Sterling Municipal Light: A small utility goes big on solar

For small utilities looking to tackle the challenges of financing solar projects and integrating them into their energy portfolios, at least one key component is executive level buy-in and a commitment to finding innovative, smart solutions.

In other words, they need someone like Sean Hamilton, general manager of Sterling Municipal Light Department (SMLD), a public utility providing power to a small town in central Massachusetts.

Hamilton is, by his own admission, not a big self-promoter, so he and SMLD have largely flown under the utility solar radar in recent years, all the while building out local solar projects equal to 30 percent of the department’s peak load.

Sean Hamilton, general manager of Sterling
Municipal Light Department (Photo by Trevor Gibson)

Two 1-megawatt (MW) installations that went online in 2013 — both privately financed — put SMLD at the top of the Solar Electric Power Association’s Top 10 utility rankings for the year for new solar watts per customer. The utility’s 816 watts for each of its 3,720 metered ratepayers overwhelmed the competition, most of which were larger investor-owned or public power companies in California and Hawaii.

So besides Sterling Municipal, which utilities made SEPA’s Top 10 lists for 2013? Lists and maps here.

Similarly, while Austin Energy’s announcement of closing a solar power purchase agreement (PPA) for 5 cents per kilowatt hour (kWh) drew attention – and positive press — across the clean tech sector earlier this year, SMLD quietly signed a 10-year PPA in 2011 for less than 4 cents a kWh, Hamilton said.

Asked how he did it, Hamilton said that at that time, he had few market models to follow, which made it easier to take a few risks and experiment with integrating intermittent solar into SMLD’s energy mix.

“We didn’t have anyone to look to (for) the questions we had to answer,” he said. “The rate was low enough to step into these projects.”

A total of 35 percent of SMLD’s power generation now comes from renewable sources — wind and hydro as well as solar, Hamilton said — putting it well ahead of Massachusetts’ mandate that utilities produce 20 percent of their power from renewables by 2020. Solar accounts for about a third of the utility’s renewable portfolio, and its solar PPAs deliver its lowest-cost energy, he said.

“We’ve been able to lower our rates a little bit over the past couple years,” he said. “The solar isn’t the sole reason. We have lowered our costs. People see that.”

Under Hamilton’s leadership, Sterling Municipal has navigated the move into solar by responding to customer interest — and dozens of project proposals from third-party developers — with smart planning and careful trade-offs that ultimately benefit ratepayers and their community.

A town of 7,800 that was established in 1781, Sterling is known as the home of Mary Sawyer, for whom the nursery rhyme “Mary had a little lamb” was written in the early 19th century. Then a young girl, Sawyer did indeed have a lamb that followed her to school one day.

A statue of the lamb on the town common still attracts visitors, but a more contemporary mix of agricultural land and industrial rooftops has also made Sterling an attractive laboratory for solar development, Hamilton said.

The growth of solar in Massachusetts has also gotten a boost from the state’s active market for solar renewable energy credits (SRECs) and other programs aimed at promoting clean energy, such as a more recent push to locate projects on former landfills. SMLD and many other municipal utilities in the state started early with small pilot projects, often on schools or their own roofs, Hamilton said, pointing to the 2.8 kilowatt array the department installed on its operations center in 2008.

Hamilton arrived at the utility shortly thereafter, and with the support of the Sterling Light Board began expanding SMLD’s commitment to solar, driven in part by a deep, personal understanding of the need for clean energy. He grew up in a New England mill town where, he recalled, pollution from a paper mill made the river run in different colors.

“The river changed colors depending on the (paper produced for) holidays,” he said. “St. Patrick’s Day was green; Easter, it was red and pink.”

The town also was found to be contaminated with toxic chemicals from a furniture plant — Hamilton lost four members of his own family to cancer — and sometimes a layer of pollution covered the river so thickly, he said, “You’d see fish come out of the water, but they couldn’t get back in.”

Still, when utility customers and developers started approaching SMLD with requests and proposals for solar, Hamilton was confronted with some intrinsic obstacles, rooted in the department’s long-standing market structure and procurement policies.

The utility has existing contracts to buy enough electricity to supply its larger commercial and industrial customers, and one good-sized solar project could displace that power, resulting in the potential for stranded assets, he said. Consequently, any third-party developer planning a solar project in Sterling — even smaller residential arrays — must first win SMLD approval.

Leveraging PPAs, shaving peak demand

The impetus to find a workable solution for solar came from E.H. Perkins Construction, a local concrete and asphalt company that is one of SMLD’s largest customers. In 2011, the firm approached Hamilton with a proposal to install a 1-MW solar array at its Sterling plant and sell its excess power to SMLD through a net-metering arrangement that, Hamilton said, would have been difficult and disadvantageous for the utility.

He came up with a counterproposal that provided a better balance of financial benefits for E.H. Perkins and Sterling Municipal.

The construction firm provided full private financing for the project and in return received the associated renewable energy credits and tax benefits, which at that time included a Treasury Department cash payment in lieu of the 30-percent federal income tax credit. The utility took care of the project’s grid connection, from the initial interconnection study to the installation of cable and transformers.

Providing the interconnection — while an expense for SMLD — also delivers benefits in terms of grid reliability, Hamilton said.

“It’s a big ticket item,” he said. “These are pieces of equipment we install. If there’s an issue we can maintain them, we can understand them. It allows us to get them interconnected quicker.”

The E.H. Perkins solar project: SMLD did the grid connection in return for a PPA
at less than 4 cents per kWh.  (Photo courtesy of SMLD)

The cost savings for Perkins also gave Sterling Municipal the leverage to negotiate a PPA with the company to buy all the electricity from the project for less than 4 cents per kWh, providing cheaper power for all the utility’s customers, Hamilton said.

Another pay-off for SMLD was the project’s impact on the utility’s peak demand charges — paid to regional and state-level grid operators — based on the amount of power the town needs to meet its annual summertime demand.

“When they determine the peak, they take a snapshot of Sterling; Sterling owns that for a year,” he said. “What the solar brings is peak-shaving ability. The 3-4 MW we shed using solar and some other generation we have during that time was fantastic. We’re not purchasing at that time, and the savings were enough to cover the interconnection.”

Read SEPA’s case study on the Farmers Electric Cooperative of Kalona, Iowa, another small utility making smart solar decisions. Click here.

The success of the Perkins project gave Hamilton the confidence to negotiate carefully when he and city officials found themselves inundated with questions and project proposals from more than 50 solar developers. As a rule, SMLD stays out of local politics and permitting, he said, only advising developers if potential projects are sited in locations with adequate transmission capacity and then negotiating PPAs.

The utility started working with Community Energy Inc., a Pennsylvania company with broad experience in financing and building utility and community solar projects, after it submitted a project proposal with a PPA that beat out the competition with an undisclosed, below-market per-kWh price.

Making solar base load

Sterling officials also got behind the project, which required a key zone change for the site, previously designated for agricultural use. The town’s Select Board approved an agreement limiting the extra taxes that such a rezoning would have required.

Hamilton was able to address the town’s concern about the long-term financial viability of the project by ensuring that, in the event of a default, project ownership would revert to the SMLD. Other community benefits included funding for green technology education programs at local elementary and middle schools.

Community Energy brought the project through permitting and the PPA negotiations, making it shovel-ready before selling it to Duke Energy and Integrys, which continue to own it.

Following completion, Sterling Municipal put up a display outside its offices, where residents can get monthly updates on how much power the project’s two arrays are producing.

Hamilton is now intent on adding storage to his solar projects to optimize their benefits for SMLD, its customers and the community. While efforts to win state and federal grants to help with financing have yet to be successful, he sees clearly that storage technology is the next, necessary step in utility solar development — and he’s not giving up.

“It would allow us to store most of our solar,” he said. “We could actually keep our police and dispatch center open on batteries for a long time.”

And with the dispatch center located near the 2-MW solar project, stored energy would be well used at other times as well, for summertime peak shaving and wintertime high demand, he said..

Solar and energy storage “have to work together. It’s a piece of the puzzle that’s got be done,” Hamilton said.

“Once we have proper storage, intermittent resources will be able to become a base load of our power supply.”