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Photovoltaic panels produce electricty for about 30 years for up to 25% less than current utility rates. Photo: City of Thousand Oaks, Calif.

When San Diego's Alvarado Water Treatment Plant integrated solar power into its operations last year, it found a new source for 30% of its electricity. Today, nearly 1.8 million kilowatt hours (kWh) of the plant's power are generated by photovoltaic panels installed onsite, saving $70,000 annually.

The 120-mgd plant's alternative energy source is the result of an increasingly popular cost-sharing model—a “power purchase agreement”—with SunEdison, a company that builds, owns, and maintains solar-energy systems. SunEdison sells the electricity for 12 cents per kWh, 25% less than the local utility, San Diego Gas & Electric Co., charges.

The savings are the result of cutting out the middle man. Utilities buy solar-generated electricity from private providers and then sell it at a markup to cover distribution costs. Companies like SunEdison, on the other hand, seek partners whose facilities are large enough to accommodate a solar installation and who are willing to buy the resulting energy over a set amount of time, usually 15 to 20 years.

Since their conception in 1999, when Dutch utility Nuon entered the North American market to finance and operate renewable energy-generation facilities, public agencies on both coasts are taking advantage of power purchase agreements. Last year, about half of nonresidential solar installations in the United States were built under such an agreement, according to the U.S. Department of Energy. While most are commercial installations in California and on the East Coast, California's public works departments lead the nation in the municipal sector.

“There's no question we're going to save money on electricity,” says Chuck Rogers, superintendent of the 10-mgd Hill Canyon Wastewater Treatment Plant in Thousand Oaks, which gets about 20% of its power from a 500-kilowatt photovoltaic installation built by Renewable Ventures LLC and put into operation earlier this year. “During peak periods, when grid prices jump, we're definitely saving big bucks.

“It's a wonderful way for a public agency to get a renewable energy project without having to spend one dollar of capital money.”

The plant in the Los Angeles suburb pays the company 16.8 cents/kWh, 16% less than the local utility, Southern California Edison, charges. The agreement offers a fixed rate throughout the life of the 20-year contract with no inflation factored in. Renewable Ventures will dismantle the installation at the end of that time if the city doesn't want to keep it.

New York City is seeking partners to double its solar energy capacity by installing systems on city-owned buildings. Hoping to reduce its carbon footprint by 30% by 2030, the city is looking to enter into a 20-year agreement.

Similarly, the Alvarado Water Treatment Plant's system is expected to prevent two million pounds of carbon dioxide from being released into San Diego's air each year, a potential benefit that appeals even to rural areas.

Under a 25-year agreement with World Water and Solar Technologies and Solar Power Partners, the Valley Center Municipal Water District in rural Valley Center, Calif., hopes to meet 20% of its energy needs with a 1-megawatt photovoltaic installation at its pumping station. Construction of the system, which the district can buy for a yet-to-be-determined amount when the contract expires, begins this month.

In addition to saving both money and the environment, an agreement's established fee structure gives managers peace of mind. Under Alvarado's agreement with SunEdison, for example, rates won't increase more than 1% annually.

“Since that rate is fixed, it's easy to budget,” says Tom Blair, deputy environmental services director for San Diego.