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Local Renewables

An emerging model for green power.

Fortnightly Magazine - March 2010

can take the SRECs, and if dealing with an electric utility, apply them to meet RPS requirements, or if not, monetize the SREC flow through a contract with one or more electric utilities looking to meet the RPS requirement.

Regional Benefits

Whether an electric utility chooses not to participate directly in the hybrid program as a proposal-submitting solar developer, or simply prefers to work with a successful developer after award of a PPA, several significant opportunities and benefits for electric utilities are provided through this public-private partnership approach to renewable energy (although solar was used as an example, the concept, if not the exact values, translate for other forms of renewable energy).

First, the hybrid program makes available a large number of SRECs, in one-stop-shopping fashion, to the electric utility industry. To the extent local governments issue their own debt, or enter into the traditional turnkey PPA contract with individual solar developers, electric utilities would need to enter into contracts to purchase SRECs from each local government or solar developer, as the case may be, for the respective transactions. In the case of the county pilot program, more than 3 MW of renewable energy, and accompanying SRECs, will be generated from 19 local government buildings and parking canopy systems involving seven local governments. An electric utility could submit a proposal in hopes of being the successful proposer or need only enter into a single SREC purchase contract with the winning solar developer to obtain all the SRECs produced from the hybrid program. Although SREC purchase contracts typically have a duration of less than five years—more likely one to three years—under New Jersey law, in theory at least, electric utilities could lock up the SRECs produced by the program for a 15-year period.

In addition, this hybrid regional approach would allow utilities to eliminate certain public procurement processes. To the extent the local government issues its own debt to finance and own the solar project, New Jersey law requires such local government to enter into its own competitive process to sell the SRECs it is entitled to receive as a generator of renewable energy. Under the hybrid program, the competitive procurement process required by New Jersey law already has occurred during the solar developer procurement process. Accordingly, if an electric utility isn’t the selected solar developer, there is no procurement process required for an electric utility to purchase the program SRECs from the solar developer, because the solar developer itself was selected under a competitive procurement process under state law. Therefore, the electric utility can enter into a direct negotiation with the solar developer. In fact, arrangements can be made by the electric utility with one or more solar developers seeking to submit proposals under the hybrid program, prior to such submission, thereby eliminating a risk factor that the solar developers must otherwise build into their pricing models, since their resale of SRECs would, absent any agreements with electric utilities prior to proposal submission, be at assumed rates.

Lessons from New Jersey

Thirty-one states have adopted some form of RPS. If the trend