Connecticut has driven down the costs that ratepayers will incur for their public utilities’ clean-energy purchases through an innovative reverse auction. The newly-launched program is the first of its kind, but there’s a congressional proposal with language directing the Energy Department to set up reverse, renewable-energy auctions on a nationwide basis.
The legislation has languished in the current Congress, but it will be back – and its sponsor can now point to the promising outcome in Connecticut, where Gov. Dannel Malloy has led a charge for “cheaper, cleaner, and more reliable” electricity.
The state’s auction was mandated by the 2011 Energy Act. It was held last spring by Connecticut’s two distribution companies – United Illuminating and Connecticut Light & Power. The utilities selected from 368 bids, 87 solar, and 10 fuel-cell projects qualifying under the state’s Low- and Zero-Emissions Renewable Energy Credit (LREC and ZREC) Program.
In this first round of auctions, UI and CL&P solicited bids for large and medium ZREC projects and LREC projects of any capacity. The bids were expressed as prices for renewable energy credits that the projects would be assigned on the basis of one REC per megawatt hour of electrical generation.
The bids were limited to $350 per REC for ZREC projects and $200 per REC for LREC projects. However, the utilities won’t have to pay anywhere near those numbers for the 31 megawatts that the winning bidders will produce from their 97 projects.
The resulting RECs will cost UI and CL&P a total of $8.1 million annually, which works out to an average weighted price of $90 per REC – or far less than REC prices in many other states.
Alex Kragie, a senior official in Connecticut’s Department of Energy and Environmental Protection, told AOL Energy that, “As predicted, the results showed that the program successfully drove down the cost of clean energy even more impressively than we had anticipated, which is a huge step towards grid parity.”
Creative Financing Mechanisms are Key
Kragie also pointed out that the winning bidders will enjoy a rock-solid assurance that the REC prices paid for their projects’ output will never change during the 15-year terms of their contracts. Like the reverse auction itself, the price guarantee is unique in comparison to the terms in practically all other PPAs for renewable energy.
DEEP Commissioner Dan Esty told AOL Energy that “this is the key to the program because these [REC price] commitments enable the developers to get private sector loans to build out the projects. We believe that the key innovations required for renewable energy development is much less in the area of technology than it is in the area of financing – particularly with government funding for subsidies being so limited.”
Reed Hundt, CEO of the Coalition for Green Capital, told AOL Energy that Esty and Gov. Malloy – who had directed Esty to come up with a legislative proposal for clean energy incentives – “should get all the credit in the world. They’re protecting the ratepayer and the taxpayer while fostering clean energy conversions. A lot of economists think customers have to be punished in exchange for clean energy conversions, but they’re wrong, wrong, and wrong.”