More Tea Party-chic than country club smug, Lancaster, a desert suburb an hour northeast of Los Angeles, is the gateway to the GOP heartland of California. This stucco retirement, military and bedroom community is not affluent. Like similarly planned communities in Arizona and Nevada, Lancaster's property values plummeted during the housing crisis, when unemployment spiked from 7.3 percent in 2007 to over 17 percent in 2010 and 2011.
Yet glinting hopefully on the edge of 26 Lancaster schools are banks of solar panels that channel relentless sun into renewable energy. The energy promises to not only power the local schools but to create jobs, supercharge the local economy and revitalize the city center. In just two years, GOP-led Lancaster has become an unlikely green energy vortex that just might redefine everything we thought we knew about party politics and environmental policy. Recently, the mayor of Lancaster, R. Rex Parris, announced his goal of turning Lancaster into America's first net zero city and the first to produce all its electricity from renewable sources.
On the national level, environmental legislation has been gridlocked ever since December 2010, when the Democrats' cap and trade bill built to mitigate climate change didn't pass in the Democratic controlled Senate.
Certainly, a floundering recovery hasn't helped. But advocates argue that clean energy can create jobs while weaning us off fossil fuels. Yet, the hangover from Solyndra, the solar panel manufacturing firm that received over $500 million in federal loans only to fail when cheaper panels hit the market, has made for tough going. According to green energy industry analyst Dallas Kachan, “The collapse of Solyndra turned renewable energy into a political hot potato, and American lawmakers are still gun shy when it comes to renewable power, even if it doesn't directly involve taxpayer funds.”
Republicans have frequently used Solyndra and green energy as a political punching bag. Rep. Jim Jordan (R-OH) recently called green investments “wasted dollars.” It's also been used to fuel the big government vs. small government debate. “The reason our economy is stagnant is because we haven't let the free market work. The government keeps getting in the way,” said Rep Cathy McMorris Rodgers (R-WA) at a press conference in February. “Now is the time to pick the Keystone (the divisive oil pipeline project) economy over the Solyndra economy, to pick the American people over big government.”
Yet such sound bites belie some of the progress being made on a variety of environmental fronts, particularly with green energy, at the local level. It's certainly happening in places like Lancaster.
A TOWN ON THE BRINK
Like many small-town mayors across the country, Lancaster's Parris has watched the recession wrecking ball tear through his budgets as energy costs continue to rise and city services and infrastructure remain in high demand. In 2010, City Hall layoffs loomed and new revenue streams were badly needed. Then one day, when Parris and his team had run out of ideas, a SolarCity sales rep knocked on Lancaster's door.
The Solyndra fiasco notwithstanding, solar is on an uptick in America thanks to cheap, largely Chinese manufactured panels (the ones that sunk Solyndra), the companies who lease them on the local level, and federal tax credits (enacted by the Bush administration in 2005 and extended by Obama's through 2016). “Solar is an economic engine that's created 100,000 American jobs,” said Tom Kimbis, vice president of strategy and external affairs at the Solar Energy Industries Association. “The number of jobs has doubled in the last two years, making it one of the fastest growing industries in the U.S. There are now 5,600 solar energy firms working in all 50 states.”
The city hired one of them, Elon Musk's SolarCity, to retrofit City Hall, the Performing Arts Center, two Park & Rides, and Jethawk Stadium, home to Lancaster's minor league baseball club. They didn't purchase the panels, but they did buy the clean energy in bulk (the industry term is a Power Purchase Agreement) at a price of $.10 per kilowatt-hour (kWh). It was an easy sale, as the city was already paying Southern California Edison (SCE) $.17 per kWh, which amounts to a savings of $150,000 per year. It was small potatoes savings wise, but a significant first step - and it left Parris wanting more.
Parris and his team, including city manager Jason Caudle, realized that if the city became its own utility, generating and selling solar energy, the revenue potential and tax savings could be huge. There was a 30 percent federal investment tax credit (ITC) that only goes to private business or homeowners, a performance based incentive (PBI) or a five-year state subsidy for every green kWh produced by a utility, and a capital component. Think municipal bonds, which allow cities and public agencies to access to low cost financing.
On June 8, 2010, the city passed a Joint Powers Resolution, which authorized Lancaster to sell energy. Tts first client became the Lancaster School District, which had initially rejected an offer from SolarCity. “They're in the business of educating kids, not building solar,” said Mayor Parris. “But as a city we have experience with building and maintenance, and we had a financial capability that the school district does not possess.”
The city packaged a $26,860,000 bond that's funded by private equity to build those solar panels. Lancaster is liable to pay off the bond (which was backed by their sewer system), but the lion's share will be received in the first five years thanks to a California subsidy that pays the city $.15 per kWh that's produced. As the client, the school district pays $.125 per kWh, which saves them nearly $.07 per kWh, or $300,000 per year. That's nearly 10 starting teacher salaries. And, of course, the schools are all now powered by the sun.
Lancaster projects a $16.8 million yield over the life of the bond, which has allowed it to retain five city staff members who would have otherwise been laid off. And the town has bigger plans - including the potential of taking out another bond to fund a 320-acre, 50 mega-watt solar farm on city property. The deal is being marketed to investors now. The farm will take 18 months to build, and once complete, Lancaster will funnel the energy through transmission lines to other municipal utilities. The nearby town of Pasadena has been tapped as a potential first client.
SolarCity, a company recently valued at $1.5 billion, has worked with other city governments before, including Sacramento and San Jose, Calif., but “very few are taking on the scope of project that Lancaster has undertaken,” said SolarCity's Jonathan Bass.
There are risks, of course. For one, not everyone agrees that solar energy saves money. “Solar has a higher up-front capital cost than other energy sources,” said Kachan, the industry analyst. “It has not yet reached price parity with fossil fuel-based power, and technically solar becomes much more expensive if you factor in the price of storage.”
Tom Kimbis of the Solar Energy Industries Association argues that the falling price of solar and the increased demand in the U.S., Europe and Asia has led to the scaling of solar manufacturing plants, but he agrees the cost of materials could rise, which could impact Lancaster's solar farm. “Today we're dealing with a solar panel oversupply situation. Regardless, solar energy will always be more stable than fossil fuel generation, because [once the panels are in place] the cost of the fuel is free.”
But as far as the schools go, Lancaster seems to have bought in at the right time, and Caudle insists the exposure is minimal. “We know exactly how much debt we'll have to service [on the bond], how much energy those panels will produce, and how much each school will consume,” he says. Meanwhile, Southern California Edison rates increase about 5 percent every year.
CUTTING THE FAT
The next project for the town of Lancaster is an innovative new waste treatment facility to be built by Ecolution, a privately held company. It will separate all streams of residential waste, sorting recyclables and consolidating organics like food and grass cuttings. The organic waste will go into an anaerobic digester - a turbo-charged decomposition process - and out will come a biogas that can be turned into diesel, Compressed Natural Gas (CNG) for city vehicles, or put back into the gas system.
The project could also potentially cut down on landfill space by 85 percent. What's left is an inert compostable sludge with little or none of the problems (rats, seagulls, etc.) associated with landfills. Lancaster puts no money upfront on the build, and it gets a hosting fee of $5 per ton of trash from Ecolution (in turn, Ecolution receives a portion of the $28 monthly service fee paid by residents for trash collection). The city currently hauls 4,000 tons per day, which could amount to $5 million annually. Lancaster gets additional property tax revenue and Ecolution will hire Lancaster locals to operate the plant. “The real game changer here is viewing the garbage as a commodity,” added Caudle. “Cities own that product.”
Although it's too early to calculate the exact cost-benefit breakdown and call Lancaster a success story, it has managed to retain staff and extend services, at a time when so many cities, and the state of California itself, are on the financial brink. Meanwhile, local unemployment has dipped 2 percent this year and more than 45 new businesses have opened in a rejuvenated downtown since 2010. That's exactly the kind of progress anyone can appreciate.