20-year lease extension up for vote

The gun club was not the only entity with lease extension business before the city council in their meeting last week.

The council also approved the introduction of a bill that, if passed, will extend the lease for the first energy generation facility in the Eldorado Valley for an additional 20 years.

While most think solar when it comes to electricity generation in the vacant land that makes up the bulk of Boulder City’s land mass, this one is actually a more traditional natural gas burning plant. Since 1997, Boulder City has leased land in the Eldorado Valley for a natural gas-fired electric energy generation facility known as Desert Star, which is currently owned and operated by San Diego Gas and Electric (SDG&E).

The current lease expires in 2027, and the city, along with SDG&E, have been working since 2022 on an agreement to extend the lease an additional 20 years.

An amended and restated lease agreement that updates and clarifies terms as well as extending the lease an additional 20 years has been negotiated and will come before the council for a vote and approval in their meeting scheduled for Feb. 11. Major changes include adding hydrogen combustion energy generation and energy storage as permitted uses, with an energy storage rent of $2,000 per MW.

A staff report noted that the council had previously authorized appraisals for the land and that the rent is above appraised value.

The rent payment for this lease is currently $1,307,790 per year.

Section 144 of the Boulder City Charter allows for solar renewable energy development and production in the Eldorado Valley Transfer Area. Any other land uses in the Eldorado Valley Transfer area must be approved by a ballot measure. In 2007, voters approved allowing geothermal and geothermic energy exploration, research, development and production to be done in the Eldorado Valley Transfer Area outside of the Multi-species Habitat Conservation Easement. Natural gas production was not previously included as permitted use, but SDG&E was grandfathered in as an existing lease. Due to the request for extension, the city required a ballot question to approve the natural gas facility as a permitted use in perpetuity.

In 2022, Boulder City voters approved a ballot question adding this natural gas facility as a permitted use in perpetuity, as well as clean energy technologies such as battery energy storage, carbon capture, and clean hydrogen.

Clean hydrogen generation may or may not become feasible at a commercial level by the time the extended lease runs out. Currently, some commercial gas generation plants are running a mix that is about 10% hydrogen. Industry sources mostly give a timeline of 10-20 years before burning 100% hydrogen (which has no carbon and therefore does not pollute) will be technologically and financially feasible.

The lease terms include an increase of 2% per year after the first year, which would put the annual rent in the final year of the lease at just shy of $2 million. Additionally, a potential additional revenue of $2,000 per MW annually would come about if battery energy storage is installed in addition to the existing facilities.