Back in early 2011, the Kingsway Regional school district contracted with Blue Sky Power to prepare a solar energy project economic and engineering feasibility study. In an effort to summarize the report, and provide a timeline of events leading up to the beginning of construction, I offer the following synopsis.
Blue Sky’s feasibility study in 2011 focused on property considerations, proposed array production capacity and available financing options. Blue Sky’s preliminary analysis of property considerations was based on property conditions, available property space, orientation and constructability. It should also be noted that the Kingsway administration at the time indicated that the roofs of the buildings were not to be considered for siting solar arrays and that the two large areas that are subject to NJDEP deed restriction were to be the primary ground areas available for consideration. As such, these two ground areas were deemed to be sufficiently sized, contained conducive shading, were unused and had limited potential for future use. One deed restricted site is located adjacent to the middle school playing fields near Garwin Road (HS feeder) and another near Fulton Bank off of Kings Highway (MS feeder).
The original study concluded that the two arrays would generate an estimated 1,923,696 kWh of AC electric in its first year of operation, representing approximately 40% of the District’s annual electricity usage. At the time Kingsway was limited in the size of the system that it could install due to costly electrical service upgrades that would have had to be completed to accept more power, adding substantial costs to the project thereby rendering the project economically infeasible.
Blue Sky also analyzed various financial structuring options for the solar energy project including:
Under the Power Purchase Agreement (PPA) option, Kingsway would incur no upfront capital cost and would be able to lock in electric rates for power generated by the systems over a 15-year period. Kingsway would also have the ability to exercise a purchase option at the conclusion of the 15-year PPA term for “fair market value.” In 2011, fair market value was estimated to be $570,731. Additionally, there may be an option to extend the term of the PPA for another 5 to 10 years, or allow the PPA to expire and require removal of the system at the PPA provider’s cost.
It was determined by Blue Sky that of the financing options available, the most savings, greatest cumulative cash flow and least risk during the 15 year and 30 year terms could be realized through entering into a PPA.
Below is a timeline of events to assist in understanding how we got to this point as of September 1, 2015:
Year 1 PPA pricing: $0.095/kWh
Annual price escalator: 2.5%
Year 1 estimated system power production: 1,923,696 kWh
In summary, Kingsway Regional has agreed to allow a third party, SunEdison, to construct two
solar arrays on our property. In return, Kingsway will purchase the energy the arrays produce at a
rate of $.095 kWh in year one. The rate will escalate 2.5% each year of the 15-year PPA. After
15 years, Kingsway may extend the PPA, purchase the arrays at fair market value, or terminate
the lease and have SunEdison remove the arrays at no cost to Kingsway. The financial benefit to
Kingsway is the difference between the PPA rate and the rate our electric provider will charge.
The projected savings for the life of the 15-year PPA is $951,733.