LEGISLATIVE REPORT. Requesting a Report of State Expenditures Relating to Energy Conservation Contracts and Power Purchase Agreements

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1 LEGISLATIVE REPORT SUBJECT: Requesting a Report of State Expenditures Relating to Energy Conservation Contracts and Power Purchase Agreements REFERENCE: HCR 178, HD1, SD1 (HR 139) (2012) ACTION REQUESTED: DOE REPORT: Each State department is requested to report to B&F on energy conservation contracts and power purchase agreements; DOE provide detailed analysis to the legislature through B&F on its power purchase agreements; B&F submit findings and recommendations no later than 20 days prior to 2013 regular session. See attached report. FINDINGS: RECOMMENDATIONS: See attached. Not applicable.

2 Energy Conservation Contracts Report in Response to H.C.R No. 178, H.D. 1, S.D. 1 Department of Education Please describe the energy conservation contracts utilized by the department. The Department of Education (DOE) does not have any energy conservation contracts (ESCO). Please provide the terms of these contracts and annual costs from inception to FY Do these contracts serve their intended purposes to promote energy and resource conservation, while meeting the department's needs? Are the financing of the energy conservation contracts adequate? Are there lower cost alternatives (such as purchasing energy efficient electr.onic equipment) that can potentially save state funds? What is the department's assessment of expenses incurred for recordation, reporting and record keeping processes? Other comments that the department may want to add about their energy conservation contracts. Power Purchase Agreements Please describe the power purchase agreements utilized by the department. The Department of Education developed a Request For Proposal (RFP) that required the installation of one photovoltaic (PV) system on each of the islands of Hawaii, Maui, and Kauai, and four systems on Oahu. The RFP was issued in

3 October 2007 requesting proposals for the installation of four (4) PV systems at schools throughout the island of Oahu. In response to the RFP, the DOE awarded its first power purchase agreement (PPA) to Hawaii Pacific Solar, LLC. Hawaii Pacific Solar installed the PV systems at Kaimuki High, Aiea High, Waianae High, and Kahuku High. Selected school sites met various criteria, including substantial electrical use, outstanding roof repairs, and maximum sunshine. Construction was completed during the first quarter of Based on the PPA, the DOE for the first year will purchase power at 19.9 cents per kilowatt-hour. This rate which will escalate at 2.75% each year will rise to approximately 33 cents per kilowatt-hour over the 20-year contract perio~. To date, the monthly savings average $2,200 to $3,000 per school based on the monthly kilowatt-hours generated and the PPA negotiated rate. Also, if required, roof repair and maintenance will be covered by the PP A. To expand the PV installations on Oahu, the DOE initiated a contract modification to include four (4) schools: Radford High, Moanalua High, Aliamanu Middle, and Waianae High. The first year purchase power rate for these schools will be $ per kilowatt-hour escalating at 2.75% each year for the term of the agreement. The construction should be completed by December With the DOE's energy savings by the purpose and goals of Act 96, another contract modification was issued to Hawaii Pacific Solar for twenty-five (25) schools on Oahu. These schools are located in the Aiea Complex, Waianae Complex, Kahuku Complex, and Kaimuki Complex. The PPA is currently being approved. The expected completion for these installations is December In parallel, with the success of Oahu's schools, the DOE issued a Request For Proposal (RFP) in June 2011 that will require installing PV systems at 15 Kauai schools. The DOE awarded the PPA to Hawaii Pacific Solar. The first year rate of 16.9 cents per kilowatt-hour and escalates at 2.75% each year for the 20-year contract period. At this time, the PPA.is being signed. The expected completion date for the 15 schools is December Please provide the terms of these contracts and annual costs from inception to FY : The PPA requires the contractor to install, own, and maintain the solar photovoltaic (PV) system installed on the DOE's facility. The contractor sells the energy produced by the PV system at a discount rate to the DOE. The PPA is a valuable option since the DOE is allowed to receive solar power without any up-front costs, and the

4 contractor is allowed to claim the state and federal tax credits. The tax credits cannot be claimed by governmental agencies and are necessary for PV systems to be financially viable. Based on the power purchase agreement with Hawaii Pacific Solar for the Oahu schools, the DOE will purchase power for the first year at a rate of 19.6 cents per kilowatt-hour. This rate which has an annual 2.75% escalator will rise to approximately 33 cents per kilowatt-hour over the 20-year contract period. To date, the monthly savings average $2,200 to $3,000 per school based on the monthly kilowatt-hours generated and the PPA negotiated rate. If required, roof repair and maintenance will be covered by the PPA. Also, an early buy-out option will be offered to purchase the PV system at the end of year 8 and 15. For the Kauai schools, the DOE awarded the power purchase agreement to Hawaii Pacific Solar. The PPA first year rate will be 16.9 cents per kilowatt-hour. This rate has an annual 2.75% escalator will rise over the course of the 20-year contract period. An early buy-out option will be offered to purchase the PV system at the end of year 12. Do these contracts serve their intended purposes to promote energy and resource conservation, while meeting the department's needs? Yes, through these pilot schools, the Department has been able to develop its Energy Efficiency and Sustainability Master Plan (EESMP) which will serve as the road map to make all DOE facilities more energy efficient through the installation of energy conservation measures as well as net zero all DOE facilities using sustainable generated energy. Are the financing of the power purchase agreements adequate? Yes. Are there lower cost alternatives (such as purchasing energy efficient electronic equipment) that can potentially save state funds? Under the EESMP, the Department plans to finance the installation of the energy efficient electronic equipment through the PPA. What is the department's assessment of expenses incurred for recordation, reporting and record keeping processes? The expenses incurred for recordation, reporting, and record keeping of the PPAs for the pilot installations on Oahu and Kauai are minimal. However, as the EESMP

5 is rolled out over the next five years, additional resources will be needed to manage the program. The DOE will.use the savings from the existing utility budget to fund the additional resources... Other comments that the department may want to add about their power purchase agreements. Under the EESMP, each school will have a separate PPA depending on the size of the energy generation systems to be installed and the recommended energy conservation measures to be implemented.