Thursday, December 30, 2010

Big Solar's Promise

Remote centralized solar power plants are often promoted on the basis of the economic benefits they will bring to impoverished rural areas like the San Luis Valley, Colorado. In Saguache County, Colorado, the 145 Megawatt Tessera Solar power plant is being sold as a $1.5 million/yr. windfall that will produce sorely needed jobs and revenue for county school and emergency service districts.

The county's Commissioners have accepted Tessera’s revenue figures, apparently without question, and don't appear to be wondering what new and increased demands on mandated services could result from the massive 1,525-acre industrial construction project.

As the decision looms on the San Luis Valley's first industrial solar power plant, we asked; Can Big Solar fulfill its $1.5 million promise to Saguache County? 

Follow the money

Tessera provides scant evidence of how it arrived at the $1.5 million/yr. revenue figure, so we asked the State Property Tax Specialist for Utilities in the Denver Department of Local Affairs (DOLA) who, it turns out, is responsible for assessing renewable energy power plants for Colorado counties.

Solar power plants are taxed according to the Solar Facility Taxation Bill (SB 09-177) adopted by the State legislature in 2009.  State Economist Kate Watkins explains that, “solar facilities are taxed on their energy generating capacity, not the land on which they operate.”  Technically, the county collects a "generation tax" based on how much energy (in Megawatt hours/MWh) is delivered to the grid and the amount paid to the producer (in this case Tessera) under a Power Purchase Agreement (PPA) with a utility.

Using the formula provided to us by the State, and the PPA price and generation estimates from Tessera's final application, we calculated the following:

Annual Energy Generation at full capacity                       294,785 MWh
Energy Price Assumption (PPA)                                 $      70 per MWh
      Gross Annual Energy Revenue                             $    20,634,950
Goal Seek Multiplier (Tax Factor)                                           1.41
“Actual” Value Tessera is taxed on                              $    29,075,324
Assessment Rate                                                              29 percent
Assessed Value                                                          $      8,431,844
Fixed Mill Levy for Power Plants                                      7.83 percent
     Annual Revenue – full generation year 1               $         165,034
     Annual Revenue – full generation year 2-20          $         660,138

This analysis, confirmed by the State Utility Tax Assessor, suggests that Saguache County will collect a far more modest annual revenue of $660,128 - less than half of the $1.5 million promised by Tessera Solar.

No Revenue During Construction

Under the statute, Saguache County isn't allowed to collect revenue until a year after the power plant reaches it's full 145 MW generation capacity.  Even then, the plant is assessed at 25% in the first year.  This creates a lag in the revenue stream that extends through the construction phase into the second year of operation.

If permitted, Tessera says it will start construction in the fall of 2011 after it secures a Power Purchase Agreement, presumably with Xcel (but see Judge's order could kill SLV solar power transmission line and Xcel dials back SLV solar plans).

In light of the fact that Tessera has no experience with projects on such a massive scale, or in a harsh environment like the San Luis Valley, long construction delays are likely.   Even assuming a best-case construction scenario, the county won't collect a cent from Tessera's power plant before 2015.

The only other possible source of income to the County is from sales taxes.  Tessera claims it will spend 20% of its undefined “capital expenditures” locally and that Saguache County could receive as much as $450k/yr. during the construction period. There is no guarantee however, that Tessera and its contractors will do its big spending in Saguache County.  Surrounding counties have the bulk of housing and retail businesses where purchases could be made, pulling that anticipated revenue stream south – or north.

More Demand on Services

In terms of economics, industrial solar is similar to any other boom and bust energy development.  Demands on health and emergency services (fire, ambulance, law enforcement, etc.) have been known to skyrocket during the construction of large electric power plants.  This phenomena is so well documented that it has its own name, the Gillette Syndrome.

Contrary to common knowledge, energy-focused counties are doing a poor job of capturing tax benefits and under-perform economically, compared to counties with little or no energy development.

New costs to the county could result from mitigation not paid for by Tessera.  For example, paving the main access road has been proposed to keep down dust and maintain air quality standards during construction.

County Road and Bridge Supervisor Randy Arrendondo estimates it will cost between $2.6 and $3.25 million to pave the road. Tessera wants the cost to be allocated among users (adjacent property owners and the county), and for its share to come from the above mentioned sales tax it says the county will already collect. 

False Expectations

The information we obtained from the State Assessors Office indicates Saguache County will see less than half of the revenue promised by Tessera’s Big Solar project, and a paltry 3.5% of the Gross Annual Revenue the power plant is expected to produce.

Road paving, upgrading emergency and law enforcement services, and other unforeseen demands on mandated services could cost Saguache County millions.

Tessera's power plant will generate more than $20 million in Gross Annual Revenue and feed solar energy to urban centers hundreds of miles from the San Luis Valley.  Very little benefit will trickle down to the communities being asked to passively accept industrialization and degradation of their quality of life and environment.    

Like other rural Colorado communities who have been too quick to roll out the carpet for energy developers, we could end up worse off than we started.

Empowering Communities

Fortunately for all Coloradans, solar energy is ubiquitous.  While the San Luis Valley may have marginally higher insolation values, the inefficiencies and cost of long-distance transmission makes point of use solar generation more cost-effective.

And its better for communities.  Community Power, a new white paper from the Local Clean Energy Alliance makes the case that locally controlled decentralized energy generation yields dramatically more economic benefits to communities than remote Big Solar stations, while avoiding costly new transmission and destructive impacts.  This is especially important for low-income communities like Saguache County where impacts can be disproportionate.

Local investment in and control of energy generation keeps revenue in communities and produces many more jobs than absentee owned central power plants (see graph).  If Colorado and Saguache County truly want to build healthy, resilient communities, its time they take Community Power seriously.

Graph from Community Power, by Al Weinrub                                  


Anonymous said...

Your assumption for PPA price of $70/MWh is less than half of a typical large scale solar thermal PPA. Try using $150/MWh and it appears their statements are accurate.

Ceal Smith said...

$70/MWh is the PPA price assumption from Tessera Solar's final application, available at:

I think you might be referring to the levelized COST of solar thermal per MWh, which is between $125-$250/MWh depending on the technology (Community Power white paper has the latest figures, you can download it at: PPA's are normally proprietary but Tessera says its estimated PPA price was based on SunEdison's agreement with Xcel Energy for energy produced from the 8.2 MW Mosca solar plant.