San Francisco solar project may pave the way for more municipal power plants

There has been plenty of noise lately about residential solar financing strategies, like SolarCity’s lease program and Sun Run’s power purchase agreements, in which a consumer agrees to buy power from solar panels on their roof without paying the hefty up-front cost for them. San Francisco may be entering into a similar deal next month for a 5-megawatt installation within the city limits, which would be the country’s third-largest completed project.

The idea of small municipal power plants, built on unused land within cities and thus lowering transmission costs for the power, is quickly gaining popularity in the solar industry. Electricity utilities are also in favor of the idea, because it could save them from the need to build more costly power plants. However, cities and solar panel manufacturers face a challenge in getting projects going, because installations are expensive.

San Francisco’s Public Utilities Commission has nimbly avoided that problem by leaving the financing to Recurrent Energy, a solar services firm that essentially acts as a go-between, contracting out the installation of panels and arranging for funding from outside sources like Morgan Stanley. SFPUC, which provides power to city-owned buildings, will only need to sign a contract to buy energy at a fixed, incrementally increasing rate for the next 25 years.

The plan should work well. Cities shy away from projects that require a lot of capital up-front, but the SFPUC is only agreeing to buy electricity it will need anyway. The city’s board of supervisors still needs to approve the project next month, but without any need for immediate funds, opposition should be minimal.

For Recurrent, the plan also looks like a winner. Because the costs for electricity are determined beforehand, the company can project a repayment schedule for the panels. The actual financing, as noted above, comes from outside sources, with Recurrent just taking a cut of profits. And local solar installers will also benefit from the work, which is expected to be completed in July 2009.

For San Francisco, there are also fringe benefits. The city will benefit from the positive publicity of having a major solar project within its borders. Other cities in the state will likely begin looking more seriously at projects for their own electricity needs. Recurrent’s CEO, Arno Harris, says it won’t be a problem if more customers come knocking; the outsourced setup of his company is “really built to scale,” he told me today. “We’re at an interesting turning point in the history of solar. We’ve seen a lot of districts kicking the tires — there’s going to be a ton of interest from other cities,” he said.

The majority of the panels will be installed on the empty roof of the covered Sunset Reservoir in the western portion of the city (seen at right), with a about 250 kilowatts going into a separate installation at Pier 96. The final board vote is scheduled for June 23rd, with construction beginning afterward if approved.