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Three Ways Local Governments Can Use Solar Power for Themselves, Part 3: Phoenix

Solar sounds good, but what does it actually look like when a local government decides to set up some panels?

Editor’s note: This is the third part in a three-part series examining how local governments use solar to reduce power bills while achieving environmental goals. Read part one here and part two here

It might not always make sense for a city or county government to go all-in on solar power.

Take Phoenix for example. One of the most populous cities in the U.S., Phoenix exists in a state where the financials of solar power can be tricky. Unlike in California, where net metering programs give solar owners a way to sell unused energy for as much as they would buy it for, selling solar energy in Arizona would make the city less money than it cost to produce.

But that hasn’t stopped the Phoenix’s municipal government from putting up photovoltaic panels. Instead of relying on selling electricity, the city uses solar to cut its power bills and meet environmental goals.

“We size the systems to use all the power on-site,” said Phoenix Energy Manager Dimitrios Laloudakis. “If there’s any excess that goes back to the grid, it is priced at a very tiny amount and the economics are upside down.”

Usually, the city’s panels provide 35 to 50 percent of the energy the building uses, though it has to meet certain sizing requirements to meet interconnection standards.

The city’s goal is to source 15 percent of its energy from renewable projects by 2025, with intermediate goals in the 10 years leading up to it. Right now, the city is slightly ahead of schedule — as of 2015, it was supposed to generate 5 percent of its energy from renewables and was already at 7.5 percent. Laloudakis said the city hopes to work in other renewables, such as energy from landfills and digester gas, but for now it’s all solar.

Though he said he couldn’t provide a singular number for how much money the solar panels save Phoenix in a given year — because each system is different and the grid’s comparison price fluctuates — Laloudakis said a 5-7 MW solar array would typically save the city $2 million to $3 million during a 20-year period.

In order to make the financials work out in its favor, Laloudakis said, it worked out a model where it didn’t actually own most of the panels. Instead, it turned to a scheme many homeowners are using — power purchase agreements (PPAs). A solar company owns the arrays, and the city pays it for the energy it generates, but the company owns and maintains the panels.

That gave Phoenix bargaining power to ensure the contracts were well-suited to a municipal government. For example, the city treats the agreements as “pay for performance,” meaning the onus is on the solar company to make sure they are putting out as much energy as Phoenix negotiated. It makes sure that the price it’s agreeing to buy solar energy for is competitive with local utility pricing. And even though the solar company receives the federal Investment Tax Credit for owning the panels, Phoenix negotiated the agreements such that the tax credit lowers the price for which the city buys the solar energy.

“In general, if someone does not have the finance capacity or the capital themselves to do this, usually they can engage with a reputable entity that has demonstrated performance to do these things,” he said. “The key thing is to understand your own usage, to be able to negotiate well and to have some forecasting ability to understand what’s going to happen to rates over 20 years.”

That’s the kicker when it comes to PPAs — solar companies offering them are usually looking for an agreement lasting at least 20 years. It makes sense for a city government because they’re stable entities that occupy spaces for a long time. It also means that the city can lock in a rate that will stay the same even as utility rates for electricity might rise. So even if the price of electricity under a solar PPA is higher than what it is on the grid, a government entity could still save money in the long term.

But that doesn’t mean the length of the contracts isn’t a challenge. As Laloudakis puts it, it’s a commitment. The city government needs to make sure that it’s going to need the space for two more decades, and it needs to be sure it doesn’t want to use the roof for anything else. For that matter, it needs to make sure the roof is generally in good condition — if a leak develops, it might be necessary to take a solar array off in order to fix it, which costs money.

It also means the city needs to look for places where it doesn’t anticipate any buildings springing up nearby that might throw shadows onto the solar panels, dropping their output.

“You go in with your eyes open, you go in understanding what you want and what you get, and hopefully not needing to move it," he said. "And that goes for any project."

Ben Miller is the associate editor of data and business for Government Technology. His reporting experience includes breaking news, business, community features and technical subjects. He holds a Bachelor’s degree in journalism from the Reynolds School of Journalism at the University of Nevada, Reno, and lives in Sacramento, Calif.

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