Warren County Report

November 16, 2009

Solar scrutiny: the public-private numbers game

Have changes in development options put solar power here on the ropes

By Roger Bianchini

Some chippy comments on timelines and public-private financing options by Mayor Eugene Tewalt and several councilmen at a Nov. 9 work session may indicate the honeymoon is over between the Town of Front Royal and private sector principals proposing a solar energy field and  production facility here.

“We’ve only had this two weeks – don’t push us.  I think that will create more problems if you give us a Dec. 21 drop dead date,” Tewalt told new solar partner Steve Lamb on Nov.9.  Lamb, a True Cast Capital and now Standard Energy principal, asked for a December up or down vote by council indicating the town’s willingness or lack thereof, to proceed with the solar energy based public-private partnership.  The town has only one scheduled December meeting, on the 21^st.

“We look for a decision from the town in December.  If this project is going to happen in this town, it can move forward by then.  If not, we’ll move on,” Lamb said in pushing the town toward a commitment that would help propel the initial aggressive development schedule proposed by SolAVerde’s Willi Lauterbach in br4ingi9n the plan forward this June.

On Nov.9, lamb said construction of the first 3-1\2 megawatt solar field on the initial 23 acres of Royal Phoenix land available could be completed by June, with the balance of an initial 9.2 megawatt field on a total of 60 acres at the site completed by next September as the land is released by the EPA.  All the power produced by that first 9.2 megawatt phase of the project at royal Phoenix would b purchased by the town for use within its own system.

“You need an answer in December to determine whether this is going to happen?”  Councilman Shae Parker queried Lamb just prior to Tewalt’s above cited remark.  Asked if he and his development partners and investors expected the town to sigh-off on a newly requested $18-million revenue bond to help fund a $32 million phase one cost of the solar development project within six weeks of the new financing plan being floated, Lamb said “no”.

What the newly created Standard Energy partnership would like by December, Lamb explained, is a signed Power Purchase Agreement (PPA) between the private sector and the town, and a commitment that the town will pursue the bond issue to help launch development of the solar power and product manufacturing project.  As envisioned by the private sector, the town of Front Royal will be the sole purchaser of power from the evolving solar field here.  The town utility department will then either use, of sell for profit excess power from an eventual 100-megawatt solar power plant on 150 acres at Royal Phoenix and additional industrial sites, the Happy Creek Industrial Park has been mentioned as a second site within the community.

“My point is we’re not going to study this forever … we don’t want to waste your time and we don’t want waste ours-We’ll make sure you have all the information you need so you can make an informed decision,” Lamb told a Front Royal town council not historically known for rapid movement on outside –or inside for that matter – development proposals of any kind.

“Maybe it’s my shortcomings in explaining it- but we see a $13 million benefit (in cost savings) to the town over the life of the PPA”. Lamb told council.  What Lamb and Lauterbach tried to stress to town officials was that the $18 million bond investment by the town is money that is simply being redirected from payment into the PJM regional power grid for the purchase of electricity, into a bond issue to prepay Standard Energy for 14 years of solar energy purchased exclusively for town use as a better price that could otherwise get through the PJM network.  While the town has a long-term discount power purchase agreement with AMP-Ohio, which includes power purchase from both existing and yet to be constructed highly polluting coal fired power plants, as well as some hydro power aspects, that power is till moved through the PJM grid, Standard Energy principals point out.

Crunching numbers…

We asked town Finance Director Kim Gilkey-Breeden if she agreed with the basic private sector premise that the town’s initial $18 million investment is simply money redirected from energy purchases through the regional grid at h8igher costs per kilowatt hour.  She replied that, yes, in principal the private sector was correct.  However, she added that she still needed to see hard numbers comparing the town’s costs through its 50-year PPA with AMP-Ohio, designed to keep the town’s power purchase price down for at least 30 percent of its future energy costs, versus the general industry trends referenced by Lamb during his presentation.

Town staff appears to be taking further measures to verify relative power costs through a Request for Proposal on PPA alternative energy power purchases suggested by Town Director of Energy resources Joe Waltz (see related story).

In addition to the town’s prepayment bond float, the private sector would put up 14 million to move Phase One of the solar project forward.  Lamb told council.

…and visions

In Front Royal from meetings earlier in the day in Richmond, Lamb also told council he was surprised by the level of awareness in the state capital about the potential of realizing r4edevelopment at 20 –year old federal Avtex Superfund, environmental disaster site in Front Royal.  –“There is a tremendous amount of excitement about doing something positive at that Avtex site,” Lamb asserted.

In pitching the new development plan, Lamb described peripheral benefits to the local economy through the creation of jobs, sporadically in construction, and permanently at the manufacturing and distribution plant and solar field.  Peripheral benefits and job creation also could stem from placing Front Royal squarely at the forefront of an east coast alternative energy research and development incubator program, again creating jobs in the green and educational sectors.

According to the Standard Energy Business Plan, several hundred construction jobs would be created initially, with 30 to 50 “high paying” manufacturing jobs from Phase One, along with a handful more jobs to maintain the solar field once it is operational.

What’s in it for us?

But such grandiose, new fangled, outsider driven and unguaranteed notions don’t play so easily here in River City.

Following Lamb’s detailed explanation of how solar was becoming competitively priced nationally to attract private investment through a combination of government incentives, tax credits and Renewable energy Credits (REC’s) which can be traded for profit, Front Royal’s  mayor asked where the town’s share in all that was?

“Why wouldn’t the town get some of these tax credits?- We’re putting up $18.2million and the private sector is putting up $14 million- and if you get $10million in credits, it’s really only $4million you’re putting up,” Tewalt said of the nuances of investment capitalism.

“The short answer is you can’t use them,” Lamb replied of the municipal involvement versus the pr4ivate sectors use of certain government authorized market place incentives.

“Well, we should get them in some way then,” Tewalt said questioning a profit mechanism aimed at “corporations and banks” creating incentives to move the nation away from fossil fuel consumption and toward sustainable , less polluting alternative energy sources such as solar, wind and hydro.

Lamb explained that he and his partners in Standard Energy were the developers of this project, not its investors.  Those investors have to be attracted by the promise of a return on their investment.-  “If you take out these incentives and REC’s you wouldn’t see any solar projects anywhere,” Lamb stated, adding that even with the REC’s and other incentives, the anticipated profits for investors here was at the low threshold of anticipated market returns to attract deep-pocketed private sector investment.

“The guys behind me (Solar Energy partners) are a little uneasy about hitting all our cost targets – but that’s their problem.” Lamb said of his overriding optimism on the project’s potential.

Changing landscape

Discomfort over the tow’s role in helping finance the start up of the project gas seemingly mushroomed since all hell broke loose at a Nov.2 council work session (see related story) over the revelation of the new solar financing plan and SolAVerde-True Cast Capital led merger in an Oct.28 Northern Virginia Daily article.  The fact that several councilmen, Tom Sayre and Chris Holloway in particular, apparently learned about the changing scenario in the media as staff was still accumulating information on the new dynamics appears to have created a rift that threatens to kill what was initially lauded as a visionary, win-win proposal for both the town and its investment partners.

Several town councilman, and now it would appear the mayor, are having a hard time adjusting to the change from no  money down by the town and an up front $211 million private sector investment, to a shared financial role in launching the initial phase of the project.

“My job is to make sure we don’t get left out hanging and that this moves along at a pace we benefit from,”Tewalt told Lamb and Standard Energy partners Willi Lauterbach, Greg Horton, Donnie Poe, and affiliated company, Standard Solar’s engineer Jack Hachmann.  “We need to make sure we’re covered and not left standing in the middle of a field alone,” Front Royal’s Mayor observed of the future uncertainties of the energy marketplace and political environment in which it will develop.

One time payment

“You’re asking us to invest $18million in Phase One- how much will Phase Two cost?” Chris Holloway asked Lamb.

“That’s a great question,” Lamb replied.  He continued to explain that Front Royal would have no additional investment obligation past Phase One.

Lamb explained that a True Cast Capital partner, Pace Global, would be involved in identifying future municipal power purchase clients, who would in turn finance their solar power purchases in pre-pay bond issues as Front Royal did with Phase One.  According to Standard Energy’s business plan summary, if Front royal sold future solar power at a one-cent profit per kilowatt hour, that would translate into over $140,000 of annual profit to the town from the sale of 14 million kilowatt hours of solar generated electricity to other municipalities in the future, on top of its own cost savings on the initial self used 9.2 megawatts of solar power.

Lamb said that regional distribution network PJM has bought into this scenario, called bi-lateral agreements, as a desirable development within the regional distribution network.

Lamb ID’ed Front Royal’s initial purchase price per kilowatt hour at 9.5cents, versus 13 cents or more in current market prices.  He said a 2.5 percent annual cost escalator rate would be written into the PPA.  He said that compared very favorably to the average annual market increase in energy costs of 5.24 percent.

All that  appears to be left is to convince the town’s finance and energy directors that the numbers provided are accurate, or within a framework that creates savings and profits for the town through both the use an future sale of solar power…Oh, except for those little staff timeline issues, not to mention persona., personnel, and even political agendas that seem to have crept into the mix since a suspected media lea,-(Carson, can you give me a call back?) led to the much-ballyhooed Oct.28 newspaper article.

Coup attempt?

One sign of trouble may have been the sudden addition of a review of the performance of the town manager” to a scheduled closed session at the end of the regular meeting of Nov. 9. Holloway made the motion to add the item, which was approved by the necessary unanimous council vote of approval.  The item was added despite the absence of Vice Mayor Bret Hrbek, and at the time of Holloway’s motion, Sayre as well.  Sayre arrived around 15 minutes after the regular meeting began, at about 7:20p.m., entirely missing the 6 p.m. work session explanation he head appeared to eager to get a week earlier.  Sayre explained his absence as due to a trial before Judge William Sharp in Warren County Juvenile and Domestic Relations Court that lasted from around a 1 p.m to 7p.m. that evening.

Could the town have lost two department heads within two working days?- Apparently not!  Unlike former Planning Director Andrew Conlon the week of Nov. 9, Graham was still on the job as the work week progressed.  During the Nov.9 town managers report, Graham acknowledged that Conlon had left the town “to pursue other opportunities.”

As of press time, Conlon could not be reached for comment on his sudden and unexpected departure.  Town Planner Bruce Drummond has assumed the duties of the town planning director.  Conlon was on the job for about a year and a half, after replacing Nimet Loliman, who retired after a similar tenure (about two years)  in the trenched of Front Royal town Planning.

As for the town manager, Graham was only recently congratulated by council for the third anniversary of his tenure as Front Royal’s Town Manager (as of this past Oct. 16).- Hey, time flies when you’re having fun, eh, Mike?  What’s the average like span of a municipal manager, is it 3 or 4 years??? – Tick, tick, tick…

The unplanned review of the town manager came exactly one week after tempers flared at a Nov.2 work session during which Graham was lambasted by Sayre, and to a lesser extent by Holloway, in the wake of the Oct.s28 press revelation of the changing private sector solar landscape.