Connecticut 2015 energy legislative changes

CT legislature passed three major renewable energy bills this legislative session. As of today SB 1070, HB 6838, and SB 928 have been passed by both houses and is before the Governor Malloy for approval. He is very likely to sign all three bills into law as much of it has been put forward by his administration, especially HB 6838, which has been his signature initiative. Broadly, all these bills makes significant changes to the renewable energy policy in the State.

SB 929 authorizes the Department of Energy and Environmental Protection (DEEP) to create a pilot “shared clean energy” program. Shared renewable energy program or popularly known as community energy program allows residents to purchase a share of energy produced by a solar farm, and claim the energy and environmental benefits associated with this. This program expands the solar  (or other renewables) energy for people who do not own their own houses to put solar in the roofs, or live in situations where solar PV is not practice. A developer in the community would be able to install a large solar array, and could “sell” portion of the electricity to any residents. Purchased electricity share of the electricity from the community energy farm would be deducted from the residents electricity bill. Total amount of such community solar projects are capped at 4MW in Eversource territory and 2 MW in UIL territory.

This program however will be offered as a pilot program, and DEEP is required to analyze and offer recommendations as to the viability of making such community energy projects into a permanent program. This bill follows a very recent example of successful legislation in Maryland (HB 1087) to establish pilot community energy projects as well.

Enabling community solar projects or shared renewables is significant step towards creating energy justice as it allows people to receive benefits from solar energy previously would not have been able to because of various reasons. More solar projects will help decentralize CT’s energy sources and will enable to receive clean and affordable energy from local sources. It is perhaps a good idea that the program is capped, since the program would have otherwise have created exponential demand similar to Minnisota. Pilot program will help to figure out nut and bolts of offering such program, and given how intrinsically beneficial solar energy is, this program would surely be continued in the future.

One key attribute about such community solar projects is who is allowed own them. If it is the utility who owns and provides such service then this is would not mean change from the current status quo in the monopoly energy market (which has been popular in Virginia). However, in CT, the law allows any party to build such solar projects, which is definitely the right way to go.

SB 1078 shuffles up the responsibilities of the Board of Public Utilities (BPU) (their version of public service commission) and the Department of Energy and Environmental Protection (DEEP). This bill shifts the responsibility of procuring large scale renewable energy, demand response, and natural gas as provided in the state’s Integrated Resource Planning from the BPU to DEEP. DEEP can issue multiple solicitations to contract up to 10% of the total load served by the state’s electric companies. Renewable energy procured under this would be used for state’s RPS compliance.

I am not sure why exactly why the legislature decided to shift this responsibly from BPU to DEEP, but this would be a huge change how the energy would be procured. This model is very similar to New York where, the state agency- NYSERDA procures all the energy for RPS compliance. Maybe this is CT slowly transitioning into the NY central procurement model.

Although, the bill specifies that the utilities can use the renewable energy credits for its RPS compliance for can sell the RECs out side of state. More of REC sales analyzed in section below.

HB 6838 has been Governor’s Malloy’s signature initiative, and has been very popular in the media. The bill expands the State’s Residential Solar Investment Program’s goal to 300 MW of new residential PV by 2022, from its previous goal of 30MW by 2022. This ten fold increase in the goal would be facilitated by creating Solar Home Renewable Energy Credits (SHRECs)..( this in a state that already has LRECs, and ZRECs; a new addition to its REC alphabet soup).

CT has an unique RPS in that it does not have a solar carve out like other states. It has tried to create distinction between solar and other resources by creating Zero emission RECs (ZRECs) and Low emission RECS (LRECs) and has imposed utilities to purchase a percentage of each. This bill requires the utilities to purchase SHRECs at predetermined price, which creates a market for these SHRECs. This is very creative and impressive in that this bill effectively creates a pseudo solar carve out, in the state RPS that does not have a solar carve out.

Any residential homeowever who installs solar through participating in the Solar Investment Program offered by DEEP would forgo their rights to the environmental credits to DEEP. DEEP would then sell these SHRECs to utilities in a long term contract to generate more revenue to provide incentives to for more home solar. 

This self-funding cyclic process is great, and if you give it a thought, it appears that the all the homeowners would be paying for the solar (which they should) by a increase in their general electric bill, but if you read the bill closer, it specifies that the utilities can sell these SRECs out of state to generate revenue which then must be used to relieve the ratepayers in CT.

This bring the issue of double counting of these RECs, especially since there SHREC by law are going to be priced significantly lower than other markets. Other unique attribute about CT is its fixed Alternative Compliance Payment (ACP), which is the amount that the utilities would have to pay if they do not meet the state’s RPS goal. The law has fixed this payment to $55 MWh, which effectively provides the ceiling price for these RECs, since a utility would rather pay the ACP then purchase RECs for higher price.

So since these SHRECs can be sold out of state where they may be priced higher, this would be a significant revenue stream for CT. In a way they are funding their solar growth, it other’s back- the same way one could argue Vermont has been doing it. Vermont does not have an RPS, so most of the SRECs in VT is sold in CT, so one solar panel is being counted toward meeting Vermont’s own goal, and to meet CT RPS- effectively counting the output from the same solar panel twice.

CT although has been careful saying that the if the SHREC is used to comply with the State’s RPS then the must be retired, which is great, and limits these RECs from being double counted. But for the RECs that the utilities sell out of state, it is a little complicated.

The trouble is that CT has two goals - RPS Class I requirement, and 300 MW goal under this program. I assume most of the SHRECs will be retired for the compliance towards RPS, but there will be a lot that the utilities will just sell out of state. While this may not be used to comply with the RPS, it will be counted towards meeting this 300 MW goal- which I would argue is a kind of double counting.

But CT has been careful against possible legal challenges. It its last changes to the bill House changed the language in the bill from being a "goal" to a "cap" which I think that takes care of the double counting in a legal way. Since one could argue that there is no goal under the Residential Solar program. 

I dont mean to be critical, this bill is going to be great for home solar deployment, but it is as not tight that I would hope for; but again with one of the highest electric rates in US, the legislatures probably wanted to put in a check that the cost dont escalate further.

Anyways, this sums up little of complexity in electric markets. Electric markets natural tendency is to act like a monopoly, and for various reasonable arguments we have tried to make turn it into competitive market. This process was described as a person trying to push a large bag of spaghetti up hill- if you push on one side of the bag, the other side bulges down. This is similar to what we observe in electric market, there are just number of ways, one can shuffle around, and one has to be careful while modeling such market.

Thanking the Solar Early Adopters.

Which is a smarter economic decision- the person who buys the first ipod in the market as soon as it becomes available, or the person who waits for a year until better next generation of the product is available at a much lower price? While the person who bought the first ipod must have had compelling reasons to buy it then, one could argue that by waiting a little longer, the second person was able to get a much better product a lower price- all the person needed was a little time.

The same thing can be true in solar markets. The first generation users are the European countries including Germany, Italy, Spain, England, who starting around 2009 have aggressively pursued renewable energy. These early adopters have experimented with various financial models have achieved success and failures in a broad spectrum, all helpful in providing very insightful reasons what to do and what not to do while pursing solar. 

•   Solar Manufacturing: Their heavily subsidized market helped to activate the solar manufacturing industry, making the industries sustain while the manufacturing cost where high, while lessons were learned towards making various technological improvements and economics of scale. It basically helped to sustain solar through its initial tough times.
•     Identifying soft costs: While the manufactures were working on manufacturing challenges, people quickly realized that marketing, permitting, installation or “soft cost” consisted of a significant part of installation solar panels. This helped develop various innovative financial and  permitting techniques to minimize these soft costs help making solar panels more economical. 
•    Understanding effects of electric market: The effect of increasing solar PV on the traditional electric markets was not well understood. The traditional market include a single monopoly utility who is in charge of providing electricity usually from large generations, and are guaranteed recovery. Solar PV are small generators put in the distribution sector, and are owned by the multitude of owners. It was soon realized that the much feared “utility death spiral” where traditional utilities would slowly start to go out of business was true- unless they start to re-define their purpose in the market was soon realized. 
•     Technological challenges: This perhaps was the most important aspect of solar insurrection. While it is easy to wish and make goals for large renewable energy integration, it was unclear how much the grid would be able to handle renewable energy which are intermittent and are completely in different in nature from traditional power plants. Many were skeptic of the ability to the grid to handle solar in large capacity; many in US still do. However, we have seen industrialized countries such as Germany been able to get more than 17% of its total electricity through solar, and other countries such as Denmark where in certain instances have been able to feed all of its electric demand through renewable energy sources. This helped proved that solar and other renewable energy in fact can be integrated in the traditional grid.

How long should one wait?

Thanks to the first users, the solar industries we have been able to understand come up with ways to figure out much of the major challenges. One could argue that there is much to gain if you wait even longer time. Is the costs of solar doing to come down more in the future? Looking at historical record, and future projections, the answer is a definite yes. But how long should one wait?

The answer empirically is quite easy, one can simply analyze cost benefit of the investment and do it if there is more to gain. Cost of solar for most are the same- the material cost, and other soft cost; however benefits of solar range widely based on ideals of the individual. For many, the effect of increasing carbon is the greatest moral challenge human civilization has ever faced. For them, including the many early adopters including many European countries little extra cents in their electric bill is trivial. For the rest cost, the cost of solar panels are already at “grid parity” meaning that the cost of solar electricity is a same price as the grid. And the rest who are still skeptical, they could wait a little longer where the cost of solar PV get so low that it would be stupid not to switch to solar.

Just depending on the time frame, solar electricity will keep increasing. Technically, the world has always been powered by the Sun, yet soon enough I look forward to a time when it is fully powered by solar PV.