Austin's balancing act: Solar policy and affordability
Cities can play a key role in advancing renewable energy — as long as it's affordable in the long-term.
This article originally appeared at the Clean Energy Finance Forum.
Austin Energy’s solar power purchase agreement in Webberville, Texas, is a promising example of how private capital can be leveraged to address climate change.
Local governments should make sure to set ambitious goals for green infrastructure investment, participants in the Webberville deal said. However, governments should also make sure these goals are supported by stakeholders and are affordable in the long term. In the end, if the rates go too high, then everyone loses.
The pivotal role of investment policy
Private capital is needed to fill the $1 trillion gap between current green infrastructure investment and the level of investment needed to address climate change, stated an International Organisation for Economic Co-operation and Development paper, "Institutional Investors and Green Infrastructure Investments: Selected Case Studies."
The authors of the paper said institutional investors — especially pension funds, insurance companies and institutional investment funds — are well-positioned to provide the long-term, stable capital essential for green infrastructure development.
For example, the authors provided several case studies of recent institutional investment in green infrastructure and outlined steps national policy makers can take to enhance conditions for investment.
Among the policy support mechanisms they proposed are: developing national infrastructure road maps, facilitating the creation of green financing vehicles and inducing market transparency and data collection on infrastructure investment.
While the report focuses primarily on national policy supports, innovative investment in green infrastructure is also happening at the state and local levels in the United States.
The impact of policy in Texas
The report said the MetLife Investments purchase of the Webberville solar farm near Austin, Texas, is a "leading example of direct investment in [green infrastructure] via equity by an institutional investor."
The Webberville plant is a 30 megawatt solar installation and the largest active photovoltaic power plant in Texas. In February 2012, MetLife Insurance jointly purchased the Webberville plant and signed a 20-year power purchase agreement with Austin Energy, a local public utility.
Clean Energy Finance Forum reached out to Stuart Ashton, head of leasing and tax equity at MetLife Investments, and Carlos Cordova, director of communications and marketing at Austin Energy, to learn what local policy conditions made the Webberville investment possible.
Both Ashton and Cordova agreed the 20-year power purchase agreement was a key component of the Webberville deal. This agreement was catalyzed in part by an Austin City Council resolution requiring 30 percent of the city’s electricity to be generated by renewable sources by 2020.
Cordova cited local government-led stakeholder engagement as key to securing local support for investment in renewable generation capacity. He said Austin Energy and the Austin City Council take part in regular stakeholder engagement processes to set goals for greening the city’s energy mix.
These processes routinely end in resolutions defining the city’s goals for renewables over a given time horizon. A recent stakeholder engagement process, for example, resulted in the Austin City Council raising Austin’s renewable generation goal to 55 percent renewable energy by 2020. Of this, 600 MW will be utility-scale solar.
Ambitious goal setting has to be tempered by an eye toward long-term affordability, however. When Austin Energy signs a 20-year power purchase agreement, it has to insure that the power it provides is affordable to residents over the long term.
Cordova described navigating this tension as a "balancing act between Austin’s desire to be an early adopter in the solar space leading the way for all of Texas and our duty to provide affordable power to our customers."
Unsurprisingly, institutional investors in green infrastructure also pay attention to long-term affordability as they decide where to invest.
Ashton described MetLife Investments as looking for projects that make good business sense, provide social benefits to the market and make sense in the long run for taxpayers and ratepayers.
Ashton used a football metaphor to elaborate on what an ideal investment looks like. "We are looking for a blocking and tackling type deal; we aren’t trying to throw a hail Mary. … If a power purchase agreement is way out of market — for example, offering to purchase at 20 cents per kWh when homeowners are currently paying 15 cents per kWh — we look at it skeptically. … We ask ourselves if this makes economic sense for the off-taker and the end ratepayer.”
Ashton also said economically sustainable deals are also most likely to survive shifts in political winds at the local level. Deals that are economically unrealistic are also most likely to be affected by shifts in political conditions such as the election of a new mayor or city council member.