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GRU should add capacity as needed instead of doubling down on biomass debacle

BY JENNIFER CABRERA / MAY 28, 2019

The Gainesville Sun recently reported that GRU is the state leader in renewable energy, producing nearly 42% of its energy from renewable sources in January-March of 2019. Let’s look at what this has cost the taxpayers who live in Gainesville or purchase energy from GRU.

In February, GRU’s General Manager Ed Bielarski published a white paper titled “GRU at a Crossroads: How we got here and what path to take.” The purpose of the paper was to lay out how GRU got to its present fiscal crisis.

GRU not big enough “to withstand uneconomical business decisions”

In the paper, Bielarski says that the utility is not big enough “to withstand uneconomical business decisions,” referring to the purchase of the biomass plant. He also points to a decrease in GRU revenues over the past few years, caused by an industry trend of increasing conservation that has combined with a local push to encourage conservation. 

The Solar Feed-in-Tariff also contributed to the problem: “Between 2009 and 2013, GRU entered into European-style Solar Feed-in-Tariff (Solar FIT) contracts with up to 256 separate suppliers, culminating in 18.6 MW of installed capacity delivering an annual average of 23,000 MWs. These contracts require GRU to accept the solar power generated from the suppliers’ installations in exchange for payment from GRU at a fixed rate over 20 years. The average fixed rate was approximately $260 per MW, which is approximately eight times the cost of GRU’s power generating costs.”

Bielarski concludes that the Solar FIT, net metering, and conservation programs reduced gross revenues by about $18 million a year and net operating revenue by $13 million a year. The Great Recession of 2008 and increasing operational costs due to inflation have added to the shortfall. 

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In response to these shortfalls, GRU issued bonds (borrowed money) in 2012 and 2019, resulting in a debt increase from just over $400 million at the end of FY2000 to $1.694 billion today. 

No effective plan to deal with postponed debt

The paper then lays out “Two ill-fated business decisions”: the Solar FIT contracts and the Power Purchase Agreement (PPA) for the biomass plant. “The degree to how unwise the PPA choice has been was ultimately monetized in GRU’s buyout of the PPA for $250 million more than what it cost to build, after spending another $200 million while operating under the PPA for almost three years.” These programs added $112 million in expenditures to GRU’s annual budget. 

In 2012, GRU restructured its debt to move payments into later periods (i.e., starting now). This year, they restructured the debt again, moving payments to the 2040s, in some cases. Bielarski points out that if debt restructuring is to be successful, the utility needs to have an overall strategy to cover those higher debt payments in later years. He says there is currently no effective plan to do this. 

The white paper points out that building the biomass plant was unnecessary: “While we were able to save upwards of $800 million in future PPA costs [by purchasing the plant], GRU is still obligated to pay $1.2 billion over the life of the debt, which would not have been the case had we built the plant ourselves or waited until 2023, when the requirement for power was originally projected (25 megawatts at that, not the 102 megawatts we built).”

High energy bills are directly attributable to renewable energy

The Solar FIT “continues to cost GRU approximately $5.5 million more a year than it would cost to buy the power off the grid,” and the biomass plant costs GRU approximately $13 million/year in debt payments. “The bottom line is that without the Solar FIT and the impact of the PPA (PPA premium), GRU’s residential bills would be below the average for the state.”

The 2015 Navigant investigation into the PPA stated that “While GRU at the time supported adding more coal-fired generation capacity with the ability/flexibility to utilize a significant amount of biomass, the open evaluation process coincided with significant interest and concern over global warming, greenhouse gases, and the impact of fossil fuel derived energy use. The Mayor of Gainesville at the time also signed the U.S. Mayors Climate Protection Agreement in 2005 pledging that the City would ‘strive to meet or beat the Kyoto Protocol’ in reducing greenhouse gas emissions.” That report also concluded that “cost/customer impact was not a key criteria in the pursuit of biomass” – i.e., the demand from politicians for more renewable energy was more important than the financial cost to consumers. 

City commissioners want even more renewable energy

All of this is relevant because the city wants to move to 100% renewable energy by 2045. Currently, GRU’s least expensive plant to operate is its combined-cycle natural gas plant at $14.80/MWh vs $23.70/MWh for Deerhaven 2 (coal) and $19.25/MWh for Deerhaven Renewable (biomass). The natural gas plant also has the lowest CO2 emissions per MWh (the biomass plant is the highest, although Bielarski claims the CO2 would be emitted from the trees at some point, anyway). 

So the city, in its desire to achieve national prominence as a leader in renewable energy, has already cost GRU’s customers over $18 million a year more than it needed to, but it continues to increase its use of the biomass plant, which has the second-highest operating cost and highest CO2 emissions. And they are going to double down on this by increasing their use of “renewable” energy sources, most likely with “125 acres to 375 acres of solar panels”. Since the biomass plant was built before it was needed and was 4 times the needed capacity, GRU should not add more power production until it is needed and should determine the best technologies at that time, not now. Setting an arbitrary date for 100% renewable energy may make commissioners feel good about themselves, but it is not in the best interests of the citizens who depend on GRU.

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