For the first time, Huntsville Utilities will purchase electricity from a provider other than TVA. The new project will be part of a green initiative for the utility company while providing what’s expected to be a cost savings, according to CEO Wes Kelley.

The city council last week unanimously approved an agreement for Huntsville Utilities to purchase power from Toyota Tsusho, which is building a solar power facility near Toyota Motor Manufacturing in north Huntsville. The agreement had previously been approved by the Huntsville Utilities Electric Utility Board.

“This is the first green initiative of renewable power that Huntsville Utilities has been directly party to,” Kelley told the council.

The agreement with Toyota Tsusho, which is part of the Toyota group, was made possible in 2020 when the city council approved a power supply flexibility agreement with TVA. That agreement allowed Huntsville Utilities to purchase up to 5% of its electricity from a source other than TVA.

Given those parameters, the scope of the solar project with Toyota is relatively small in Huntsville Utilities’ overall operations. Kelley said the solar development will generate up to 30 megawatts of electricity when the sun is shining – which he said could power about 4,000 homes. The power purchase agreement would cover about 40% of the 5% flexibility that Huntsville Utilities has to purchase power from a non-TVA source, Kelley said.

The solar development will be used to power operations at Toyota Motor Manufacturing and, if not for the agreement, Kelley said Huntsville Utilities could lose revenue in providing power to the $1.5 billion motor plant that has the capacity to produce 900,000 engines annually.

Huntsville Utilities will also build a $2.6 million substation to connect with the solar development, which is expected to be completed in February 2024. The agreement approved by the council authorizes Huntsville Utilities to purchase power from the Toyota solar development at $43.85 per megawatt hour with a 1.5% escalator annually for 30 years.

“It is at a price lower than what we are paying TVA,” Kelley said. “Of course, solar doesn’t generate 24 hours a day though, so it’s a bit of an apples and oranges comparison. But certainly, it is not only a green initiative, it’s a great partnership with Toyota. And it is cost effective for our ratepayers.”

In a letter to the city council prior to the vote, Kelley said that the cost savings were dependent upon the likelihood that TVA’s rates would continue to increase just as the rates will increase each year from the solar development.

“If TVA were to raise its base rate an average of half a percent a year and increase the fuel cost adjustment by half a percent, the project would provide nearly $500,000 in savings for HU each year,” Kelley’s letter said. “If TVA rates only increase by one-tenth of a percentage point each year over 30 years, then the project would provide less than $200,000 in savings each year. Many variables would change this calculation but the significant ones are the solar panels’ energy output and TVA’s future rates. The more energy produced, the less power HU purchases from TVA. The higher TVA’s rates rise, the better value this agreement provides.”

Beyond the potential financial savings, Kelley touted the prospect of HU reducing its carbon footprint by investing in the solar development.

“Aside from the financial savings, this project would be the largest “flexibility” project in the Tennessee Valley,” the letter said. “It demonstrates Huntsville’s interest in renewable energy and creating green power options for HU customers.”

The project would also provide Huntsville Utilities 14,000 renewable energy credits that can be sold to customers investing in clean energy, the letter said. And Huntsville Utilities is in discussions with TVA about a “green rate” for commercial customers.