Click to read text of Articles 18 and 19 and post comments. [Lynch solar panels/power purchase]
See complete warrant at: https://www.winchester.us/DocumentCenter/View/10460/2023-Fall-Town-Meeting-Motion-Book
ARTICLE 18. To see if the Town will vote to appropriate a sum of money to pay costs of acquisition and installation of solar panels and solar panel canopies on or in the vicinity of the Lynch Elementary School and the School’s parking lots, including the payment of all costs incidental and related thereto; to determine whether this appropriation shall be raised by borrowing, transfer from Free Cash or other available funds, or otherwise; or to take any other action relative thereto.
(Select Board)
MOTION:
MOVED AND SECONDED that $3,100,000 is appropriated to pay costs of engineering, acquisition and installation of solar panels and solar panel canopies on or in the vicinity of the Lynch Elementary School and the School’s parking lots, including the payment of all costs incidental and related thereto; that to meet this appropriation, $300,000 shall be transferred from Free Cash and the Treasurer, with the approval of the Select Board, is authorized to borrow $2,800,000 pursuant to G.L. c.44, §7(1), or pursuant to any other enabling authority, and to issue bonds or notes of the Town therefor; that the Town Manager shall be authorized to have oversight of the project; and that in accordance with Section 4-2 of the Town of Winchester Home Rule Charter the Town Manager shall have the authority to enter into contracts and approve payments with respect to the project.
BACKGROUND:
The Lynch Elementary School replacement project is currently underway, with a debt exclusion override approved by the voters in January 2023. In February 2022, the Select Board adopted a policy to ensure that the project, a once-in-a-generation project, would be consistent with Winchester’s commitment to sustainability and its 2020 Climate Action Plan, including that the building be all electric, and that the design would strive for net zero energy to the extent feasible.
The original project design included a modest “base project” solar rooftop array in the MSBA Project Scope and Budget Agreement, and assumed that the remainder of the solar arrays would be funded outside of the project budget through a Power Purchase Agreement (PPA) under a third-party ownership model. However, the recently passed Inflation Reduction Act now allows municipalities to qualify for a federal investment tax credit (ITC) tax incentive via direct payment if the arrays are owned and operated by the Town. The Select Board has worked over the past several months to complete a financial analysis of the direct ownership and PPA options, and is recommending to Town Meeting that the Town pursue the direct ownership model. The estimated project costs (based on the 90% plans) for installation of the necessary underground conduits, foundations, and solar panels (both rooftop and parking canopy) is $3.1 million. The cost of this work was not included in the original Lynch School budget since the EFPBC assumed the Town would pursue a third-party ownership model. Therefore, the Select Board is recommending that Town Meeting appropriate $300,000 from Free Cash and authorize a borrowing of up to $2.8 million to cover the cost of direct ownership. The project elements are being bid as three separate alternates as part of the Lynch School project, with the bid scheduled to be opened on November 17th. If funding is approved by Town Meeting, the Town will accept these alternates and complete the work as part of the overall project construction.
2/3 Vote Required
ARTICLE 19. To see if the town will vote to authorize the Select Board to enter into a Power Purchase Agreement for a period of up to 30 years for the purchase of the solar energy generated by a facility to be constructed upon or around the Lynch Elementary School located at 10 Brantwood Road, Winchester, or take any other action relative thereto.
(Select Board)
MOTION:
MOVED AND SECONDED that the Town vote to authorize the Select Board to enter into a Power Purchase Agreement for a period of up to 30 years for the purchase of the solar energy generated by a facility to be constructed upon or around the Lynch Elementary School located at 10 Brantwood Road, Winchester.
BACKGROUND:
The Lynch Elementary School replacement project is currently underway, with a debt exclusion override approved by the voters in January 2023. In February 2022, the Select Board adopted a policy to ensure that the project, a once-in-a-generation project, would be consistent with Winchester’s commitment to sustainability and its 2020 Climate Action Plan, including that the building be all electric, and that the design would strive for net zero energy to the extent feasible.
As noted in Article 18, the Winchester Select Board is recommending that the Town move forward with a direct purchase option to own the solar panels associated with the school project outright. However, if Article 18 fails and in the interest of ensuring that the building will meet the “net zero” target, the Board will move forward with Article 19 which would utilize a third-party ownership model through a Power Purchase Agreement (PPA). If approved, Article 19 would give the Select Board authority to enter into the agreement for up to 30-years; Town Meeting approval is required for any contract longer than three-years.
Majority Vote RequiredBoard)
Comments
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Curious to know what our town Sustainability Department might recommend here (pros and cons of 18 vs 19).
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Nothing on TM section of Town Website on background of the proposed project, economics (how much, buy, lease, maintain), etc. Also took a look on Lynch Replacement Project (lynch2025.com) and can't tell if this was contemplated as part of the Lynch School Rebuild or something separate and distinct? Lastly, Article 19 seems worded funny - I presume we enter a Purchase Power Agreement to sell the power produced by the panels? Anyone have more insight?
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This was discussed at the October 16 meeting of the Select Board. Video recording from WinCam can be found here: https://www.youtube.com/watch?v=WHhXsyiTAxQ The discussion relevant to the Lynch solar discussion begins about timestamp 2:31:30 with a vote take to amend the motion language of article 18 at about timestamp 3:33:00 The slides from the consultant's presentation can be found here: https://www.winchester.us/AgendaCenter/ViewFile/Item/4618?fileID=14045 and original motion language can be found here: https://www.winchester.us/AgendaCenter/ViewFile/Item/4618?fileID=14043
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Lynch was always intended to have solar panels and be net-zero. Either direct purchase or a PPA will achieve that goal. Under direct purchase we pay for and own the panels and all the energy they produce. Under a PPA we rent the roof and car ports to a private company who builds the panels, they sell the electricity and in the process sell energy to the town at a discount over prevailing energy rates for the life of the contract.
Until the inflation reduction act allowed municipalities to receive the tax credit formerly only given to tax paying entities, the economics of direct solar panel purchasing by the town were far from advantageous and were never seriously considered. This whole discussion started after the legislation with the intent to determine whether one or the other provided a better return to the town.
The lynch project has 4 add-alternates the we as a town can elect to pay more and include in the project. The first 1 is an unrelated safety railing on the roof. Alternates 2-4 collectively are the entire solar project. (2 is the below ground conduit work, 3 is the car port posts, and 4 are all the other above ground devices along with wiring and installation). If we approve purchase of the panels, we will accept add alternates 2-4 and have to find the money to pay for them (free cash, arpa, bonding). If we approve a PPA instead we may still need alternates 2 or even 3, but certainly not 4 and will still need to pay for them if needed.
To date, the select board has voted 4-1* in favor of direct purchase using $300k of free cash and bonding the remaining cost for some period of time (15-20 years). They also voted 5-0 in favor of the PPA _if and only if_ the direct purchase warrant article fails. It will fall on Town Meeting to consider purchase and if that fails, to consider a PPA.
So much more on that that has been presented over the past few months. This is just an intro.
*EDIT: They voted to support direct purchase as described above, but they haven't voted the article language yet so it is possible they could change their vote based on the article language, as always.
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Thank you Rich and Brian, for posting this info and the links to the Select Board discussion. I viewed the video and I'm glad to have this information in advance of town meeting to think about the rent vs. own trade-offs. Do you know if anyone ran best case/worst case scenarios on the two options with respect to energy cost savings? It seems the biggest upside for the town exists on the ownership option, but I do also understand the issues around having another major equipment installation to have to maintain. If possible, it would be nice to have even a rough sense for the high side/low side potential of each.
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Richard & Brian - thank you. Looked through the material and now understand that it's either 18 or 19 for selection. Also - this is a new spend for solar, above and beyond what's in the Lynch Project. (There is a "small array" contained within the Lynch Project as approved). Appears 19 is the backstop if 18 fails.
Quick comment on 19 - looks like flat rate over the lease period with no escalation. My 2 cents - That is not how other deals have been done in the market. 25 - 30 years is a really long time. There is typically some type of escalation at certain points during a lease. Also - it didn't sound like we were receiving any type of special deal in the rates offered.
Quick comments on 18 - Can't tell if this went to Capital Planning. I say that because if there's new capital spend, would the money be better spent on the backlog of capital needs in the Town? Focusing on the Tax Exempt financing scenario (which was discussed by the SB as the preferred borrowing), and using the 13 year borrowing columns - the IRR's on the 2 scenarios which assume cash is put into the deal are in the low-mid 4% range. Effectively we're in an ambivalent to negative leverage situation, so the more money borrowed, the lower the 25 year benefit. Even so - that is not the end of the world. Borrowing the full amount delivers good benefit and saves capital for other things. Using the Consultant #'s (Tax Exempt financing for 13 years), shows if we spend $500k it delivers $190k more in estimated 25 yr net benefit and spending $1mm, delivers $380k more in estimated saving. That is not a great return on the cash and once again the $ could be used for other capital projects. With all that said - we are at the mercy of interest rates until anything is locked down. Muni rates have moved up, and the Consultants ppt may be stale.
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Lots of good questions and I am not sure I have the answers. One thing I should say is that to date no one has offered the town a firm incentive rate on a PPA (Art 19) or a firm price to build the full array (Art 18). The numbers are just estimates. The price to build will be known when the bids come back for the whole lynch project on or about Nov 17 and prior to that we will get one last estimate on the whole project now that it is fully designed prior to town meeting. The incentive given under a PPA would be estimated at the signing of a PPA but subject to change if their costs go up between signing and completion of the array. It was the Town's consultant's opinion that the PPA estimate of return to the town was the high end of what we might see while the cost for us to build was at the high end of what it might costs to build. As such, she seemed to state that there was potential further upside on owning and potential further downside on a PPA. Just my impressions having followed the process.
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Good points...
I'm not that familiar with PPA's (Power Purchase Agreements) so I found this Wikipedia page helpful - describing what they are, how Pricing and Performance terms can work, along with other aspects of these types of agreements: https://en.wikipedia.org/wiki/Power_purchase_agreement. The page confirms what Bill referred to, that "Prices may be flat, escalate over time, or be negotiated in any other way as long as both parties agree to the negotiation."
I have another question. The presentation mentions Zapotec and Solect --I take it that these are the bidders we might contract with for the PPA if we go the route of the Article 19? So the Town would be choosing to contract with one of these if we approve Article 19? I assume that decision would be based on the attractiveness of their final bids? Just curious.
Zapotec: https://www.zapotecenergy.com/
We already contract with Solect on other projects: https://solect.com/town-of-winchester-takes-action-against-climate-change-installing-three-new-solar-pv-systems-with-solect-energy/
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Zapotech is part of the engineering team that is working with Tappe Architects on the Lynch replacement project. https://www.lynch2025.com/home/project-team-process
Carol, the link that you provided says that Solect was the installer on 3 previous solar array projects (VO, DPW, and WHS) that are PPAs with Safari Energy.
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Thanks for clarifying, Rich. 👍🏼
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Operating costs and responsibilities are a factor in these questions. My memory is with the other systems we didn't find out that the town needed to buy railings or that the town was responsible for keeping snow off the units until after the contracts were negotiated. With staff turnover etc. maintenance duties tend to be forgotten. The consultant mentioned a need to keep inventories of spare parts to avoid downtime. Training and documentation will be required.
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A portion of solar array over a part of the classrooms will be town owned no matter what we choose for the parking lot and main roof as it is part of the base project. Operation and maintenance of this portion will be the responsibility of the town however we choose to proceed with the roof and parking lot arrays.
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There was an discussion of Articles 18 & 19 during the Town Manager's hearing that I found helpful. Select Board member Michelle Prior responded to a number of questions. It begins at 1:07:40 and ends at 1:19:26: https://videoplayer.telvue.com/player/7qWlRaZ6VN1bGk9m5qlLrPdu4-4i7cSa/media/833941?autostart=true&showtabssearch=true&fullscreen=false
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A couple of things came up on Article 18 during the Town Manager hearing worth noting. The total estimated cost is now $3.5MM. The Town would issue a BAN, (Bond Anticipation Note) for $3.2MM plus cash of $300k to install. We then receive a direct federal investment tax credit payment after installation. A guesstimate of that payment is $800k, which will be used to paydown the BAN and the net remaining balance (~$2.4MM), would be rolled into a permanent financing.
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All - thank you for the excellent discussion. Today I reached out to a grad school friend who has run his own commercial install business in New England for 12 years and asked him to help me avoid getting stuck in the weeds on this. Here is what he said: "Financially better for Town to own solar array (much of financial benefits flow to PPA system owner), assuming Town would elect Direct Pay to monetize 30% federal tax credit. Potential downside is Town would be responsible for maintaining project. You can hire a 3rd party to handle monitoring & maintenance but there is still more involvement from the Town and someone has to take on that responsibility."
So nothing too new here, but his comments help me stay focused on the main issue and avoid getting bogged down in the NPV of this scenario vs. that. On the O&M, since the Town will be maintaining one of the 3 arrays no matter what, we'll need to crack that. And hiring a firm, at least for the first X years, to cover all 3 arrays seems quite reasonable (and I would assume Solect would happily offer this service). So, I support the ownership model. This route does soak up ~$3M (rounding up) of capital/cash, but the financial returns will be significant over time.
