The sweeping regulatory reform implemented in Michigan over the past year is often couched as a response to the economic crisis. Decoupling rates from utility profits, the reasoning goes, will...
Aligning renewable energy incentives with RPS compliance.
fate of many of them is uncertain. Even with the relative security of the PPAs, and additional ratepayer-funded project grants, the financial viability of the projects might depend on their ability to qualify for additional federal incentives. Additional rounds of procurement likely will be needed to deal with project attrition.
The price of the PPAs is set by law at not more than the estimated “comparable wholesale market price for generation” plus a 5.5 cents-per-kWh adder. In the alternative, projects could be priced at up to 50 percent of the wholesale electricity cost, plus a fuel adjustment based on natural gas futures, plus the 5.5-cent adder. The law also provides a preference to projects that use fuel cells principally manufactured in Connecticut, by allocating all air emissions credits and tax credits to these projects and not less than half of any associated RECs. The structure of the pricing and incentives might give the fuel cell projects the better chance of moving forward as compared to the other approved projects. If any of the projects go forward, available RECs would be credited toward class-I RPS requirements.
Efforts to promote development of smaller-scale renewable projects in Connecticut have been more successful. The Connecticut Clean Energy Fund (CCEF) runs a ratepayer-funded program to promote the installation of customer-side distributed generation utilizing renewable technologies. The program provides grants to customers to buy down the cost of renewable generation equipment, and is intended to enable the project owner to break even over the life of the project, including a return on investment, as compared to purchasing an equivalent amount of power from the utility. The program targets primarily class-I resources, but because of the small size of the projects, its potential impact on the REC market and RPS compliance costs also is small. By mid-2007 CCEF had issued grants for projects totaling 5 MW. CCEF intends to subsidize an additional 15 MW by mid-2010.
Long-Term REC Contracts
The state’s electric distribution companies typically serve standard-service loads through short-term full-requirements contracts, in which the wholesale suppliers to the companies are responsible for meeting all RPS requirements. As a result, each supplier has been required to procure RECs to cover its full portion of the electric distribution company’s load—or incur an alternative compliance payment should it fail to do so. The cost of the RECs associated with each supply contract is embedded in the supplier’s bid price.
Connecticut recently modified its procurement rules to authorize electric distribution companies to explore additional contract options, including the option to seek proposals for long-term bilateral contracts and REC contracts to meet a portion of the RPS requirements. RECs may be procured through a separate long-term deal, or as part of a bundled contract for energy and capacity. The electric distribution companies are expected to evaluate the class-I REC market from time to time to examine whether market conditions and supplier interest may facilitate favorable terms for Connecticut ratepayers.
The REC contract initiative recognizes the projected constraint on class-I resources, and is intended in part to promote renewable development in the Northeast. In