Challenges and Successes on the Path toward a Solar-Powered Community

Tucson, Arizona Includes case studies on:• FinancingwithCleanRenewableEnergyBonds• SolarReadyHomesOrdinance• FinancingwithPowerPurchaseAgreements

October2011

Solar in Action

TucsonwasdesignatedbytheU.S.DepartmentofEnergy(DOE)onJune20,2007,asaSolarAmericaCity.Atthattime,Tucsonwasarelativelymaturecityintermsofitssolardevelopment.PriortoreceivingassistancethroughtheSolarAmericaCitiesprogram,thecityenjoyedthefollowingbenefits:

• Amajorrevisionofthestateportfoliostandardincreasingfundingandrequirementsforsolarenergy

• Thefinalstagesofregulatoryapprovalfornetmeteringandinterconnectionagreements

• Asolarpermitfeewaiverintroducedin2005towaivebuildingdepartmentfeesinsolarinstallationsupto$1,000

• Amajorinvestmentinsolarenergybythelocalutility

• Morethan200solarenergyindustryjobs

• Avisiblemarketpresenceforsolarinthemetropolitanhousingmarket

• Agreenhousegasreductiongoalof25%below2005levelsby2030.

Tucson,locatedinthesouthwesternUnitedStates,alsohasexcellentsolarresourcepotential.Inaddition,Tucsonhasaninvestor-ownedutilitythatwasreceptivetoitseffortstopromotesolarandisnowapartnerinthedrivetoincreasethedeploymentofsolarenergytechnologies.

Building Partnerships and Setting Goals TheCityofTucsonsetagoaltoinstall2megawatts(MW)ofsolarby2015.AlthoughTucsonenteredtheSolarAmericaCitiesprogramwithsignificantresourcesforsolarenergy,veryfewresourceshadbeenallocatedtotechnicalassistance,marketeducation,andcommunityoutreach.High-levelobjectivesforTucson’sSolarAmericaCitieseffortsincluded:

• ExpansionoftheTucsonsolarenergymarketthroughacceleratedinvestments

• Transformationoffinancialmarketbarriersintoopportunitiesforsolarenergyinstallations

Tucsonpromotessolarinthecommunitythroughhighlyvisibleinstallationsoncity-ownedbuildings.Photo from The City of Tucson, NREL/PIX 18370

Cover photos from iStock/10405326, View of the City of Tucson

Tucson’s Starting Point

About the U.S. Department of Energy’s Solar America Communities program: TheU.S.DepartmentofEnergy(DOE)designated13SolarAmericaCitiesin2007andanadditional12citiesin2008todevelopcomprehensiveapproachestourbansolarenergyusethatcanserveasamodelforcitiesaroundthenation.DOErecognized thatcities,ascentersofpopulationandelectricityloads,haveanimportantroletoplayinacceleratingsolarenergyadoption. Asaresultofwidespreadsuccessinthe25SolarAmericaCities,DOEexpandedtheprogramin2010bylaunchinganationaloutreacheffort,theSolarAmericaCommunitiesOutreachPartnership.AstheSolarAmericaCitiesprogramevolvedtoincludethisnewoutreacheffort,theprogramwasrenamedSolarAmericaCommunitiestoreflectDOE’scommitmenttosupporting solarinitiativesinalltypesoflocaljurisdictions,includingcitiesandcounties.VisitSolarAmericaCommunitiesonlineat www.solaramericacommunities.energy.gov.

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•Transformationofknowledgemarketbarriersintoopportunitiesforsolarenergyinstallations.

OneofthefirstandmostimportantstepstakenbyTucsonwastohireasolarcoordinator.Withasolarcoordinator,Tucsonwasabletotakestockofitsexistingsolarsuccessesandformulateaplanforleveragingthosesuccessesintogrowingthelocalsolarmarket.Thesolarcoordinatoralsohelpedthecityidentifyopportunitiesforpartnershipsandcultivaterelationshipswithpartnerswhocouldhelpthecityreachitssolargoals.

ThefollowingpartnerswereinvolvedwiththeTucsonSolarAmericaCitiesproject:

• ArizonaStateDepartmentofCommerceEnergyOffice

• GreaterTucsonCoalitionforSolarEnergy

• TucsonElectricPower

• Tucson-PimaMetropolitanEnergyCommission.

TucsonestablishedtheSouthernArizonaRegionalSolarPartnershipaspartofitscomprehensiveapproachtoadvancesolarmarketexpansionandtoremovelocalmarketbarriers.Thepartnershipservesasaforumforcoordinatingaregionalmarketingstrategytoadvancesolarpower.

Tucson’sSolarAmericaCitiesprogramfocuseditsactivitiesonbringingtogetherlocalgovernmentofficials,utilities,andprivatepartnerstostreamlineregulations,educatecitizens,andincreaselarge-scalesolarinstallationsoncitybuildings.

Keyactivitiesthattheteamidentifiedtomeetitsoverallsolargoalswere:

• DevelopingaCityofTucsonSolarEnergyIntegrationPlanandaGreaterTucsonSolarEnergyDevelopmentPlan

• Improvingcityregulationsandbuildingcodestohelpstreamlinetheinstallationofsolarsystems

• Increasingthenumberoflarge-scalesolarinstallationsoncitybuildings.ThiswasaccomplishedthroughtheuseofCleanRenewableEnergyBonds(CREBs)andPower

TheLeeH.BrownFamilyConservationLearningCenteropenedasTucson’sfirstLeadershipinEnergyandEnvironmentalDesign(LEED)Platinum-certifiedfacility.Photo from The City of Tucson, NREL/PIX 18372

InstalledPVcapacityincreasefromDecember31,2007, toDecember31,2010

Installed PV (kW)

Installed CapacityTucson

0

1000

10,000

15,000

20,000

PV Capacity (Residential)PV Capacity (Non-residential)

2007 2008 2009 2010

kW

Year End

3Solar in Action

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PurchaseAgreement(PPA)financingprogramstofundlargerphotovoltaic(PV)systemsthanthecityhadeverinstalled

• FormingnewpartnershipswithlocalorganizationsdesignedtoeducatetheTucsoncommunity.Thiseffortincludedfrequentspeakingopportunitieswiththeseorganizations,aswellascoordinatingwithU.S.RepresentativeGabrielleGiffords’officeintheirmonthlySolar101presentations.

Accomplishments and HighlightsUnlikeotherSolarAmericaCities,Tucsonfocusedthemajorityofitsresourcesondevelopinglarge-scalesolarinstallations.HighlightsofTucson’saccomplishmentsinclude:

• Sevenprojectstotaling1MWwereconstructedin2009afterthesuccessfulsaleofnearly$8millioninCREBs.

• TucsonMayorBobWalkupandtheTucsonCityCounciladoptedtheSolarReadyHomesOrdinanceforsolarhotwaterandPV.

• APPAtoconstructa1-MWPVsolarenergyfacilitywasnegotiatedandsigned.

• ThecityworkedwithotherlocalgovernmentsintheTucsonareatosharerelevantexperiencewithsolarfinancingandplanning.

Case Studies: Successes and ChallengesFinancing with Clean Renewable Energy BondsTucsonsuccessfullydevelopedandimplementedaCREBsprogram,butnotwithoutsomechallenges.CREBsmaybeusedbycertainentities—primarilyinthepublicsector—tofinancerenewableenergyprojects.Thelistofqualifyingtechnologiesisgenerallythesameasthatusedforthefederalrenewableenergyproductiontaxcredit.

CREBsmaybeissuedbyelectriccooperatives,governmententities(states,cities,counties,territories,Indiantribalgovernments,oranypoliticalsubdivisionthereof),andbycertainlenders.CREBsaretheoreticallyissuedwitha0%interestrate.Theborrowerpaysbackonlytheprincipalofthebond,andthebondholderreceivesfederaltaxcreditsinlieuofthetraditionalbondinterest.

ForTucson,therewerefewexamplestofollowforstructuringaprogramthatwasfavorabletothecity.Eventually,Tucsonwasabletoissuea13-yearbondthatcovered$7.6millionforsevenprojects.

ThecityobtainedauthorizationforthesebondsfromtheIRSin2006.Theycarrynointerestchargesbutallowthepurchasertotakeataxcreditinlieuofinteresttoallowcitiesthatarenoteligibleforthe30%federalsolarinvestmenttaxcredittofinancerenewableenergyprojects.

Duetotheuniquenatureofthesebonds,thecitywasabletoplacethemevenindifficulteconomictimes.Citystaffandadvisorshaveworkedsincethentocompletethetransaction.

Thesevenprojectswillnetthecitymorethan$3.4millionoverthe25-yearlifeofthesolarequipment.TheCityofTucsonusedthebondfundstoexpanditssolarcapacityfrom220kilowatts(kW)tomorethan1.2MW.

TheprojectsarelocatedthroughoutTucson,fromthefarsoutheastsideatthePublicSafetyTrainingAcademytotheHaydenUdallCentralArizonaProject(CAP)Plantwestoftown,andincludetwoneighborhoodcenters—ElPuebloandElRio—aswellasTucson’sInformationTechnology

TheHayden-UdallWaterTreatmentFacilityphaseIarrayisthefirstCityofTucsonsolarprojecttotakeadvantageofthemanylargeparcelsoflandinthemetropolitanarea.Photo from The City of Tucson, NREL/PIX 18373

Unlike most cities,

Tucson focused

resources on large-

scale solar installations.

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Building,awarehouseatReidPark,andtheRogerRoadReclaimedWaterReservoir.

Ateachlocation,thesolarpanelswillproduceelectricitytocoveraportionofthefacility’selectricload.

SPGSolarofNovato,California,installedthesolarsystemsandwillmaintainthemfor10yearsunderaservicecontract.

ThisisthefirstissuanceofsuchbondsinthestateofArizona,althoughSulphurSpringsValleyElectricCooperativeinWilcox,Arizona,receivedmoneyfromsimilarbondsissuedbyanationalgroupofruralutilitieslastyearandusedthefundstopayforsolarshadestructuresatschools.

Solar Ready Homes OrdinanceOnJune17,2008,themayorandcitycouncilunanimouslyvotedtorequireallnewresidencestobesolarreadyforelectric(PV)andsolarhotwater.TheserulesarepartofTucson’sefforttopromotesolarenergyandreducetheamountofgreenhousegasesproducedbythecityanditsresidents.

ForPV,startingJuly1,2009,therulesrequiredthatallnewsinglefamilyhomesorduplexesincludeaPVsiteplanforeitherinstallationofanactualPVsystem,orpreparationforlaterinstallationofaPVsystem,inordertoreceiveabuildingpermit.Thissiteplanmustidentifythebestlocation(s)foraPVsystem,providearoofstructurestrongenoughtosupportthesystem,showanelectricalloadcalculationforthesystem,andprovideanelectricalpanel240-voltcircuitbreakerlabeled“reservedforphotovoltaic.”

Forsolarhotwater,startingMarch1,2009,therulesrequiredthatallnewsinglefamilyhomesorduplexesincludeintheplanseitherasolarhotwatersystemorastuboutforlaterinstallationofasolarhotwatersystemtoreceiveabuildingpermit.Thewaterheaterareamustcontaina120-Velectricalreceptacleandhavesufficientroomforan80-gallonwaterheater,anexpansiontank,andaheatexchanger.

Financing with Power Purchase Agreements TucsonwasabletonegotiateandsignaPPAfortheconstructionofa1-MWsolarenergyplantadjacenttoaTucsonWaterfacility.ThecitywantedtoutilizethisnewmethodoffinancingtoallowacomparisonwiththeCREBsfinancinganddeterminethestrengthsandweaknessesofeachofthesemethods.Thethird-partyPPAmodelallowsadevelopertobuildandownaPVsystemonthecustomer’spropertyandsellthepowerbacktothecustomer(whoavoidsmostorallinitialcosts,aswellasoperationsandmaintenanceresponsibilities).Thecustomercanreceiveaguaranteedpriceofelectricityoverthelifeofthecontract,typically15–25years.Themostcommonpricingschemeisfixedprice,butsomePPAsuseafixed-escalatorscheme,wherethecostofelectricityproducedincreasesatapredeterminedrate,usually2%–5%overthelifeofthecontract.

AnimportantcomponentofaPPAisnegotiatinganappropriateandfaircontract.AttheheartoftheissueiswhetherthecitywritesthePPAitself,oracceptsthePPAprovidedbythePVcontractor.InTucson’scase,thecitychosetousethePPAprovidedbythecontractor,whichhadbothpositiveandnegativeresults.Onthepositiveside,thecitywasabletouseanexistingcontractthathadbeenvettedandusedbyothersintheindustry.Onthenegativeside,thereweremanyPPAcontractdetailsthat,intheend,weremorefavorabletothecontractorthantothecity.Unexpectedcostsrelatedtoinsurance,inspections,andpermittingarosethatthecityhadtocoverordealwith.Inthefinalanalysis,thecitydeterminedthatthereallessonlearnedwasthatitshoulddevelopacity-specificPPAforallfutureengagementsthatwouldprovideforfavorableconditionsforthecityandanevenplayingfieldforcontractorresponsestorequestsforproposals.

ThePenningtonStreetGaragewasthefirstcitygarageinTucsontoutilizesolarpowerandwasoneofthefirstlarge-scalesolarprojectsonacityfacility.Photo from The City of Tucson, NREL/PIX 18374

ThepartnershipsdevelopedthroughTucson’sparticipationintheSolarAmericaCitiesprogramwereanimportantpartofthecity’ssuccessinpromotingsolar.Photo from Austin Energy, NREL/PIX 18402

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Top Takeaways• ForTucson,recognitionoftheimportanceandvalueofpartnershipswasakeytothesuccessofitssolarprogram.FromnegotiatingPPAstodevelopingordinancesforsolar-readyhomes,expertisesharedbyavarietyofpartnerscontributedgreatlytoincreasingsolarinstallationsinTucson.

• Encouragingsolaronatightbudgetisachallengemanycitiesface,andTucsoniscontinuingtosuccessfullynavigatethishurdle.BylearninghowtousecreativefinancingandleveragingsolaractivitiesbyothersinandaroundTucson,thecityhasbeenabletocontinueitssolarprogramdespitechallengingfinancialtimes.

• Implementationofsolarenergysolutionsbyacityshouldbeseenasanongoinglearningprocess.Forexample,asthecityattemptstoeducatethepopulationaboutsolartechnologyandincentiveprograms,itisalsoeducatingitselfaboutemergingtechnologies,policies,lessonslearned,andbestpracticesofothermunicipalitiesandorganizations,aswellasever-changingincentiveprogramsatthefederal,state,andlocallevels.OneenduringbenefitofDOE’sSolarAmericaCitiesprogramhasbeentheknowledgesharinggainedfromthemanymeetings,conferences,andregionalpartnershipsdevelopedwithintheprogram.Thisnetworkhasgreatlyexpeditedtheinformationsharingamongthe25citiesandprovidedaboosttolocalprograms.

Next StepsTucsondevelopedgroundbreakingsolarfinancingmodelsandstreamlinedsolarpermittingprocesses.NewfundingfromtheAmericanRecoveryandReinvestmentActhelpsTucsontoscaleupitsmostpromisingprojectsandconceptstoovercomekeybarrierstourbansolarenergyuse.AspartoftheSolarAmericaCitiesSpecialProjectsfunding,Tucsonfocusesonthefollowingactivities:

• Creativefinancingformunicipalsolarinstallations—Tucsonexploresinnovativefinancingmechanismsforsolarsystemsoncityfacilities,includingBuildAmericaBonds,NewMarketTaxCredits,andpartnershipflipping.

BuildAmericaBondsaretaxablemunicipalbondsthatcarryspecialtaxcreditsandfederalsubsidiesforeitherthebondissuerorthebondholder.NewMarketTaxCreditsareusedtospurrevitalizationeffortsoflow-incomeandimpoverishedcommunities.Partnershipflippingisafinancingarrangementinwhicharenewableenergydeveloperandtaxinvestorbecomepartnersintheownershipofaproject.Typicallythetaxinvestormakesalargerinitialinvestmentintheprojectinexchangeforalargershareoftheincomethatisgeneratedfrompowersalesandtaxincentives.Onceanagreed-uponrateofreturnisreachedforthetaxinvestor,theincomestream“flips”andthedeveloperearnsthemajorityoftheprojectincome.

• Solarone-stopshop—Thecity partnerswithPimaCountytoestablish andmaintainacentrallocationand websitethatprovideinformationand referralservicesforconsumers, businesses,andthesolarindustry, includingtrainingopportunitiesand permittingassistance.

• Solarintegrationintogreenbuilding codesandinfrastructureplanning— Tucsoncoordinateswithplanning andpermittingstafftointegratesolar andsolar-readyrequirementsinto greenbuildingcertificationprocesses andlong-rangecityinfrastructure planning.

• AdditionalPPAs—Thecitycreates morePPAprojectsforsolar developmentandimplementation inadditiontotheonealready developed.

• Refinementtocodes—Tucsonwillcontinuewithadditionalchangestothecityandcountyzoningandlandusecodetofacilitatelarge-scalesolardevelopment.

• Morestandardizedpermittingprocesses—Tucsonwillsimplifyandunifypermittingrequirementsforsolarthroughouttheregion.Becauseadministrativeor“balanceofsystem”costsincludingpermittingcanmakeupapproximately40%ofthecostofasolarsystem,streamliningtheseprocesseshelpsmakesolarmoreaffordable.

• Attractthesolarindustry—Thecitycontinueseffortstodrawsolarmanufacturersandinstallerstotheareatoprovideforjobgrowthandeconomicprosperity.

From negotiating

PPAs to developing

rules for solar-ready

homes, leveraging

shared expertise

is key.

For more city information, contact: BrucePlenk,TucsonCitySolarEnergyCoordinatorEmail:bruce.plenk@tucsonaz.govTelephone:520-837-6322 Formoreinformationongoingsolarinyourcommunity,visit Solar Powering Your Community: A Guide for Local Governments at http://solaramericacommunities.energy.gov/resources/guide_for_local_governments/

Formoreinformationonindividualcities’solaractivities,visitwww.solaramericacommunities.energy.gov/solaramericacities/action_areas/ 7

Additional Resources• CityofTucsonEnergyOfficeWebPage

(withcasestudiesofallcitysolarinstallations): www.tucsonaz.gov/energy/solarintucson.htm

• TusconGreenPuebloMap(withsolarsitesidentified): www.greenpueblomap.org

• SouthernArizonaRegionalSolarPlan: www.pagnet.org/Programs/EnvironmentalPlanning/SolarPartnership/StrategicPlan/tabid/723/Default.aspx

• CityofTucsonSolarIntegrationPlan: www.tucsonaz.gov/energy/Solar%20Plan%20Final.pdf

• SolarReadyHomesInformation: http://cms3.tucsonaz.gov/devnews/news/solar-ready-ordinance

• StatewideSolarInformationwebsite (sponsoredbytheArizonaCorporationCommission): www.arizonagoessolar.org

ViewoftheCityofTucson.Photo from iStock/10405326

EERE Information Center1-877-EERE-INFO(1-877-337-3463)www.eere.energy.gov/informationcenter

Printedwitharenewable-sourceinkonpapercontainingatleast50%wastepaper,including10%postconsumerwaste.

PreparedbytheNationalRenewableEnergyLaboratory(NREL)NRELisanationallaboratoryoftheU.S.DepartmentofEnergyOfficeofEnergyEfficiencyandRenewableEnergyOperatedbytheAllianceforSustainableEnergy,LLC

DOE/GO-102011-3221•October2011

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Clockwise from top left: Photovoltaic system in Philadelphia Center City district (photo from Mercury Solar Solutions); rooftop solar electric system at sunset (photo from SunPower, NREL/PIX 15279); Premier Homes development with building-integrated PV roofing, near Sacramento (photo from Premier Homes, NREL/PIX 15610); PV on Calvin L. Rampton Salt Palace Convention Center in Salt Lake City (photo from Utah Clean Energy); PV on the Denver Museum of Nature and Science (photo from Denver Museum of Nature & Science); and solar parking structure system at the Cal Expo in Sacramento, California (photo from Kyocera Solar, NREL/PIX 09435)