CHAMPAIGN — A solar farm considered a key part of the University of Illinois' transition to renewable energy has been delayed because of state questions about the project.
Construction of the 20.5-acre solar power installation on the south campus originally was scheduled to start in the summer and wrap up this fall. But a state procurement official questioned the financial wherewithal of the firm that will partner with the UI on the project and raised technical questions about the bidding process, according to documents released under the Freedom of Information Act.
Those questions have mostly been resolved, according to state and university officials, but the UI is still awaiting approval. And officials now say the installation may not begin until next spring, threatening the UI's goal of achieving a 2015 renewable energy target under its 2010 Climate Action Plan.
"This project is pretty large-scale for us. It was going to get us halfway there," said Morgan Johnston, sustainability coordinator for UI Facilities and Services. "I am concerned."
The solar farm, to be built near the southwest corner of First Street and Windsor Road, is a public-private partnership between the UI and Phoenix Solar Inc. of San Ramon, Calif., which would design, build and operate the farm for the first 10 years. As initially proposed, the UI would buy all of the energy produced from Phoenix Solar through a power-purchase agreement, paying the company about $1.5 million a year or about $15.5 million over 10 years.
That's about $5.3 million more than it would cost to obtain the same energy from conventional sources, but the idea is to move the campus toward renewable energy. After 10 years, the university would own and operate the farm at little or no cost, other than an annual warranty fee that is part of the $15.5 million, UI officials said.
The partnership was designed to enable Phoenix Solar to take advantage of clean-energy tax incentives and allow the UI to finance the project over 10 years, rather than paying for it up front. But some of the federal tax incentives expire Dec. 31 and are unlikely to be renewed, which will affect the project's finances, according to Joe Borkowski, regional sales director for Phoenix Solar US.
"The delay is definitely costing money," Borkowski said. "The terms of the financing for the project will change. That's not necessarily a fatal flaw. We're working as best we can to make it all work."
Johnston and Borkowski emphasized that the delay won't cost the university any money.
State scrutiny — and delays
The solar project was approved by UI trustees last November and shortly afterward went to Steve Rotello, a state procurement officer, for review, as required under Illinois procurement law, Johnston said.
"Ever since then, we've been answering questions, and getting more questions and answering those, and getting more questions and answering those," Johnston said.
Ben Bagby, chief procurement officer for Illinois higher education, said changes made in the state's procurement process in 2010 to strengthen ethical rules mean the reviews take more time than in the past.
This particular project — a multiyear contract with an outside vendor operating on university land — is also complex and "different from most of the things we've seen. We want to make sure the vendor is who we thought they were and has the capabilities to sign the contract we need," as well as the financial resources to complete the project, he said.
Bagby said the end of the review is "real close now, from what I've heard."
In email exchanges, UI officials expressed frustration at the lengthy review process, which also has slowed down approvals for other campus projects.
"Getting acclimated to new provisions of the procurement reforms and getting the respective staffs familiar with the law and each other has resulted in the approvals and work getting done more slowly than previously was the case," UI spokesman Tom Hardy said last week, declining to discuss any other specific projects.
Transactions can become more complex as a result, which is sometimes warranted but also affects timetables and possibly budgets, Hardy said.
"Anytime somebody's time frame is not met, there's going to be a frustration, but this is a long-term project and it's got to be done right from the beginning," Bagby said.
Rotello, state procurement officer for the UI's Urbana campus, initially suggested that the university needed a performance bond from Phoenix Solar to protect the school financially in case the project failed, according to Johnston and documents obtained by The News-Gazette. A performance bond is issued by a bank or insurance company to ensure a project is completed by a contractor.
"It's a long-term deal, and bonds are used to protect the interests of the university when there's a lot of unknowns out there." Bagby said.
Though performance bonds are common for UI capital projects, the university felt the bond wasn't necessary because Phoenix Solar assumed the financial risk under the power-purchase agreement, Johnston said.
"The whole concept of a (power-purchase agreement) is that the university does not own the system. The university is paying for each kilowatt hour as it's produced. If the plant stops performing," the university doesn't have to pay, Borkowski said.
Phoenix Solar would cover all of the upfront investment — the engineering work, construction and solar panels — and the facility requires "just a tiny amount of maintenance each year to keep it operating in top form," he said. The solar panels come with a 25-year warranty and are expected to operate for at least 30 years, he said.
Rotello declined to discuss his concerns about the project with The News-Gazette, as it is still under review.
But Johnston said Phoenix Solar, like other solar companies, showed a decline in profits in 2012 and early 2013 as the industry went through a downturn. Phoenix Solar was in the middle of the pack among the 11 bidders for the UI project in terms of overall financial standing, she said.
The company's finances have improved this year following a restructuring. The share price of Phoenix Solar AG, the German parent company, had dipped below $1 in April 2012 but has been on a fairly steady climb since July, rising from $1.86 on July 1 to $6.28 on Oct. 7 on Xetra worldwide electronic trading system based in Frankfurt.
Phoenix Solar grew rapidly in the early part of this century but downsized its European operations last year as residential solar programs slowed, according to Borkowski and information from company financial reports. The company began expanding overseas, especially in the United States and Asia.
In the second quarter of this year, the firm posted its first quarterly operating profit since 2010, reporting major new orders from the U.S., Thailand and Saudi Arabia. Then in July, Phoenix Solar US landed a huge new solar electricity plant in Georgia, and the parent company announced a major project in Singapore.
The company reported revenue of about $93 million (68.4 million euros) in the first half of 2013, down from $114.6 million (84.3 million euros) in 2012, a nearly 19 percent drop. Net losses were down, however, to $10.2 million (7.5 million euros), compared with $22.5 million (16.6 million euros) during the same period in 2012.
The new orders are "an important basis for the return to profitable growth," according to Bernd Kohler, CEO of Phoenix Solar AG, and Murray Cameron, CEO of the U.S. division, who were quoted in an Aug. 8 company release.
"We took the hard steps. We addressed what needed to be addressed," Borkowski said.
Nonetheless, the university had agreed in June to work with Phoenix Solar to get a performance bond if needed for state approval, Johnston said.
An April 24 email from Borkowski to Jack Dempsey, former director of Facilities and Services and now at the UI's Center for a Sustainable Environment, suggested the company could get a performance bond for 1.5 to 2.25 percent of the bondable amount of the project — either $80,000 for the "soft costs" (labor and engineering) or $235,000 for the full cost (including hardware). The email also noted that "the University does not put any money at risk" in the project.
Because of the company's improved finances, the question now is whether that's still needed, Johnston said. The UI is still getting advice from its own experts and awaiting Rotello's final decision, she said.
"It's a complicated project," she said.
In the meantime, Rotello raised several questions in June and July about the bidding process, though none involved conflict-of-interest concerns, officials said.
Among the corrections made by the university:
— The original request for proposals, or RFP, said that the program plan for the solar farm was the top priority and pricing ranked second. But in the evaluations that scored the proposals, pricing was weighted more heavily and the recommendations/references were also given as much weight as the program plan despite being further down the priority list, according to a July 2 email from Johnston to Dempsey. Pam Voitik, a UI administrator who was not involved in the original evaluation, adjusted the weighting, documents showed.
— Land-use efficiency was initially part of the program plan on the evaluation score sheet. The UI was instructed to score it as a separate item because it was listed separately in the RFP, Johnston said.
As a result of those two adjustments, the scores for each firm changed slightly but "the overall ranking did not," according to a July 25 memo from Voitik to Dempsey and Morgan.
— The scoring of the recommendations/references, in which clients were asked to rate a company's performance on a scale of 1 to 5, was also adjusted so that nonresponses weren't scored negatively, Johnston said. After that change, the top three proposals were still fairly close, she said in a July 30 memo. "I am confident that these numbers are the appropriate final scores for this evaluation."
— Finally, in August, Rotello also asked UI officials to confirm that Phoenix Solar was following both federal and state laws that require it to use steel made in the United States, "which they are," Johnston said.
Throughout several hundred email exchanges about the project from March through August, Dempsey and other UI officials expressed concern about the delays, as did Borkowski. On June 5, Dempsey complained to a campus budget officer about "more government and more bureaucracy."
"We're very eager to get this built. It's been tough to see it slowed down, but hopefully it will come to fruition soon," Borkowski said recently.
Johnston is hopeful the farm can be installed in the spring, though she said it's "plausible" work could start this year. There are still contract details to be worked out once the state grants its approval, such as exactly how the new facility will connect to the UI grid. That could take a month or two, she said.
"I'm trying to be realistic," she said.
Back in June, when state approval appeared imminent, Phoenix Solar was hopeful it could still finish the project this calendar year, Johnston said. It then became clear further delays were ahead, but "they're still here with us, and determined to help us achieve our goals," she said.
"We're going to make it work one way or the other," Borkowski said.