- By Paula Selleck
- April 1st, 2012
When California State University, Fullerton flipped the switch early this year on its latest solar installation, a crowd of industry and utility representatives joined University officials on a rooftop, alongside massive solar panels and electric vehicle charging stations, to celebrate the occasion.
They came, not as partners, but as peers in the solar movement, which is picking up steam and followers among colleges and universities eager — some even desperate — to rein in escalating energy costs.
Hooking up with a private partner that would front the cost of installing such a system and assume the risk for its proper functioning is the road most often traveled by public universities entering the solar arena.
“It’s a model everyone is so gung-ho on,” notes Willem van der Pol, director of the University’s physical plant.
Over the course of its more than five decades of existence, Cal State Fullerton has entered into a number of highly successful public-private partnerships — but its venture into solar energy isn’t one of them.
When it comes to solar installations, “the concept of a public-private partnership is that the private partners finance the whole thing, then work with public institutions to make things happen, but all the profit goes to the private partners because they take the financial risk,” explains van der Pol. “In this particular case, the University is taking the financial risk and also taking all the profits, so it’s a radical difference.”
Choosing a New Direction
Instead of partnering with private industry and utility companies, Cal State Fullerton (CSUF) struck out on its own to finance the project, with the CSUF Auxiliary Services Corp. acting as banker. A $6M loan fronted the cost of a three-stage solar installation that serves the University’s main campus, as well as a desert research facility it operates that is used by scholars throughout the state.
The auxiliary, which tapped funds held in its reserves, holds the note on the loan and expects to be repaid by the University in less than seven years.
In the next 25 years, from this project alone, Cal State Fullerton will be lowering its energy costs by $9M. It will pocket $2.3M from Southern California Edison (SCE) in the next five years. Negotiations with SCE resulted in the University securing a public, rather than a private credit, which means generating 26 cents, instead of 19 cents, per kWh. Those pennies are expected to add up to close to $800,000 in annual revenue for the University.
Partnering with private industry and/or utilities for this project would have meant handing over to the private partner the valuable energy credits that would accrue, along with the profits that would be derived from the future sale of those credits.
“From a taxpayer’s perspective, the idea that a private company fronts the money and walks away with the profits is not always the best idea,” says van der Pol.
Yet, that’s exactly the path the University was following in the project’s early going, in keeping with system-wide policy, which was to enter into contracts with entities that had won the bid for the master contract for solar installations throughout the 23-campus California State University system, the nation’s largest university system.
“We were trying to go along with the Chancellor’s Office,” says van der Pol. “We had signed up for all three phases.” Then, one by one, the scheduling or the financial component of the deals fell through, as the worsening economy played havoc with contractors’ ability to get the project on track.
for Going It Alone
Meanwhile, the clock was running out on lucrative incentives Southern California Edison was offering to large, institutional energy users to install solar systems.
Another aspect of the three-stage project that pointed to self-financing instead of securing private backers was the desert studies center component. Since its days as a private health farm in the 1940s, and later as a field research station, diesel-fueled generators had powered the compound. Dirty and expensive to run, the generators needed a new energy source, and solar panels were deemed the best solution to cut both pollution and costs.
A 10-kW photovoltaic substation was installed there a decade ago, but diesel use continued, as field station expansion meant increased energy needs.
Yet, because the desert station was never on the power grid to begin with, updating its solar system to make the facility even greener — though attractive to the University — would have no profit potential for a private investor.
Overall, the self-financing arrangement came about as an eleventh-hour effort to not only launch the University’s long-awaited solar project, but also finish it before the utility incentives expired and rising energy costs cut too deeply into the University’s budget.
“We had been trying to structure a successful PV project for years,” recalls Jay Bond, associate vice president for facilities management and the university architect. “We were almost out of options.”
When the executive director of the CSUF Auxiliary Services Corp. met with the project team and heard about the financial setbacks associated with it, a novel arrangement was proposed. Why not consider financing from the auxiliary?
Would that be possible? Would the CSU system allow one its largest campuses to step away from the master contract, hire its own contractors, and assume the risk?
Yes, it would,
and did — after lobbying by the
The Timing Was Right
“The timing couldn’t have been better,” says Doug Kind, the physical plant’s commissioning manager, who monitors sustainability issues, mandates, and policies for the University’s physical plant.
“Another profit angle is being made possible now by the new Cap-and-Trade policies coming out of the California Air Resources Board,” he notes. “In January, they actually put a floor on the price of a carbon credit, called the ‘renewable energy credit,’ and it’s going to start escalating from there on out.
“There’s going to be a whole market buying and selling these carbon credits, and that was a part of our model,” Kind adds, noting that the project delays had worked in their favor. “Two to three years ago, there wasn’t such a market.”
Cal State Fullerton is now positioned to be among the entities to profit when that market emerges.
“We haven’t been able to place a value on those credits, but we know they are valuable,” says Bond. “The market has yet to figure that out, but we own them as opposed to some third party owning them.”
The value of those credits is expected to rise as the decade nears its end. By 2020, the state must reduce its carbon footprint back down to 1990 levels.
By that time, Kind predicts, some companies “are going to squirm. They’re going to say, ‘We need those credits.’ That’s what a lot of these private investors are banking on. If they can sit on all those credits, it’s pure speculation. It’s like sitting on a pot of gold.”
Now, Cal State Fullerton is sitting pretty — and even better, is already two-thirds of the way toward getting off the utility companies’ power grid entirely.
Not surprisingly, the California State University is now allowing other campuses in its system to follow Fullerton’s lead.
Paula Selleck is senior communications officer on the Public Affairs staff at Cal State Fullerton. She can be reached at 657/278-4856 or email@example.com.