On June 17th, Connecticut passed legislation that consolidates the development and implementation of Connecticut’s environmental and energy policy within a new, expanded Department of Energy and Environmental Protection (DEEP). Although it is still waiting to be signed by the governor, signs point towards approval as he has spoken out in support of the bill. The bill will affect the solar market on two different levels: residential solar production and commercial facilities less than one megawatt. The original bill known as “Bill 1243” can be found here (http://www.cga.ct.gov/2011/ACT/Pa/pdf/2011PA-00080-R00SB-01243-PA.pdf ) (see section 106-108) and a summary of the Bill can be found here (http://www.murthalaw.com/files/summary_of_public_act_1180_bill_1243_copy1.pdf) (see page 4 of the summary of the effects of the residential portion of this bill).
The new Residential Solar Program mentioned in the bill requires the Clean Energy Finance Authority (CEFIA) to create a solar investment program that will produce a minimum of 30 megawatts by the end of 2022, a relatively modest goal, but it is specific to residential solar.
In order to achieve this goal of 30 megawatts by 2022, the CEFIA will offer panel owners the choice between a performance-based incentive or a one-time upfront incentive based on estimated future system performance, known as expected performance-based buydowns. The actual amount received by panel owners from these incentives will be determined on an individual basis and, if panel owners elect to receive these one-time upfront incentives, panel owners will forfeit the credits they earn from excess energy production.
This expected performance-based buy down program will encourage the buying and installation of new solar panels, but does not set the groundwork for a traditional SREC market. Connecticut’s Renewable Portfolio Standard (RPS), enacted in 1998, mandates that a percentage of retail electricity be renewable, of which a portion is required to be Class 1 (i.e. solar, wind etc.). These new incentives in combination with low Alternative Compliance Payments (ACP) will result in prices remaining below $55 per REC in the Connecticut market in the future.
In summary, there are three main takeaways from the portion of the new legislation that effects residential solar:
1. There was a “pro-solar” bill passed
2. It’s goals are modest relative to other states
3. The bill doesn’t create a viable SREC “market”
Commercial/Distributed REC Program
The bill also lays out a program that will require energy distribution companies (EDCs) to spend a given amount of money to buy RECs from renewable energy facilities under 1 MW. This is essentially geared towards distributed solar since wind and hydro projects below 1 MW are not as common as for solar. Therefore, we’ll refer to them as “SRECs” for now. According to the bill, electric distribution companies must solicit 15-year SREC contracts from qualified facilities, spending $8M in the first year. Each year thereafter, for the first 4 years of the program, the EDCs must add $8M in annual expenditures through additional solicitations for 15-year SREC contracts. This essentially means that the program will double in size for each of the first 4 years.
At the end of these initial 4 years there are two possibilities: either a) the costs of the relevant technologies have been reduced, or b) the costs have not been reduced.
a) If the cost of technologies have been reduced (determined by PURA), electric distribution companies will be required to continue the eight million dollar increase in spending per year in years five and six. In years seven through fifteen, the required spending will remain at 48 million per year and will decrease by eight million dollars in years sixteen through twenty-one (as the contracts signed in years 1-4 roll off).
b) If the cost of technologies haven’t been reduced, electric distribution companies will be required to continue to spend thirty-two million dollars per year in years five through thirteen. In years fourteen through nineteen the required expenditure will decline by eight million dollars per year.
Essentially what this means is that the program will either peak in year 4 and remain at a high of $32M in annual REC purchases or it will be expanded after year 4 to a peak of $48M.
The obligation for electric distributors to buy these RECs will be determined based on the size of their respective distribution system loads and the price of each of these RECs will be capped by the Public Utilities Regulatory Authority (PURA) at $350 per REC. In addition, PURA retains the ability to reduce this price ceiling by 3-7% per year based on a comparison with actual bid prices from the annual solicitation of contracts and foreseeable reductions in the cost of technologies.
These solicitation plans required of the EDCs will be broken down into three separate categories by facility size: under 100kW, 100-250kW, and 250-1000kW. Systems less than 100kW do not need to participate in the solicitations, but will be eligible to receive a price per REC equal to 10% more than the weighted average in the competitive solicitations for projects in the 100-250 kW range. All systems larger than 100 kW will use a competitive solicitation run by the EDCs and focused on getting the most out of the $8M required to be spent.
For example, if the EDC is required to spend $500,000 a year on the program:
$500,000 / $300 per REC / 1200 = 1.39 MW can be installed
If the price is “bid down” to $200:
$500,000 / $200 per REC / 1200 = 2.08 MW can be installed
As the price gets bid down by producers who are willing to sell their SRECs for less than other producers, the percentage of the EDC’s energy production that is Class I renewable will increase (assuming their overall distribution remains roughly the same).
Finally, if EDCs fall short of spending the required amount of money, they will be forced to make a non-compliance payment of 125% of the difference between what was required and what was spent.