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October 12th, 2012

Connecticut Low and Zero Emission Renewable Energy Credits

by Andrew Price, President & COO

The compliance markets for Renewable Energy Credits (RECs) changes rapidly in New England. The introduction of two new classes of RECs in Connecticut is one recent example. The Connecticut Light and Power Company (CL&P) filed results yesterday of its inaugural procurement of Class I RECs from low and zero emission sources (LRECs and ZRECs). Weighted average prices of accepted bids ranged from $60 per MWh for LRECs and $100 to $150 per MWh for ZRECs. At these prices, consumers in Connecticut should consider participating in the next competitive RFP, due out in April 2013. The balance of this blog is a somewhat dense and technical review of the CL&P RFP results; readers looking for lighter fare, consider yourselves forewarned.

Together with United Illuminating (UI), CL&P issued a Request For Proposals for competitive LREC and ZREC bids on May 1, 2012. The solicitation was made in compliance Order No. 5 of the Decision in Docket No. 11-12-06.  Bids were awarded on July 17th and made public yesterday, October 10th, 2012.

Successful bidders will enter into long term 15 year fixed price contracts with one of the two major electric distribution utilities in Connecticut, CL&P or UI. Qualifying ZREC facilities include solar, wind, and hydroelectric generators up to 1 MW in capacity. Qualifying LREC facilities include fuel cells, biomass and landfill gas – that meet the established emissions standards - and are up to 2 MW in capacity. Both ZREC and LREC facilities need to be “behind” the customer’s electric meter. ZRECs and LRECs can be used for compliance with Connecticut’s Class I Renewable Portfolio Standard (RPS) during the year of generation or the subsequent year. CL&P will award up to $4.27 million in annual payments on ZREC contracts in each of the next four years and up to $3.2 million in annual payments on LREC contracts in each of the next three years. The annual award amount would be paid each year during the 15 year term of the contract. The Public Utilities Regulatory Agency (PURA) will review the LREC program in year three and the ZREC program at the four year mark.

 The ZREC solicitation was broken into two tiers: large (250 kW to 1,000 kW) and medium (100 kW to 250 kW). Procurement of a third tier: small ZRECs (< 100 kW) was not a part of this solicitation and will occur through a tariff mechanism. The anticipated tariff rate for small ZRECs is $164.22 per Mwh.

CL&P received 296 bids in total. These bids included 43 LREC bids, 140 large ZREC bids and 113 medium ZREC bids. CL&P awarded contracts to 76 bidders, or about 26% of the bids received. There were 8 winning LREC bids, all from fuel cell projects. There were 68 winning ZREC bids, all from solar PV projects.

Only $1.9 million of the $3.2 million available for LRECs was awarded. According to CL&P, the $1.3 million shortfall was a result of “…Bidder(s) failure to provide performance assurance, and resulting contract termination, just prior to this filing of CL&P’s Procurement Plan.” CL&P has proposed carrying this money forward to the next solicitation, expected to occur April 2013. All but $223,000 of the money allocated for ZRECs was awarded. The leftover amount will be rolled into the small tariff based ZREC program.

Given the valuable certainty of a 15 year off-take contract with CL&P / UI and the attractive pricing from round one, the upcoming April 2013 solicitation may be an attractive opportunity for electricity consumers in Connecticut. Participants should keep in mind that by selling their RECs they are also selling the right to take credit for any reduction in emissions associated with their onsite generation projects.

 Below is a summary of the bids from CL&P:

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