The Connecticut Department of Public Utility Control (DPUC) has recently adopted amendments to its regulations in order to bring the mechanics of Connecticut’s Renewable Energy Portfolio standards program into line with those of Rhode Island, Massachusetts and Maine in a manner that hopefully will help stabilize the market for Renewable Energy Certificates (RECs) and help stimulate the construction of additional renewable energy sources in Connecticut and the rest of New England.
Like the other New England states, in order to stimulate the production of energy from renewable sources, Connecticut has for a number of years maintained renewable energy portfolio standards requiring electricity suppliers (licensed Connecticut electric suppliers and electric distribution company wholesale suppliers) to obtain a minimum percentage of their retail supply from renewable energy sources. Over time, the required percentage of a supplier’s portfolio of renewable sources increases to 20 percent of its total supply.
One of the ways by which an electric supplier can demonstrate compliance has been to purchase from renewable energy generators RECs issued by the New England Power Pool Generation Information System with respect to energy produced by renewable energy source generating units within its jurisdiction or renewable energy actually imported into the New England region from renewable energy sources.
Currently, the DPUC’s regulations generally require that electric suppliers use RECs for energy produced in the year for which they seek to demonstrate portfolio compliance.
The DPUC found, however, that an excess REC supply in a particular year could quickly drive down REC prices and have a negative impact on the use of RECs to promote the construction of renewable energy sources. It also found, on the other hand, that an excess demand for RECs in a particular year could have the opposite effect and unnecessarily drive up the cost of renewable energy for ratepayers.
Accordingly, the DPUC approved amendments to its regulations last August, which became effective on Dec. 22, allowing for the “banking” of RECs by electric suppliers, essentially allowing the suppliers to transfer excess RECs into future years for compliance in those years and thereby smooth demand and supply volatility. The DPUC also found that the amendment to its regulations would establish the same “banking” provision, and restrictions, used in the other New England states.
The new program now provides that “banked” RECs can be used if (a) the RECs were in excess of the RECs needed for compliance in the year they were generated and have not previously been used for compliance, (b) they do not exceed 30 percent of the applicable requirement in the year the RECs were generated and (c) have not otherwise been, nor will be, sold, retired, claimed or represented as part of the total output or services, or used to satisfy obligations in jurisdictions other than Connecticut.
The new program, together with the DPUC’s decision in 2008 permitting electric distribution companies to enter into long-term contracts for the procurement of RECs, now provides the opportunity for producers of renewable energy to enter into long-term contracts with electric suppliers and directly with electric distribution companies without excess RECs in any one year having an undue depressing effect on the value of the contracts to suppliers’ or distribution companies’ compliance efforts. Such long-term contracts are already a potential source of more constant revenue streams for generators of renewable energy, creating greater market certainty and hence lower market risk to investors.
With the banking provisions added by the DPUC’s new regulations, long-term contracts will be more attractive to Connecticut electric suppliers and electric distribution companies that need to meet renewable energy portfolio standards. In negotiating long-term energy supply contracts with suppliers and electric distribution companies, generators of renewable energy will, as was the case before the amended regulations, need to make sure that their contracts clearly indicate the extent to which the energy being sold includes the environmental attributes, including the RECs, and the extent to which the price for the energy reflects the value of the RECs.
Robert J. Metzler II is a partner in the law firm of Hinckley, Allen & Snyder LLP in Hartford. He specializes in energy-related matters and is a member of the firm’s Green Law Group.
