Solar farms to cost town upwards 
to $1 million in losses

Michael Hillman

Editors Note: In 2014, former town Commissioner Chris Staiger predicted: "We will slap ourselves on the back for converting to solar and tout the savings that none will bother to verify." Staiger was right on all his predictions but that one. We’ve waited two years for enough data to confirm or rebut Staiger. When we started this article back in February we had no idea what the outcome would be. We were honestly surprised by the twists and turns it took, and the multiple and often contradictory stories town officials said about it to sell it to the public.

(3/31) On September 23, 2013, the Town Council voted to approve a contract to provide land for a solar farm and to purchase all power produced by it for the next twenty years. In addition, the contract guaranteed UGI Energy Services LLC, the owner of the solar farms, a rate increase of 2% each year over the initial rate of 7.9 cents/kwh.

In the financial world, what Mayor Briggs, the chief advocate for the solar farms did was place a one way ‘bet’ on the future cost of electricity. However, as any experienced market analyst will tell you, betting on the future energy prices is not for the faint of heart, as the losses, if your bet is wrong, could prove staggering.

Mayor Briggs predicted that the solar farm would save the residents of Emmitsburg over $1 million throughout the life of the contract. In an article authored by him for the April 2014 edition of the Emmitsburg News-Journal, Briggs defended his push for the solar farm saying it was "to save money to maintain service level for residents."

Commissioner Staiger, in casting his no vote for the first solar farm contract, expressed concern that no one knew how electric rates would play out over the next twenty years and that the "sales pitch" by the Mayor for the solar farm was based on the most rosy of scenarios. He encouraged the town to continue to purchase power "off the grid" based upon the prevailing current rates.

Staiger pointed out that even as the Council prepared to cast their vote that "current electrical rates were in fact going down 8% the following month, and approving a contract that locked the town into guaranteed rate increases, while rates were in fact decreasing, made no sense and was a poor business decision."

In 2015, once again at the request of the Mayor, the town signed a second contract for power from a second solar farm. In doing so, Briggs ‘doubled down’ on his bet on the future cost of electric power, even though his first bet was already ‘under water’ and sinking fast.

The terms of the second contract were identical to the terms of the first solar farm contract with the exception that the initial starting rate was 6.8 cents/kwh. The fact that the cost of electricity from the second solar farm had decreased by 13.9% from the first contract was not mentioned during the town council hearings, nor did any council member question if the trend in electrical rate reductions warranted a closer look at the proposed contract, that like the first, guaranteed a 2% yearly rate increase to the solar farm’s owners. [Staiger had left office before the second vote, in part over frustration over the management of the town, choosing not to run for re-election in 2014].

Briggs defended the necessity for the second solar farm, which doubled the amount of electricity the town would be committed to purchase in order to "help offset the additional energy cost of the ... (new) waste water treatment plant." Briggs said, "It is mind boggling the amount of energy this project is going to need and the burden it will impose on the town." Briggs then went on to criticize the 2-megawatt cap that had been placed on the size of solar systems and stated: "We need more (power), so we are asking our state representative to see if we can get the ceiling raised."

As it turns out, the drop in the cost of electricity over the last three years has proven Staiger correct. By the end of the twenty-year contract, the difference between buying power ‘off the grid’ as opposed to buying it from the solar farm will exceed $30,000/year, for a total ‘pricing’ loss of over $500,000 to the town over the length of the contract.

In addition, the town is also incurring an actual cash loss from the sale of the excess electricity it is required to purchase from the solar farms but does not use. In 2016, the town sold the electricity it purchased from the solar farm for $85,922 to the power company, for just $75,400, for a net loss to the town of $10,500. Based upon the current output of the solar farms, considering last year’s output was closer to maximum capacity, this cash loss is projected to increase to $15,844 in 2017.

Thanks to the annual guaranteed 2% increase in the cost of electricity from the solar farm, annual losses from the sale of excess electricity are on track to increase over the life of the contract, resulting in an overall estimated real loss of close to $530,000 from just the sale of excess electricity alone. Had Mayor Briggs gotten his wish and been able to expand the size of the solar farms, the losses due to the sale of excess electricity by the town would have been significantly greater.

So, unless the cost of electricity reverses itself and starts to rise, instead of the 1 million dollar savings predicted by Briggs, the solar farms are on track to produce upwards to $1 million in losses to the town over the length of the contracts.

Commissioner Staiger and county officials repeatedly warned about the possible downside of the solar farm deal and its impact on the ability for Emmitsburg to fund future projects and town improvements, but sadly, no one listened.

At the request of Commissioner Joe Ritz, the status of the costs of the solar farm will be on the agenda for the April 3 town meeting. In putting it on the agenda Ritz said he wanted to learn: "what the town is actually saving, if anything at all." Ritz added he wants to know: "if implementing sustainability initiatives truly improve the quality of life for Emmitsburg residents, and is the effort to receive a sustainable community designation really worth it, especially if the citizens are faced with the burden of increased fees as a result?"

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Editor’s note: To fully understand the complexity of the issue it is best to break it into two parts – the cost of buying the town’s power from the solar farm as opposed to ‘off the grid,’ and the cost to the town for being locked into purchasing all the electricity produced by the solar farm as opposed to purchasing just what it needs.

Cost of actual electricity used

Had the town followed Staiger’s advice and continued to purchase electricity ‘off the grid’ as typical homeowners do, it would be paying the prevailing rate of 7.043 cents/kwh for electricity, as opposed to an average of 7.66 cents/kwh it now pays for electricity from the solar farm. The result, for 2016 at least, is a ‘solar cost usage’ of $20,738/year. By ‘solar cost usage’ we mean the town is choosing to pay an extra $20,738 solely to say it is using solar power. This can be considered a ‘loss’ to the town because if it had it not agreed to the deal, the town’s 2016 electric bill would be $20,738 less than it was.

However, the 2016 loss is not fixed. Because of the 2%/year increase in rates guaranteed to the solar farm owners, the annual loss will increase by at least 2% per year. By the end of the twenty-year contract the difference between buying electricity ‘off the grid’ as opposed to buying it from the solar farm will exceed $30,000/year, for a total ‘voluntary’ loss of over $500,000 over the length of the contract. The projected ‘voluntary’ loss could increase substantially beyond that if the cost of buying electricity ‘off the grid’ continues to decrease as it has for the past three years.

Unlike Emmitsburg, the Thurmont town government purchases its electricity ‘off the grid’ and negotiates the rates it pays on a yearly basis. As a result, Thurmont has benefited from the 12% drop in its electrical rates. At the same time, the Emmitsburg town government has seen the rate it pays for electricity increase by close to 8% thanks to the contract that locked the town into buying its electricity from the solar farms.

Cost of selling excess electricity

Here is where the issue really gets interesting and where the potential negative effects of a wrong way bet on the future of electric costs really comes into play.

Collectively, the two solar farms, located on the town’s wastewater treatment plant site on Creamery Road, are rated to produce 3,095 MW/year.

Potomac Edison merely acts as a middleman between the town and owner of the solar farm to facilitate the transmission of electricity and payments, e.g. it keeps track of all the electricity the solar farm generates and credits the town for all of it. The solar farm owner, UGI, bills the town directly for all the electricity generated at the agreed upon contract rate.

Contrary to claims by town officials back in the 2013 and 2014 time frame that the new wastewater treatment plant would consume all the electricity from the solar farms, the wastewater treatment plant is consuming only 32% of the solar farm’s output. The remainder of the solar farm’s output is used by the town for street lighting, powering town municipal facilities, etc.; but collectively, these additional uses do not exceed 54% of the output of the solar farms.

Under the terms of "Net Metering," the power company is required to purchase all excess electricity produced by renewable energy sources. The renewable energy provider is reimbursed at what is called a "Generation Rate," which is basically 2/3rd of the prevailing wholesale cost.

Excess electricity produced is tabulated monthly, and every April a check is sent to the town for the past twelve months of excess electricity produced by the solar farms. In 2016, the solar farm’s excess electricity was approximately 1,121,700 kwh, with a ‘Generation Rate’ of 6.435 cents/kwh (according to town staff), the town was paid $75,400.

However, before the town could sell the electricity to the power company, it had to first purchase that electricity – which it did for $85,922, based upon the 2016 contract rate of 7.66 cents/kwh.

In short, the town sold the power company electricity it bought for $85,922 for just $75,400 – which resulted in a net loss to the town of $10,500 in 2016.

This $10,500 can be looked upon as the cost of a ‘bad bet’ by the town on the future of electric rates. Unfortunately, because the ‘bet’ is for twenty years, the town will be required to settle up every year for the remainder of that contract.

By the end of the twenty-year contract the yearly loss to the town for buying and reselling excess electricity from the solar farm and re-selling it to the power company will be at least $47,300/year – and that is only factoring in the 2% guaranteed rate increases.

While the future of electric rates is unknown, if the current ‘Generation Rates’ stay the same, the town is potentially looking at a net ‘real out of pocket loss’ of no less then $530,000 over the life of the solar farm contracts just from the sale of excess electricity that the town is legally obligated to buy.

Editor’s Note:

We would like to compliment the town staff for their help in pulling this article together. While we incorporated key factually accurate comments from them, we did not accept all their comments. Specifically, the town staff felt:

1 – we were overly pessimistic and had not taken into account future inflation. We disagree. According to the Energy Information Agency, electric power rates appear to be in a long-term decline thanks to the amount of generation capacity coming on-line plus the decline in the price of natural gas, the dominant fuel used by the region’s power plants. Any potential increase in the price of natural gas is limited by the growth in its supply as a result of fracking, which shows no sign of slowing down. Indeed, Potomac Edison has announced that the cost of electricity will decrease a further 7% this year, while the cost of purchasing electricity from the solar plant will increase 2%.

2 – we should have mentioned that the rate the town is reimbursed for excess electricity will increase this year. However, they failed to note that the increase they said they would be getting will be less then half the increase in the cost of the electricity the town is forced to sell. So while the town is getting paid more for the power sold, they are paying even more to buy it in the first place. So the cost of selling the excess power will increase.

3 – we should mention that the cost to the town could be reduced by allowing non-town organizations to participate in what is called a community array – or simply put, to purchase electricity for the solar farm just as the town does. While a laudable goal, the town failed to address that to do so, an organization must be willing to increase its electric bill by 20% - something we do not foresee organizations doing.

4 – we should address that the solar farms would provide power for future town electrical needs, and thereby reduce the amount of excess power the town is forced to buy and re-sell. We agree any increase in town consumption will reduce the loss the town incurs in selling excess electricity, however, it does not address the increased cost the town incurs from using power from the solar farm as opposed to cheaper grid power.

5 – we should credit unquantified savings for unspecified charges no longer accruing. As the town failed to respond to requests for specifics, so we unable to credit the unquantified savings.