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.
approving the initiative, the commission noted that long-term contracts could provide greater market certainty to project developers, including a revenue stream that would lower risks and facilitate project financing. Consistent with the RPS requirements, contracts aren’t limited to in-state resources.
The larger impetus for authorizing long-term REC contracts appears to have been their potential to provide cost savings to customers. As an example, the contracts aren’t limited to new resources, thus putting existing facilities on an equal footing for purposes of submitting competitive bids. There’s some concern that excluding existing resources could skew the market and increase the bid prices for new resources. The contracts also aren’t limited to in-state resources, but could be located anywhere within the region, with price being the overriding factor. Other factors include the potential for price stability, fuel diversity, a hedge against potentially higher market prices, and elimination of the mark up on REC costs embedded in full-requirements bid prices from suppliers. Long-term contracts provide the opportunity to meet a portion of the RPS requirements with RECs obtained at cost. In anticipation of possible changes in the definition of RECs over time or the imposition of carbon caps, the contracts may be drafted to encompass all environmental attributes.
The contract costs will be recovered in a bypassable generation charge. While the enabling statute allowed regulators to approve contracts of up to 15 years, the commission indicated that it would limit the term of REC contracts to a range of four to 10 years in order to mitigate the possibility of stranded costs. It’s unclear whether the shorter contract term will be sufficient to promote new development or have the desired positive impact on REC market prices.
In September 2009, the governors of the six New England states adopted the Governors’ Renewable Energy Blueprint , which was prepared by the New England States Committee on Electricity. 3 The report states that New England has “untapped renewable resources” on the order of over 10,000 MW. The report suggests a coordinated approach to develop a level of resources sufficient to keep pace with the region’s renewable goals, but also potentially to exceed those goals to exploit the capability of the region to become a net exporter. The report notes that “[m]ore aggressive development of generation resources—with corresponding transmission infrastructure investment—would enable New England to export clean power.”
The Governors’ Blueprint could signal a shift toward a regional focus on renewable project development. This shift would be a further reason for states to revisit their renewable incentive programs with respect to alignment with RPS goals.
1. Established in 1995, the Database of State Incentives for Renewables & Efficiency (DSIRE) is an ongoing project of the North Carolina Solar Center and the Interstate Renewable Energy Council (IREC). It’s funded by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE), primarily through the Office of Planning, Budget and Analysis (PBA).
2. Integrated Resource Plan for Connecticut , prepared by the Brattle Group for The Connecticut Light and Power Co. and The United Illuminating Co.,