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Home My WebLink AboutA001 - Council Action Form dated May 27, 2025ITEM #:42 DATE:05-27-25 DEPT:ELEC SUBJECT:UPDATES TO RENEWABLE ENERGY BUYBACK RATE COUNCIL ACTION FORM BACKGROUND: On June 23, 2023, City Council awarded a contract to Utility Financial Solutions to complete a cost-of service and rate design study for the Electric utility . Utility Financial Solutions worked with staff over the past year to analyze the utility's costs to serve its customers. At the June 18, 2024 City Council/EUORAB Workshop, Mark Beauchamp from Utility Financial Solutions presented results from the cost-of-service study. The Electric Utility Operations Review and Advisory Board (EUORAB) met on June 20, 2024 to discuss the cost-of-service s t u d y and issues raised by the City Council. At the July 9, 2024 City Council meeting, Council adopted the following rate changes: 1. Adjusted monthly service charges and energy rates to better reflect cost of service, effective October 1, 2024. 2. Created optional Time-of-Use Rates for Residential, Small Commercial, and Commercial rate customers, effective October 1, 2024 3. Authorized the implementation of a Time-of-Use pilot study of the residential rates no sooner than August 1, 2024 4. Adjusted the interruptible bill credit for Large Customers who choose to participate in the Interruptible Load Program, effective October 1, 2024. Based on discussions held at the joint Council/EUORAB workshop, staff delayed action on the Renewable Energy Buyback rate until EUORAB had time to develop its recommendation. EUORAB has completed its review of the existing Renewable Energy Buyback program (customer installed solar systems) and is recommending changes to the existing program. EXISTING PROGRAM: Participation in the Retail Solar Program is capped at a total of 2,000 kW. The program has two components - a one-time $100/kW rebate, and a monthly Excess Energy Buyback component. The current Renewable Energy Buyback rate allows for full self-consumption of the energy produced to serve the customer's electric load. Any excess energy is purchased by the utility at the buyback rate, which varies by customer class and season. Each rate is based on the energy component determined for each customer class, increased by an adder that was not based on a true cost of service model. Buyback rates are listed below: 1 Residential Service: 40% of $0.1213, plus $0.025 = $0.0735 per kWh (summer period) 40% of $0.1005, plus $0.025 = $0.0652 per kWh (winter period) Small Commercial Service: 40% of $0.1194, plus $0.020 = $0.0678 per kWh (summer period) 40% of $0.0986, plus $0.020 = $0.0594 per kWh (winter period) Commercial Service: 50% of $0.0644, plus $0.015 = $0.0472 per kWh of delivered energy Industrial Service: 63% of $0.0644, plus $0.010 = $0.0506 per kWh of delivered energy PROPOSED CHANGES: Following the adoption of the Climate Action Plan by City Council, EUORAB was asked to review the existing Retail Solar program in light of the recent Cost of Service study. Based on the analysis and recommendations from the Cost of Service Study (COS), staff has developed several alternatives or adaptations of the existing Retail Service program which are consistent with the COS results. After discussion at several EUORAB meetings, EUORAB held a public workshop on October 24, 2024 requesting feedback from the public (minutes attached). After reviewing the comments from the public meeting, EUORAB recommended the following changes: 1. Increase the rebate level for new solar installations from $100/kW-installed to $500/kW-installed. This will lower the amount a customer needs to borrow for an installation. Funding for this increase will come from the Electric Services Demand Side Management (DSM) budget. For a typical installation of 7 kW, the rebate would change from $700 to $3,500. 2. Adjust the excess energy buyback rate formula for new solar installation by using the MISO on-peak energy prices for all customer classes (5-year average of on- peak MISO energy costs is approximately 3 cents/kWh). This allows all customers to receive the same rate, and links excess energy production to the alternative costs the utility would otherwise pay to purchase the energy. 3. Grandfather existing customers under the program terms they joined under. Following a date to be determined, new solar projects would be subject to the updated terms and conditions. 4. Raise the existing program cap from 2,000 kW to 4,000 kW. The existing program is capped at 2,000 kW of installed solar. With 1,658 kW already installed, the 2 program is nearly full. This change will allow additional projects to be added to the system. At this time EUORAB/staff is asking that the changes to the program be approved and direction be given to the City Attorney to draft an ordinance to modify the Municipal Code. Staff will return to the City Council at a future date requesting final adoption of Municipal Code language. ALTERNATIVES: 1. Approve changes to the existing retail Renewable Energy Buyback program, and direct staff/City Legal department to develop changes to City Code, Chapter 28, as described above, to: a. Increase the rebate level for new solar installations from $100/kW-installed to $500/kW-installed b. Adjust the excess energy buyback rate formula for new solar installation be determined using MISO on-peak energy prices for all customer classes c. Grandfather existing solar customers d. Raise the program cap to 4,000 kW 2. Do not approve the proposed changes to the existing retail Renewable Energy Buyback program and refer this item back to EUORAB for alternative changes. 3. Do not approve changes to the existing retail Renewable Energy Buyback program which will preserve existing program, but will still raise the program cap from 2,000 kW to 4,000 kW. CITY MANAGER'S RECOMMENDED ACTION: Adopting the proposed changes to the Renewable Energy Buyback program will better align buyback rates with the recently completed Cost-of-Service study results. The proposed program changes result in 1) more money to customers up front, 2) make the energy cost on par with market value, and 3) create a common energy buyback rate across all customer classes. Therefore, it is the recommendation of the City Manager that the City Council adopt Alternative 1, as noted above. ATTACHMENT(S): 102424 Minutes Signed EUORAB.pdf Solar Policy Presentation.pptx 3 4 5 6 RETAIL SOLAR POLICY May 27, 2025 Jeff Witt, EUORAB Board Chair Donald Kom, Director, Electric Services 7 THE DIRECTION OF CITY COUNCIL TO EUORAB Council wants to encourage renewable energy in all forms. The council- adopted Climate Action Plan calls for many MWs of utility-scale solar and wind, andMWs of customer-owned, distributed solar. Utility-scale wind and solar will be needed for the heavy lift of an aspirational 100% renewable energy goal , but customer-owned solar will also play an important role 8 WHAT ARE EUORAB’S PRINCIPLES AND HOW DO THEY GUIDE US? EUORAB wants to encourage customer-owned solar within Ames Electric service territory to the extent that it does not create a dramatic cost shift (cross-subsidy) among or between customers Solar customers should be given credit for the value that solar brings to Ames Electric Services. Avoided costs from energy, capacity, and transmission as well as the environmental benefits solar brings, should be considered when setting rebates, buyback rates, or other compensation or incentives for solar 9 EXISTING SOLAR PROGRAM Renewable Energy Buyback Rate (an import/export, or inflow/outflow tariff) Allows for full self consumption “behind the meter” energy production Customer’s unused energy is purchased by utility at the buyback rate, which varies by customer class and season Program participation is capped at 2,000 Kilo-watts (kW) $100 per kW rebate Solar Photovoltaic (PV) rebate is part of Smart Energy programs 10 CURRENT CUSTOMER SOLAR AMOUNTS 1,658 kW(dc) installed (Current cap is 2,000 kW (dc)) 216 customer locations, with 3 projects pending An estimated 65% of customer solar energy is self-consumed Self-consumed power offsets at retail cost 11 VALUE OF SOLAR TO THE UTILITY Cost-of-Service study results were presented to council in June of 2024 A Cost-of-Service study is designed to compare the rate users pay with the actual cost of providing the electricity. The study helped the Utility determine the actual value customer solar is to the utility The study considers import energy cost per time of day, transmission off-set costs, and distribution off-set costs The study showed customer solar to have a value of approximately 5.08 cents/kWh to the Utility This rate does not consider environmental attributes 12 NEW PROGRAM- FRONT LOADED REBATE WITH SMALLER BUYBACK RATE The rebate is increased from $100 to $600/kW installed (This equates to 1.7 cents/kWh over a 20 year system life) Helps customers receive more money up front to help pay for installation Borrowing costs reduced Can shorten payback timeframe The energy buyback rate would be the wholesale energy on-peak avoided cost (~3.5 cents/kWh) Cross subsidization is eliminated Solar energy on par with other energy purchases Eliminated different rates for each customer class Rebate + Buyback equates to 1.7 cents + 3.5 cents = 5.2 cents/kWh 13 NEXT STEPS Council to adopt new program for retail solar program Direct staff to work with City’s Legal department to create language for municipal code changes EUORAB to set direction for specific changes needed to answer secondary issues that may come up Existing solar customers are grandfathered under existing program for 10 years Old and new programs to overlap for 3 months following final code approval of new program EUORAB/staff to return to City Council for approval of municipal code changes 14 QUESTIONS AND COMMENTS 15