Thanks for the link. It looks like a warning and not an error. Also, I
don't understand how this issue would explain the observed behavior
which is that any key specified for the local0 repo fails while using
the same key and repo as local1 repo works.

Since my repo key works as local1 repo I think that the problem is with
the installer and not with the repo key.

Do you have any idea how to debug this further?

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https://bugs.launchpad.net/bugs/1553121

Title:
  Xenial preseed fails to load key for 3rd party repo with apt-
  setup/local0/key

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