 0.0%
Term years 30 30 30 20
Total ROI on Investment 2.10 1.58 0.00 0.00
Loan 50% 50% 100% 100%
Interest rate 7.50% 7.00% 5.25% 5.50%
Term years 20 30 30 20
Total Interest 0.75 1.05 1.58 1.10
Balance of term on equity 10 0 0 0
Balance on equity $0.70 $0.00 $0.00 $0.00
Total Cost of Capital per dollar of principal $3.55 $2.63 $1.58 $1.10
Average Effective Rate of Capital 11.8% 8.8% 5.3% 5.5%
-.
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Appendices
28
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