Water suppliers embrace solar energy
Yesterday the San Juan Water District, in California, began buying power from a solar energy facility that it developed on land it owns. The facility is designed to supply 90% of the utility's energy needs and provide $12m in energy costs savings over its 25 year life. This trend is catching on: Rancho California Water District developed a 1.7mW solar facility that will save the utlity $8m over the life of the system and the Southern California Metropolitan Water District, one of the largest water suppliers in the world, has set a goal to develop 10mW of solar energy by 2014.
Solar energy has become attractive to water suppliers, who use huge quantities of energy for pumping and treating water and heating and lighting administrative buildings. Developing solar energy facilities and entering into power purchase agreements with the owners and operators of the facilities allow the utility to fix its future energy costs and, via land leasing, create additional revenue streams. Additional revenue and reduced operating costs can then be passed along to rate payers.
Solar is particularly attractive to water suppliers in sunny states, such as California. The State Water Resources Control Board, which owns and operates the State Water Project, the largest single user of electricity in the state, is looking at developing solar on its plentiful sun-drenched land holdings. Proposals, largely poo-pooed by the Board, have been pitched to cover the 400 mile California Aqueduct with floating solar panels, which would provide clean energy for pumping and reduce evaporation. The Metropolitan Water District, who have huge energy demands and thousands of acres of prime desert land, are looking at solar as a means to not only power facilities but to sell energy. MWD, in fact, is allowed to sell electricity, according to its charter.
With the cost of solar panels falling and proper incentives, this trend will likely continue. In California, the incentives make projects feasible. Pacific Gas and Electric, largely driven by the need to meet the state's aggressive renewable energy portfolio standards, paid for 40% of the construction costs for the San Juan Water District facility. Additionally, water suppliers have significant exposure to energy cost fluctuations which will likely become more pronounced in the future. Power purchase agreements for renewable energy will protect them from these fluctuations. Last, forward looking water utilities may look to renewable energy to mitigate compliance risks associated with future greenhouse gas regulations.
Fixed energy costs may have water conservation benefits as well. Since water suppliers can predict their future energy costs with PPAs, they will be able to more accurately predict energy cost savings associated with water conservation, which can reduce treatment and pumping requirements. A more accurate monetization of water conservation strategies may make them all the more successful. Suppliers dealing with water scarcity will like this perk.
Of course solar energy comes with its risks. It is not a panacea. Solar energy facilities require maintenance, they don't work so well on cloudy days, and, in an ironic twist, they require water for cooling and cleaning. But clearly the utilities who have developed solar have decided that the status quo risks outweigh those associated with solar energy.
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