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Date: To: From: October 16, 2012 El Cerrito City Council Maria Sanders, Environmental Analyst Melanie Mintz, Environmental Services Division Manager Jerry Bradshaw, Public Works Director AGENDA BILL Agenda Item No. 7(A) Subject: Select and Authorize City Manager to Enter Into Agreement with Design-Build Entity for Construction of Solar Photovoltaic Systems at Six City Facilities ACTION REQUESTED Adopt a resolution authorizing the City Manager to execute a contract in a form approved by the City Attorney with RGS Energy Incorporated in an amount not to exceed $1,587,000 to design and construct solar photovoltaic systems to offset energy use at six municipal sites. BACKGROUND As part of work being funded under a Climate Showcase Communities grant awarded by the U.S. Environmental Protection Agency in January 2010, the City of El Cerrito is working with the cities of Albany, Piedmont and San Pablo to demonstrate how small cities can implement measures to reduce greenhouse gas (GHG) emissions at both the municipal and community levels. The City Council previously received information about the grant and authorized staff on July 19, 2010 to execute Memorandums of Understanding with the partner cities under a collaboration called the Small Cities Climate Action Partnership (ScCAP). 1 On August 15, 2011, the City Council received the results of a study prepared for ScCAP by Optony, a solar consulting firm, that evaluates the technical and economic feasibility of installing solar photovoltaic (PV) on all facilities in each city's portfolio of buildings. At that time, the Council adopted Resolution 2011-58 authorizing the City Manager to enter into a Cooperative Agreement with the other ScCAP cities to jointly solicit proposals for the procurement of municipal solar power, for which El Cerrito would act as the lead administrator. Given that all four cities had expressed interest in solar procurement for their own facilities, staff in each of the cities felt that a collaborative procurement strategy would help each city decrease project and administrative costs, while providing a collective process that would help each city negotiate the best possible project terms. 1 Resolution 2010-41. July 19,2010. ---PAGE BREAK--- Agenda Item No. 7(A) On September 19, 2011, the Council authorized Resolution 2011-65 to release a combined Request for Qualifications/Request for Proposals (RFQ/P) for Design/Build solar services consistent with California Public Contract Code Section 20175.2. In particular, the Design/Build delivery method provided the following advantages: • Flexibility to award a contract on the basis of the experience of the contractor, the type of technology employed by the Contractor, the financing terms supplied to the agency, and any other relevant consideration. • Consistency with procurement processes for "works of public improvement" in order to preserve the option for each city to award project contracts based on a direct purchase or traditional loan financing mechanism, if desired. • Cost-effectiveness of combining the design, construction, and verification of the systems by eliminating the need for costly pre-bid design documents that would be necessary in a standard low-bid process. The RFQ/P was also consistent with Government Code Section 4217.10 et. seq., which authorizes public agencies to solicit energy conservation and alternative energy proposals from qualified persons and to award a contract on the basis of the experience of the contractor and any other relevant consideration. Under both these statutes, the contractor can be selected based OJ} factors that provide the City with the best value and not solely on the basis of the lowest price. This Agenda Bill pertains to the results of the solicitation process. DISCUSSION Project Scope: Based on the findings from the solar feasibility report developed by Optony and an internal staff review of the long-term use of each facility, the final RFQ/RFP included a total of twelve El Cerrito facilities (as detailed in Figure 1, El Cerrito Solar Sites in RFQIP). The feasibility report demonstrated that solar at these sites would provide substantial utility bill savings over 30 years. The cost for all12 systems was estimated to be approximately $2.5 million. The solicitation also included an additional 16 sites from the other ScCAP cities. In El Cerrito, a key criterion from the onset of this project was to select sites where solar could be installed at a cost savings, e.g. the cost of purchasing or financing the solar array would equal or be less than the cost of PG&E supplied energy. As a way to attract a variety of firms and financing options, the solicitation divided the 24 sites into three separate bundles according to size, ranging from large systems over 100 kilowatts (kW) to small systems under 10 kW. Proposers were given the option to submit proposals for one, two, or all three bundles, but all sites within each individual bundle had to be included in the proposal. For each proposed bundle, the solicitation required two types of pricing proposals: 1) Contractor Design/Build, with City ownership of PV systems, also called the "Direct Purchase" proposal; and 2) a "Financed Installation" via Solar Lease or Power Purchase Agreement, that would result in minimal to no cash outlay from partner cities. The solicitation also made clear that each City maintained the right to remove some or all sites from consideration and would negotiate the final portfolio of projects with the selected contractor. Page2 ---PAGE BREAK--- Agenda Item No. 7(A) 1 Public Safety 255,120 143 182,211 Buildin ca 2 Community 212,640 128 161,314 Center - Offices Roof, 3 Community 118,160 Carport 72 90,739 Center- Pools 4 Fire Station #72 38,640 Roof, 27 35,790 ca art 5 Public Works 24 7 Harding Childcare 10,193 Roof 6 7,562 Center 8 Canyon Trail 6,503 Roof 5 6,344 Clubhouse 9 Madera Childcare 7,084 Roof 5 6,540 Center 17,225 Roof 4 5,289 Fairmont 5,490 Roof 3 3,877 Childcare Center Potential Solar Financing Mechanisms: The vendors were asked to propose various financing methods commonly available for solar installations so that the cities might have access to financing alternatives other than direct purchase of the systems. As described below, each method has different advantages. The solicitation was designed to encourage the vendors to offer and price as many of these options as possible. 1. Direct Purchase - Each city would purchase the system outright. In this situation, each city would be responsible for all ownership concerns, including operations and maintenance, regular system cleaning, and monitoring of system production. In most situations, this yields the greatest long-term returns, but requires cash up-front and operational costs. 2. Solar Lease - Some solar vendors provide terms for lease/purchase of their equipment. Instead of paying for purchase costs up-front, the City would pay a third party on a basis over 7 to 10 years. In some arrangements, the City would be responsible for all ownership concerns, just as with a Direct Purchase. 3. Power Purchase Agreement (PPA)- The City would enter into a contract with a third party to purchase all energy produced by a PV system installed on property owned by the City. This third party would own the PV system and would be fully responsible for all Page 3 ---PAGE BREAK--- Agenda Item No. 7{A) ownership costs, including financing, maintenance, insurance, and system production. This option is more commonly available to large, easily installed commercial projects. Pre-Qualification, Proposal Solicitation and Selection Process: The Environmental Services Division, working in conjunction with the Public Works Department, issued the RFQ/P on December 14, 2011. The solicitation included two phases: a RFQ to pre-qualify design-build entities to propose on the project and a RFP with program requirements. Pre-qualification was based on several factors, including demonstrated experience on comparable projects, experience of key personnel, claims, litigation and arbitration history, compliance with statutory requirements and safety record, insurance and bonding requirements, and financial information. On January 10, 2012, five firms responded to the pre-qualification Questionnaire and four were deemed pre-qualified and invited to submit proposals. Two of the pre-qualified teams dropped out during the proposal phase due to the relatively small size and complicated nature of the sites. On February 23, 2012 two proposals were received from: • RGS Energy, the commercial division of Real Goods Solar, for all24 sites, regardless of bundle size. • Sunwize for only the 5 sites included in the "Large System Bundle." Both proposals indicated that they could not secure a compelling PP A proposal for the projects due to their small scale and custom nature. Because of this, the PP A option was eliminated from consideration. Sunwize's proposal, however, did include a lease quote from US Bancorp for a 10-year loan at 3.18%. Evaluation of the two proposals and subsequent vendor interviews were conducted by a team consisting of staff from each of the other ScCAP cities, El Cerrito's Public Works Director and Environmental Analyst, and the consultant from Optony. In order to assist in evaluating the proposals, the following point system was used: 1. Bidder Experience & Qualifications (30 points) a. Project development approach: realistic, creative, meets needs of the Cities b. Team management qualifications and for all partners: company background and experience; qualifications of key personnel c. Past performance references per RFP submittal requirements 2. Project Design, Technology & Performance Warranties (25 points) a. Total energy production b. Technical design of PV systems, quality of proposed modules, racking, inverter and monitoring systems (including warranties) c. Construction schedule; and 3. Levelized Cost of Electricity over the Project Lifetime (45 points) a. Direct Purchase and 3rd Party Financed Proposal Price ($/kW and $/kwh) b. Financial analysis of benefits from proposed system. Page4 ---PAGE BREAK--- Agenda Item No. 7(A) The proposals received the following scores: • RGS: 74 out of 100 points • Sunwize: 64 out of 100 points Sunwize's proposal scored lower principally due to a price per kWh that was 23% higher than Real Goods. An analysis of the annual and cumulative cash flow indicated that none of the Sunwize projects would result in a positive annual cash flow during the first 13 years the annual cost to pay off the systems would be more than the annual energy bill savings from the systems). The evaluation team agreed that RGS provided the best value and was the lowest responsible proposer because the RGS proposal • Included all the sites at competitive costs; • Specified high-quality equipment; • Provided an energy production performance guarantee; • Demonstrated the experience and qualifications; and • Received good recommendations from other government customers. Because the pool of proposals was small, staff conducted additional research to verify the competitiveness of RGS's costing. Using the California Solar Initiative (CSI) database, which tracks the installed price of all solar projects receiving a CSI rebate, staff determined that the proposed price of $4.47/watt was well below the average price for government projects. Government sector projects at that time averaged $7.04/watt when directly purchased and $5.04/watt for third-party owned and financed projects. RGS was selected to receive a non-binding letter of interest and enter into a 45-day exclusive negotiation period (which was later extended by mutual agreement) to work with each city to refine the mix of projects and the pricing and financing strategies so that each city would have a solar portfolio that would result in a positive annual cash flow. The March 19' 2012letter did not constitute a recommendation for award and was non-binding, as agreed to by RGS. From this point forward, each city began individual negotiations with RGS. Cash Flows and Recommended Portfolio of Solar Sites During this exclusive negotiation period, RGS further refined the designs at each site to maximize solar electricity production, while Public Works and Environmental Service staff performed cash flow analyses to determine the most cost-effective mix of facilities to include in the final portfolio. Because the projects would need to be financed through a third party, the goal was to find the mix of projects where the annual utility bill savings would be equal to or greater than the annual debt service. The analysis assumed various lending terms, annual degradation in system performance, and utility bill escalation rates. After extensive research on industry standards, the final model used the following assumptions: • Solar PV system degradation: 0.5% per year (accepted industry standard) • Operations and maintenance cost escalation: 3.75% per year Page 5 ---PAGE BREAK--- Agenda Item No. 7(A) • PG&E rate escalation: 4.75% per year (more conservative than historic inflation in energy rates) • Loan annual percentage rate: 2.75% (final rate received in financial bid) • Loan years: 15 years (term received in financial bid) • Available CSI rebates: $210,866 paid in 5 annual installments during the first five years of energy production From this process, staff developed a final portfolio of six cash-positive sites that we are recommending for award, as detailed in Figure 2, Final Portfolio of Solar Sites Recommended for Award Solar at the other six sites did not achieve a positive cash flow and were therefore eliminated from the portfolio. Figure 2: Final Portfolio of Solar Sites Recommended for Award 2 3 4 5 6 " . vue;:c,, - v Public Safety Building Community Center - Offices Community Center- Pools Fire Station #72 Public Works Corp Yard Recycling Center Roof, carport Roof, Carport Roof Roof Roof 134.40 127.68 60.47 17.92 6.72 8.82 356.01' - Ill ~nett' _ 'c'f! 184,812 $ 572,799 $ 4,261.90 172,491 $ 568,106 $ 4,449.45 81,706 $ 279,263 $ 4,618.21 24,573 $ 89,600 $ 5,000.00 30,717 $ 35,616 $ 5,300.00 11,152 $ 41,278 $ 4,680.05 505,451" --~L1i58§;§~2" ~;ll56:79'_- Solar production at the proposed sites will result in a combined positive annual cash flow of an average of $10,000 per year during a 15-year loan term. After the debt is retired in Year 15, all utility bill savings will then accrue directly to the City, when the following year's savings (minus O&M costs) are estimated to be approximately $180,000. Aided in part by the payment of CSI rebates over the first five years, this positive annual cash flow will result in a cumulative balance of$84,042 by Year 5 and $151,357 in the last year of the loan term. After the debt is retired in Year 15, the financial benefits of solar are estimated to create approximately $3.8 million in net energy savings by Year 30, when the system will be nearing the end of its useful life. Figure 3, Solar Annual Investment Cash Flows, is a graph of the annual cash flow for the entire portfolio of six sites. There are several years when cash flow dips into the negative due to the end of rebate payments in Year 5 and then due to replacement costs for inverters in Year 15. However, cumulative cash flows from previous years can be saved to easily accommodate these dips. Page 6 ---PAGE BREAK--- Agenda Item No. 7(A) Figure 3: Solar Annual Investment Cash Flows $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50;000 $0 ($50,000) _ Other Considerations and Benefits In addition to the long-term financial benefits, installing solar at the recommended sites provides the following benefits: • Helps Meet the City's GHG Reduction Goals: The project will assist the City in reducing its greenhouse gas (GHG) emissions. In February of 2011, the City Council passed Resolution 2011-12 adopting GHG emission reduction targets of 15% below 2005 levels by the year 2020 and 30% below 2005 levels by 2035 for both municipal operations and the El Cerrito community. Solar at these sites will reduce the City's annual GHG emissions by 135 tons, or 5% of the 2005 baseline inventory. • Helps Insulate the City from Changes in Electricity Rate Structures: As mandated by the California Public Utilities Commission, PG&E is in the process of transitioning all commercial electricity accounts from a flat electric rate to a time-of-use (TOU) rate. TOU rates are higher during summer peak load periods (business days between noon and 6 PM, May through October) and lower than the flat rate during the rest of the year. TOU rates are currently the rate used for solar electricity accounts that are "net metered" because solar offsets grid-supplied electricity precisely during the time when rates will be highest. Solar at municipal sites will be able to take advantage of, rather than be penalized by, these new mandatory rates. • Demonstrates Environmental Leadership: To date, the entire community of El Cerrito has installed 900 kWdc of solar capacity, according to the CSI database. By adding another 356 kW of high profile solar projects, the City will be increasing the entire solar capacity of the community by nearly 40% and will provide a valuable case study for other small communities throughout California. Page 7 ---PAGE BREAK--- Agenda Item No. 7(A) FINANCIAL CONSIDERATIONS As with most public works projects of this type, this project is financed through the issuance of a debt instrument (see related agenda item No. As discussed above, the loan's fiscal impacts have been integrated into cash flow analyses performed by staff, indicating that the electricity bill savings will support the debt service for the life of the debt. Electricity bills for all facilities in the recommended solar portfolio (except the Recycling Center) are paid for through the General Fund, so debt service for five of the six will come from the General Fund and annual energy bill savings will accrue back to the General Fund. In the case of the Recycling Center, the Integrated Waste Management fund (IWM) will pay for its portion of debt service, while the Center's annual energy savings will. accrue back to IWM. LEGAL CONSIDERATIONS Rooftop solar and the carports that are used to support solar are generally considered categorically exempt pursuant to the California Environmental Quality Act (CEQA) 15301 as a minor alteration of existing structures and 15303 for new construction of small accessory structures. The carport structures will go through the City's Design Review process and a final CEQA determination will be made by City Staff at that time. The City Attorney has been consulted throughout the design-build procurement process and the design-build contract documents are being reviewed for final approval by the City Attorney. Reviewed~// -#'LJft=-. Scott Hanin, City Manager Attachments: 1. RGS Energy Solar Site Designs 2. Resolution 2012-XX Page 8 ---PAGE BREAK--- -