Deregulation is being tested by a series of crises, from a devastating hurricane to the Wall Street meltdown. Regulators and companies are applying the lessons learned to strengthen the Texas...
Aligning renewable energy incentives with RPS compliance.
Pool Generation Information System, in which each REC represents one megawatt hour (MWh) of electricity generated from a renewable energy source that either is located within, or imported into, the control area of the regional system operator. Connecticut must certify each resource for use in meeting the state’s RPS. To date, the public utilities commission has approved more than 275 renewable resources.
The Connecticut RPS has influenced the development of in-state class-I resources, particularly fuel cell projects, but arguably has had a more substantial influence on renewable projects elsewhere in the northeast. The state’s incentive programs are designed to provide financial subsidies directly to in-state projects, thus far with few sizable projects to their credit. The result is that most of the class-I RPS requirements are being met with RECs from lower-cost projects elsewhere in the region. In 2007, for example, more than 95 percent of the class-I requirements were met with resources outside of Connecticut. Biomass was the predominant fuel source, followed by landfill methane gas. For class-II resources, which are primarily trash-to-energy facilities, 40 percent of the requirement was met with RECs from out-of-state projects, and the balance was from in-state facilities that predate the RPS.
Further, the demand for class-I resources to keep pace with Connecticut’s escalating RPS requirements is expected to remain high, suggesting “a potentially protracted period of high REC prices” approaching alternative compliance payment levels. 2 The market for class-I RECs is expected to tighten after 2010. Approximately 5,800 MW of renewable projects are waiting in the ISO New England queue, which if built would be sufficient for several years, but it’s highly uncertain how many of these projects ultimately might go forward. The market for class-II RECs has been comparatively soft, due to a surplus of class-II resources and a fixed RPS requirement for such resources. Connecticut also is considering changes to its program to allow banking of excess RECs for use in up to two subsequent years under certain conditions.
In 2003, Connecticut established financial incentives for renewable and distributed resources, and shortly thereafter expanded those programs to target additional in-state resources. Among the programs is a requirement for the state’s electric distribution companies to enter long-term power-purchase agreements (PPA) for 150 MW of grid-side renewable resource projects. The projects must be class-I resources located within the state to qualify.
Through three rounds of procurement, the public utilities commission has approved contracts with 13 projects to meet the 150-MW requirement, including four biomass, one landfill gas, and eight fuel cells. In the most recent round, the commission approved five projects, all fuel cells, for 27 MW at an estimated cost between $4.4 million and $5.3 million per MW. These contracts would result in above-market costs over the life of the contracts in the range of $250 million to $300 million. The commission expressed concerns in approving the projects regarding the cost and “severe projected rate impact,” but determined that it was nevertheless constrained by the legislatively mandated timeline for achieving the 150-MW threshold. None of the projects are on-line yet, and the