With the new hybrid plant, Palmdale may have avoided a so-called “catch” associated with recently-constructed energy plants. A handful of cities and towns in the Midwest during the early 2000s bet their fortunes on a coal-fired power plant shortly before the domestic oil and natural gas boom hit its stride. They thought the plant could protect against wild electricity price swings, but, instead, construction cost increases, lower natural gas prices and other factors have erased any competitive advantage.
The towns invested in Prairie State Energy Campus, a massive $5 billion plant just outside of Marissa in southern Illinois. More than 200 cities and towns are buying power through the project, but one town, Marceline, Mo., northwest of St. Louis, is reeling. The 2,000-person town has only $40,000 left to make three payments of about $100,000 a month.
The Great Recession hit five years ago, depressing expected growth in demand for electricity. Then “fracking” and other advanced drilling techniques brought down the cost of natural gas for energy generation. That meant towns were stuck with paying for coal-fired power that is more expensive than electricity available on the open market. A big change took place in the U.S. oil boom and natural gas production through horizontal drilling or hydraulic fracturing (“fracking”). As a result, wholesale natural gas and electricity prices were at 10-year lows last year.
Palmdale is not immune to delays and cost overruns. Sometimes land disputes or environmental concerns (the Antelope Valley is a protected habitat for the kit fox and the desert tortoise) can bring forth unforeseen problems. “We had to do an analysis of the flora and fauna,” Ledford said at the beginning of construction. So far, the various protected critters—seen and unseen—have not posed a problem for a potential investor. Around the start of construction, Palmdale saw a 9 percent drop in sales tax and a 45 percent decline in construction fees and permits. Ledford said at the time that major Antelope Valley employers paid more for power in California than in other states.
“Lockheed Martin pays twice (as much) for power in California than it does in Dallas-Fort Worth. We are going to work on that and, hopefully, reduce that cost.” Reducing huge energy bills, Palmdale officials believe, could persuade large corporations like the defense giant from leaving town.
Palmdale has entered into a Power Purchase Agreement (PPA) with PsomasFMG, which will install solar shade structures in the parking lots of some city facilities, selling the resulting energy to the city at a discounted rate. It is anticipated that, in the first year, Palmdale will purchase the energy for approximately $283,500, resulting in a savings of $63,000.
Through the life of the 20-year PPA, Palmdale will spend about $7.8 million for the energy, saving another $1.4 million based on conservative estimates. The city will also retain the rights to renewable energy credits.
“A lot has happened in the energy marketplace over the past five years,” Mischel explained further. “Summit has the pulse of what is needed in terms of producing electricity, lowering emissions, ensuring the continued success of renewable energy sources and making it all happen in an economically viable manner. Those who remember the ‘brown-outs’ of the late 1990s and during the energy crisis of 2000-2001 know that we don’t want to go down that road again.”