Solar energy led new installations in October 2013

Solar-powered projects led new electric generation capacity installed in October 2013.  According to the Federal Energy Regulatory Commission's October 2013 Energy Infrastructure Update, most of the electric generation placed in service in October relies on solar energy technologies.  Developers placed 504 megawatts of solar capacity online in October, out of 699 megawatts of total new capacity for the month.  Solar also led the month in terms of the number of projects installed, accounting for 12 of 21 projects.

Solar photovoltaic panels line the roof of the visitor center at the Parker River National Wildlife Refuge in Massachusetts.

The solar energy projects placed in service last month vary widely in scale and in technology.  The largest, Abengoa SA's Solana Generating Station in Arizona, generates up to 280 megawatts of power using a thermal concentrating solar power technology.  2,700 parabolic trough mirrors focus the sun's rays on a pipe containing a synthetic oil.  This heat transfer fluid can reach 735 degrees Fahrenheit, and is sent to boilers where it produces steam from water.  The steam turns turbines attached to generators, much as in a conventional thermal power plant.  The Solana plant also features energy storage in the form of molten salt tanks that can enable it to generate electricity for up to 6 hours after sunset.

On the other end of the spectrum, Constellation Solar New York LLC placed its 2 MW Owens Corning Delmar Solar photovoltaic project online.  The project, located at an Owens Corning factory in Delmar, New York, consists of about 9,000 ground-mounted, photovoltaic panels covering over 9 acres.  Power produced by the project is sold to Owens Corning under a long-term power purchase agreement for use at the thermal and acoustical insulation factory; the project is expected to cover about 6 percent of the plant's annual electricity need.

While the use of solar energy is increasing rapidly, it remains a relatively small component of the nation's overall energy mix.  Solar powered projects account for 6.79 gigawatts of capacity, just 0.59% of the 1,158 gigawatts of existing electric generation capacity nationwide.  Nevertheless, the relatively small market penetration of solar technologies suggests that rapid growth may continue for the near term.

Wind to power Microsoft's Texas data center

Microsoft has agreed to purchase energy produced by a Texas wind farm to power its data center in San Antonio.  The announcement, posted on the official blog of Microsoft's Sustainability Development Team, describes a 20-year power purchase agreement with RES Americas under which Microsoft will purchase all of the output of the 110 megawatt Keechi Wind project located about 280 miles north.

The power purchase agreement fits with Microsoft's stated commitment to carbon neutrality.  Since 2012, Microsoft has imposed an internal fee on the use of carbon-based forms of energy; Microsoft uses that fee to make investments in alternative or carbon-neutral energy, such as this power purchase agreement.

The Keechi project will be owned and operated by RES Americas, a subsidiary of British company RES Ltd.  RES Americas currently operates over 600 MW of renewable energy projects, and has a renewable energy construction portfolio that exceeds 6,500 MW and 64 projects, as well as 534 miles of transmission lines.  Its Keechi project is expected to cost $200 million, and will feature 55 turbines expected to produce 430,000 megawatt hours of energy per year.  (To put this figure in context, it could power up to 45,000 homes, or cover between 5 and 10 percent of Microsoft's total electricity consumption.)  Construction is expected to begin in 2014, with the project going operational by June 2015.

Microsoft is not alone in promoting its use of renewable or alternative energy to power its data centers.  In 2012 Google entered into an agreement to purchase the output of a wind farm in Oklahoma to power its Pryor data center.  Apple's new data center in Maiden, North Carolina is powered in part by a solar photovoltaic array and a biogas-fed fuel cell.  eBay has proposed siting a 6 megawatt natural gas-fired fuel cell at its Utah data center.  Whether the data center is powered by on-site distributed generation or buys power from a designated off-site renewable resource, the trend is toward promoting cleaner, greener computing through these arrangements.  These choices may help the companies with cost control and power reliability as well as public relations.

Will large consumers of electricity continue to invest in alternative or renewable electric generation?  If so, will they favor arms-length power purchase agreements with developers of remote projects, or will they rely more heavily on on-campus development of distributed generation?  Will this trend spread beyond the big names so far - Microsoft, Apple, Google, and eBay - to the point where smaller or less tech-oriented companies develop or do similar projects and deals?

  Googa 20-year power purchase agreement (PPA) for wind energy in Texas that will be funded in part by proceeds from Microsoft’s carbon fee - See more at: http://blogs.msdn.com/b/microsoft-green/archive/2013/11/04/microsoft-signing-long-term-deal-to-buy-wind-energy-in-texas.aspx#sthash.4l62oNbo.dpuf

a 20-year power purchase agreement (PPA) for wind energy in Texas that will be funded in part by proceeds from Microsoft’s carbon fee - See more at: http://blogs.msdn.com/b/microsoft-green/archive/2013/11/04/microsoft-signing-long-term-deal-to-buy-wind-energy-in-texas.aspx#sthash.4l62oNbo.dpuf

a 20-year power purchase agreement (PPA) for wind energy in Texas that will be funded in part by proceeds from Microsoft’s carbon fee - See more at: http://blogs.msdn.com/b/microsoft-green/archive/2013/11/04/microsoft-signing-long-term-deal-to-buy-wind-energy-in-texas.aspx#sthash.4l62oNbo.dpuf

US holds first offshore wind site lease auction

Yesterday the U.S. Department of the Interior held its first competitive lease sale for renewable energy on the Outer Continental Shelf.  With a total bid of about $3.8 million, Deepwater Wind New England, LLC won the rights to lease two parcels covering 164,750 acres offshore Rhode Island and Massachusetts.  What do the auction results mean?

Consistent with President Obama's climate action plan, the Interior Department is promoting the use of federal lands for the production of renewable electricity.  Yesterday's auction represents the first competitive auction for leases for offshore wind sites in federal waters.  Following significant stakeholder process, the Interior Department identified and refined the parcels off Rhode Island and Massachusetts, and solicited interest in leasing sites.  In June, the Interior Department announced that nine companies were legally, technically, and financially qualified to participate in the auction.

The auction took place in two phases in late July.  First, a panel met to consider non-monetary factors, including whether any bidders held agreements that could make their project a more realistic success.  For example, bidders demonstrating a power purchase agreement or joint development agreement could score bonus points enabling them to compete against higher monetary bids.  Deepwater Wind's joint development agreement with the State of Rhode Island thus gave it an advantage in the second round held on July 31.  This round took a more traditional auction format, with bidders placing a series of increasing bids until only one bidder remained for each parcel.

Three bidders participated in the auction: Deepwater Wind New England, LLC, Sea Breeze Energy, LLC, and US Wind Inc.  After 4 rounds, Deepwater Wind had won the south parcel for $94,153, and only one other company remained in the competition for the north parcel.  By round 11, Deepwater Wind had won the north parcel with a bid of $3,744,135.

With the auction completed, Deepwater Wind has 10 days to execute the lease agreements.  Its first rent under the leases will be due in 45 days.  Lease fees for the sites will be charged at $3 per acre, and if Deepwater Wind develops an operating project, it will also pay an annual fee roughly equal to 2% of its wholesale energy market revenues.

Building on this first auction, the Department of the Interior plans to hold a second auction for sites off Virginia in September.  Eight bidders have been deemed qualified to participate in the Virginia auction.  How many bidders will actually participate in the auction?  How much competitive interest will arise?  For what price will the parcels' lease rights sell?  Will the leases - whether off Rhode Island and Massachusetts, or off Virginia - lead to operating offshore wind projects?  Time will tell how the 2013 offshore wind lease auctions affect U.S. energy development.

IRS reverses tax ruling on wind PPAs

The U.S. Internal Revenue Service has reversed its previous position on how it will treat power purchase agreements from wind energy facilities. 

Earlier this year, IRS issued a private letter ruling addressing a tax issue arising when a taxpayer purchases wind energy facilities operating under facility-specific power purchase agreements.  Under Section 167 of the Internal Revenue Code, which establishes how depreciation works under tax law, the computation of an adjusted basis for an asset is essential to calculating tax values and liabilities.  What happens when a taxpayer purchases a wind project that operates under one or more PPAs?  Should the purchase price affect the basis of the facilities, or should part of the purchase price be allocated to the PPAs?

In January 2012, in Private Letter Ruling 201214007, the IRS concluded that the purchase price should be included in the adjusted basis of the facilities, rather than allocating any portion of it to the PPAs.  Last week, the IRS issued Private Letter Ruling 201249013, which revokes its previous private letter ruling.  According to the new ruling, "the Service has determined that Private Letter Ruling 201214007 is not in accord with the current views of the Service."  Rather, the IRS now holds that the portion of the purchase price paid by the taxpayer that is attributable to the PPAs is to be allocated to the PPAs and not to the wind energy facilities.

While private letter rulings are directed to the specific taxpayers involved and may have limited precedential value, the ruling indicates a shift in the IRS's thinking about the tax treatment of transactions involving operating renewable energy generation projects.

Wisconsin nuclear plant closing as gas boom cuts electricity prices

A Wisconsin nuclear power plant is slated for closure early next year, as electricity prices have fallen due to the proliferation of low-cost natural gas.

Dominion Resources Inc. announced yesterday that it will close its Kewaunee Power Station, a 556-megawatt nuclear power plant in Carlton, Wisconsin.  Located on Lake Michigan about 35 miles southeast of Green Bay, the Kewaunee plant features one Westinghouse pressurized water reactor.  The station began commercial operation in 1974, and was acquired by Dominion in July 2005.

Despite being relicensed by the Nuclear Regulatory Commission in 2011 for a new term through 2033, according to Dominion's most recent Form 10-K, Dominion faced a $66 million loss ($39 million after-tax) from operations of the Kewaunee plant.  Part of Dominion's problems likely arose from the relatively low price it could get for power produced from the plant.  While Dominion has cost-of-service-based contracts to sell the plant's output to two Wisconsin utilities - Wisconsin Public Service Corp. and Wisconsin Power and Light Co. - those contracts expire in 2013.

Meanwhile, the development of natural gas supplies from shale resources though hydraulic fracturing or fracking has led to significant decreases in the price of natural gas.  Since natural gas plays a significant role in the energy mix used to generate electricity, shale gas has led to decreases in the price of power.  This in turn has put pressure on electric generators powered by fuels other than gas.  Some of these generators have announced closures, while others are being converted to gas-fired generation.


Dominion had been trying to sell the plant since last year.  Between the lack of economies of scale resulting from the company's inability to grow its Midwest nuclear fleet, projected low wholesale power prices in the region, and no buyer for Kewaunee, Dominion now plans to decommission the plant in 2013.  If that happens, it will be the first permanent closure of a nuclear power plant since 1998.

Massachusetts increases renewable energy incentives

Energy legislation signed by Massachusetts Governor Deval Patrick earlier this month creates new opportunities for renewable energy projects in New England.

Finally enacted as Senate Bill 2395, the bill titled "An Act relative to competitively priced electricity in the Commonwealth" (37-page PDF) represents a combination of legislative proposals offered during the 2012 session.  The Act expands opportunities for renewable energy and energy efficiency, while seeking to manage increases in the cost of energy to consumers.

A number of the Act's provisions improve opportunities for renewable electricity production in Massachusetts and other New England states.  Building on the Green Communities Act of 2008, the new law increases the amount of electricity that electric distribution companies may purchase from renewable generating facilities under long-term contracts.  Previous law had required utilities to procure up to 3% of their electricity through long-term power purchase agreements with independent renewable energy developers.

The 2012 act amends the Green Communities Act by requiring distribution companies to solicit 10 to 20-year power purchase agreements from renewable developers for up to an additional 4% of the utilities' annual load.  By the end of 2016, the Commonwealth's distribution companies will conduct two rounds of joint solicitations for the new contracts.  Unlike previous renewable PPA negotiations such as led utility National Grid to select offshore wind developer Cape Wind as a renewable energy supplier, the new contracts must be negotiated through a competitive bid process.

The new law also provides a boon for distributed generation, requiring 10% of the newly-mandated supply to come from newly developed, small, emerging or diverse renewable energy distributed generation facilities located in its service territory.  Standards for these distributed generation projects require a maximum project capacity no greater than 6 megawatts.  Eligible distributed generation projcts cannot be net metering facilities, and must rely on a technology with no more than 30 megawatts of installed capacity in Massachusetts as of April 2012.

Under the Massachusetts renewable portfolio standard, projects eligible for this incentive may be built in any New England state, New York, or eastern Canada.

Maine regulators approve tidal energy PPA concept

Yesterday, the Maine Public Utilities Commission approved the terms of a power purchase agreement between three large utilities and a hydrokinetic tidal power project in Maine waters.

Low tide at Preble Cove, Great Cranberry Island, Maine.

Hydrokinetic energy projects produce electricity from moving water like tides, waves, ocean currents, or rivers, typically without dams.  As I noted yesterday, a 2010 Maine law required the PUC to conduct a competitive process to solicit proposals for long-term contracts for offshore wind and tidal projects.  The PUC received multiple submissions in response.  Commission staff have been negotiating with some of the bidders, and yesterday approved a proposal by Ocean Renewable Power Co. to sell the output of a small tidal project in Cobscook Bay to Maine's three largest utilities.

Under the terms approved the Commission, ORPC will receive a 20-year contract with utilities Central Maine Power Co., Bangor Hydro-Electric Co., and Maine Public Service Co. to sell the output of its underwater tidal power generation units.  ORPC plans to install the first of these units in Cobscook Bay this summer, and plans to expand its pilot project to include sites off Lubec and Eastport in the next 4 years.

While many of the terms of the resulting contract remain to be worked out, one piece appears firm: the price.  Utilities will pay 21.5 cents per kilowatt-hour for the tide-generated electricity in the first year; this base price of 21.5 cents will escalate at 2% per year, reaching a price of about 39 cents per kWh in the final contract year.  (By way of comparison, the Cape Wind offshore wind PPA approved in Massachusetts starts at 18.7 cents per kWh, with a 3.5% annual escalator over its 15 year term.  The ORPC initial rate is over twice the average rate currently paid by Maine utility customers on "standard offer" default service, or about 5 times higher than the current wholesale price in the New England market.)

For ORPC, the contract is a significant boon.  Securing a 20-year power purchase agreement should greatly assist the developer in securing financing for the project.  This project is designed as a demonstration or pilot project, but may be able to serve as a proof that ORPC's technology and installation systems will work on a larger scale.

For ratepayers, the volume of the contract is relatively low - as licensed by FERC, the Cobscook Project has a maximum capacity of 300 kW - meaning that its above-market costs will be diluted in the much larger pool of power consumed in Maine.  Nevertheless, if the contract volume grows as ORPC builds more of its scalable tidal generation units, those costs will become less and less dilute.  On the other hand, the contract itself - which still needs approval by the PUC once it is finally negotiated - may include other products or commodities such as capacity or renewable energy credits (RECs).  Developers typically prefer securing long-term contracts for as many commodities as possible, which helps solidify their future revenues, but it can make it harder to compare two contracts.

Many tidal projects today face high capital costs, let alone research and development expenses, but many believe that their fuel-free nature will ultimately enable tidal power to have a low fundamental cost of production of electricity in the future.  ORPC's project may shed some light on how that belief fares in the Gulf of Maine.

Maine PUC considers offshore wind, tidal

Petit Manan Light, several miles off the Maine coast.

Today the Maine Public Utilities Commission considers a term sheet for a long-term contract with the developer of a deepwater offshore wind or tidal energy project.  If the Commission ultimately approves the contract, it could represent Maine utilities' first offshore wind or tidal power purchase agreement.

In recent years, coastal states have become excited by the possibility of developing offshore wind and tidal energy resources.  Proponents hope that technological advances will enable both cost-effective energy production and economic development as the offshore wind sector gains a foothold.  In 2010, following record oil prices, the Maine Legislature enacted a law directing the Public Utilities Commission to hold a competitive solicitation for offshore wind proposals.  The law, P.L. 2009, ch. 615, requires the PUC to solicit proposals for long-term contracts to supply installed capacity and associated renewable energy and renewable energy credits from one or more deep-water offshore wind energy pilot projects or tidal energy demonstration projects.  Projects must employ one or more floating wind energy turbines in the Gulf of Maine, in water at least 300 feet deep and no less than 10 nautical miles offshore, and must be connected to the mainland grid.  The program may also include proposals by small-scale tidal power projects for similar long-term power purchase agreements.

In September 2010, the Maine PUC issued a request for proposals under the program.  Multiple bidders may have responded, although a subsidiary of Norwegian energy company Statoil may be the only entity to publicly announce its interest in developing a floating offshore wind project off Maine.

The Public Utilities Commission has placed the offshore wind contract docket on its agenda for today's deliberations as "Consideration of Long Term Contract Term Sheet".  The Maine PUC has not previously deliberated any long-term power purchase agreements for offshore wind or tidal power, but its past practice for land-based renewable projects suggests a possible procedural path.  If the Commission finds the terms of the proposal to be satisfactory and compliant with law, it may approve the term sheet and direct the bidder to negotiate a final contract with one or more Maine utilities.  Alternatively, the Commission could reject the term sheet and invite the bidder to negotiate more favorable terms.

Deliberations start at 10:00 a.m.  Will the Maine PUC show interest in the deepwater offshore wind or tidal power proposal before it today?

Google grows wind power supply

Google Energy LLC, a subsidiary of internet search company Google Inc., recently informed federal regulators of a long-term power purchase agreement with a 100.8-megawatt wind-powered electric generation project in Oklahoma.

Under the deal, Google agreed to buy all of the energy output from Minco Wind II, LLC's wind project for a term of 20 years.  Minco Wind II is operated by a subsidiary of NextEra Energy Resources.  As part of the deal, Google can claim that it is powering a data center in Pryor, OK, with power from the wind project.

The Oklahoma PPA nearly doubles the amount of wind capacity under contract by Google.  In 2010, Google Energy entered into a power purchase agreement to buy 114 MW of wind from Garden Wind, LLC.  Garden Wind, also a NextEra subsidiary, owns and operates a 150 MW wind project in Iowa.  Garden Wind sold Google Energy a 76% share of the project's output for a term of 20 years.  In addition, Google indirectly owns a 20.5% interest in Peace Garden Wind, LLC, which owns and operates about 169 MW of wind generation in the central region.

This comes two months after Google announced it was scaling back its program aimed at making renewable energy cost less than coal.  Google's RE

Community-based renewable energy in Maine

An innovative program in Maine seeks to facilitate the development of community-based renewable energy projects.  The program offers significant incentives for the development of qualified electric generation projects of up to 10 MW in size.

In 2009, the Maine legislature enacted a law establishing the Community-Based Renewable Energy Pilot Program to encourage the sustainable development of community-based renewable energy.  By community-based, Maine's program targets locally-owned community-scale projects (as opposed to large-scale renewable projects owned primarily by out-of-state entities).

Under the program, qualified renewable energy projects can receive significant incentives including a long-term contract to sell the facility’s output to a Maine transmission and distribution utility for up to 20 years at average prices up to $100 per MWh (equivalent to 10¢ per kWh). This incentive is attractive because not only can the contract prices be above average market prices, but also the long-term power purchase agreement makes projects easier to finance by enhancing revenue certainty.

Eligible projects can apply to the Maine Public Utilities Commission for certification as community-based renewable energy projects. This process involves making public filings, negotiating with Commission staff, and demonstrating that the project meets the program’s qualification requirements. These include restrictions on resource type, nameplate capacity, and ownership.

Under the pilot program, eligible resources include:

• fuel cells
• tidal power
• solar energy
• wind systems
• geothermal systems
• hydroelectric generators
• generators fueled by landfill gas
• biomass generators whose fuel includes anaerobic digestion of agricultural products, byproducts or wastes.

Each individual project must not exceed 10 MW in nameplate capacity. Projects must also be primarily locally owned, meaning that 51% or more of the facility must be owned by Maine residents, governmental entities, businesses, or other qualifying local owners.

Once certified, a qualified project can choose either of two incentives: a long-term contract for the output of the facility with a transmission and distribution utility, or a renewable energy credit (REC) multiplier giving a 50% bonus in the amount of RECs produced.

To date, most have viewed the long-term contract as the more attractive option. Under this incentive, projects meeting the program’s requirements can obtain a contract at a fixed or variable price, provided that two criteria are met. First, the average price per kilowatt-hour must not exceed 10 cents. Second, the cost of the contract must not exceed the cost of the project plus a reasonable rate of return on investment as determined by the Commission. These contracts may be approved for up to 20 year terms.  Projects smaller than 1 MW can contract directly with the utility, while larger projects go through a competitive process held periodically by the Commission.

What will 2012 bring for Maine's community-based renewable energy pilot program?

June 10, 2011 - Idaho restricts wind/solar incentive

Regulators in Idaho have restricted an incentive for certain small wind and solar projects, but renewable projects can still qualify for the right to sell their power to utilities.  At its heart, the issue is an old one: who should pay for renewable development, and how much should they pay.

The federal Public Utilities Regulatory Policy Act of 1978 (PURPA) authorizes FERC to require utilities to purchase power from renewable “qualifying facilities”.  Under PURPA, utilities must sign contracts  with qualifying facilities to buy their output at a rate capped at the utility's "avoided cost", or marginal cost to produce the next incremental kilowatt-hour.

Because utilities’ avoided costs are typically set based on the default fleet of generators, a qualifying facility cannot use PURPA to receive a price premium over the marginal conventional resource.  However, having the right to require a utility to buy your power is a valuable incentive for developing a renewable project. 

Each state sets the avoided cost rates for its own qualifying facilities.  In Idaho, large generators have to negotiate individual avoided cost rates with utilities.  To help smaller qualifying facilities, projects smaller than a specified threshold don’t have to negotiate, but can sell power to utilities at “published” avoided cost rates which are generally more favorable for project developers.

Where that threshold is set affects who can qualify for those published rates.  Originally, facilities whose average output was 10 MW or smaller qualified for the published rates.   However, utilities complained to the Idaho Public Utilities Commission, asking for the threshold to be lowered to 100 kW.  Utilities complained that ratepayers should not have to bear above-market costs, particularly not costs in excess of the actual avoided cost limit set by PURPA.  Commenters also complained about large projects trying to circumvent the threshold by characterizing themselves as a series of smaller projects in order to qualify for the incentive.  At the end of 2010, the Commission temporarily reduced the threshold to 100 kW for wind and solar resources, leaving it at 10 aMW for other resources. 

This week, the Idaho Public Utilities Commission has issued an order (Order No. 23362, 10 page PDF) leaving the lowered 100 kW threshold for wind and solar in place.  The Commission noted that it would be "illegal pursuant to PURPA" to allow large projects to obtain a rate that does not accurately reflect the utility's avoided cost.  As a result, Idaho wind and solar projects' right to sell power at the more favorable published avoided cost rates is now limited to projects smaller than 100 kW.  Larger projects can still avail themselves of negotiated avoided cost rates.

December 2, 2010 - a deeper look at the Cape Wind PPA complaint

Yesterday, the news broke that a group called "Californians for Renewable Energy" (CARE) filed a complaint with the Federal Energy Regulatory Commission (FERC) challenging Cape Wind's power purchase agreement with National Grid.  In its complaint, CARE asks FERC to set aside the November 2010 order of the Massachusetts Department of Public Utilities (DPU) approving Cape Wind's power purchase agreement with National Grid.  CARE also points serious allegations against a variety of parties including National Grid, Cape Wind, and the DPU itself.  These allegations range from technical legal points (e.g. that FERC alone has "exclusive jurisdiction to regulate the rates, terms and conditions of sales for resale of electric energy in interstate commerce by public utilities") to rather disjointed but sensational accusations of connections between wind developers and Italian organized crime.

I've read the Complaint, and this morning, I had a pleasant discussion with Mark Rodgers, Cape Wind's Director of Communications.  Mark described CARE's complaint as "baseless", and characterized CARE's allegations of an Italian mafia connection as "false, malicious, and defamatory".

Looking at the Complaint itself, I would personally characterize it as a mix of legal argument and wild conspiracy-theory accusations.  On the legal argument side, the Complaint appears to allege that the Massachusetts DPU exceeded its jurisdictional authority in approving the PPA.  This argument is based on the recent precedent in which FERC told the California Public Utilities Commission that its feed-in tariff program was invalid because it purported to set wholesale rates for power at the state level.  Reasoning by analogy, CARE appears to argue that the DPU improperly set a wholesale rate for power in excess of the utility's avoided cost.

Other legal arguments asserted by CARE strike me as more tenuous.  For example, CARE asserts that renewable energy credits (RECs) are "greenhouse gas (GHG) offsets", as well as "a type of energy ancillary service that Mass DPU maintains authority over in regard to the price that is paid wholesale Sellers [sic]".  CARE goes on to say, "The REC’s purpose therefore is to offset greenhouse gas emissions by avoidance." This is a troubled argument at best.  In general, RECs are distinct from GHG offsets; RECs represent the attributes associated with the generation of energy from state-qualified renewable resources, not the specific amount of GHG emission reductions associated with that generation. RECs exist in compliance markets because state legislatures establish renewable portfolio standards requiring specified amounts of energy to be sourced from renewable resources, and do not generally have an explicit GHG tie-in.  Further, REC pricing is generally established through bilateral contracts between parties.  While a state utility commission like the DPU does retain authority over utilities in its jurisdiction, state commissions do not necessarily specify the price of RECs.

The second half of the Complaint gets even farther out.  In a rambling set of long sentences and quotes from emails sent by CARE and its co-complainant Barbara Durkin, CARE alleges that National Grid and the DPU aided and abetted "fraudulent actions and claims to defraud taxpayers of ARRA stimulus funds".  This section, which appears largely to be a rehash of the complainants' earlier position before the DPU, includes a request for FERC to "investigate Cape Wind, National Grid, the Massachusetts Attorney General, and Mass DPU for actions they have taken to aid and abet (act as an accessory to) Cape Wind’s fraudulent actions and claims whose purpose is to defraud taxpayers and ratepayers alike of ARRA stimulus funds".  CARE goes so far as to assert that when a National Grid representative said “We have every reason to believe that [the production and investment tax credits] are going to be extended and supported by Congress,” this somehow constituted an admission of a violation of the prohibition on energy market manipulation.  (This claim is a real head-scratcher.)

Then, if possible, things get even stranger.  CARE devotes 24 pages (nearly the remainder of the complaint) to a series of purported quotes from news media stories and other documents about various wind developers (puzzlingly, including developers other than Cape Wind Associates) and connections to Italian organized crime.  I won't bother to recite those allegations further here.  Suffice to say that this section of CARE's complaint is wild, disorganized, and fails to effectively illustrate any concrete misdeeds by any of the parties against whom CARE complains.

Clearly, this complaint is sensational.  Even trying to read between the lines, it is hard to make sense of many of CARE's claims.  While the legal issues regarding whether a state has the authority to approve such a PPA are indeed interesting, particularly in the wake of FERC's restrictions on the California feed-in tariff program, the conspiracy claims tend to detract from CARE's credibility.  It will be interesting to see how FERC's review of this complaint proceeds.

November 23, 2010 - Cape Wind contract approved at 18.7 cents/kWh

Throughout 2010, I've been watching the Cape Wind project work its way through the development and regulatory processes.  The project has generated controversy over a variety of issues, including siting (should the project be built in Nantucket Sound? if so, where?) and cost (should ratepayers be on the hook for a long-term power purchase agreement for the project's output? if so, at what price?).  This latter issue falls under the jurisdiction of the Massachusetts Department of Public Utilities.

This week the DPU issued a decision approving a 15-year power purchase agreement between Cape Wind and National Grid.  (The order itself is 374 pages.)  Under the deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.  Some consumer advocates note that this is significantly higher than the most recent average annual wholesale power price in the region: 5.5 cents per kilowatt-hour.  Proponents of the project point out that the 18.7 cent price includes the energy itself, capacity value, and renewable energy credits.  A closer analysis of this suggests some flaws: the value of capacity plus renewable energy credits generally may not be worth the $132 per MWh price increase.  Arguably the difference and that offshore wind has a social or intrinsic value that makes the price worth it.

The DPU acknowledged that the pricing is high:

The power from this contract is expensive in light of today‖s energy prices. It may also be expensive in light of forecasted energy prices—although less so than its critics suggest. There are opportunities to purchase renewable energy less expensively. However, it is abundantly clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable resource. We find that these benefits outweigh the costs of the project.

One of the many benefits that Cape Wind provides is that it will assist National Grid and Massachusetts in meeting the renewable energy requirements of the Green Communities Act, as well as the greenhouse gas emissions reduction requirements of the Global Warming Solutions Act. Meeting those greenhouse gas emission mandates will require significant investments across all sectors of the economy, and especially from the electricity sector. We conclude that those requirements are unlikely to be met without the Cape Wind contract and the associated emissions reductions from the project.

If 18.7 cents seems high, it is among the lowest of the many of the recent proposed prices for offshore wind.  It's worth noting that 18.7 cents per kWh is lower than the price set in previous proposed iterations of this contract.  In May 2010, National Grid agreed to a deal at 20.7 cents per kWh (subject to DPU approval, which was withheld).  The May proposal in turn was lower than the initial Deepwater Wind proposal off Rhode Island's Block Island, which proposed 24.4 cent per kWh power escalating 3.5% annually for 20 years to a final price of 48.6 cents per kWh.  (And even that price was lower than the one Deepwater initially offered National Grid: 30.7 cents per kWh.)

The next step for Cape Wind is to look for a purchaser for the other half of its power.  What kind of power purchase agreement will they find?  If the DPU's approval of this contract establishes a pricing trend, we may see similar pricing in the second PPA.

August 17, 2010 - Hydro-Quebec signs deal with Vermont utilities.

One theme that emerges as we follow stories of renewable energy development around the world is the need for long-term contracts and price stability.  Developers report that without certainty as to the project's future operating revenues, financing is hard -- or impossible -- to get.  For more expensive projects, like Cape Wind, the prices specified in these contracts are relatively high -- on the order of 18 cents per kilowatt-hour to start.  Other renewable resources can be priced more inexpensively, such as Canadian hydro.

A recently signed deal in Vermont illustrates this pricing differential.  Last week, Vermont's two largest utilities (Central Vermont Public Service and Green Mountain Power) announced a power purchase agreement with Hydro-Quebec for 26 years (November 2012 through 2038).  The utilities have agreed purchase up to 225 megawatts of hydroelectric power from Canada's Hydro-Quebec.  While the purchase price will start at about six cents per kilowatt-hour, power pricing for deliveries starting in 2012 will be set in December 2010.

Vermont's Public Service Board must still review and approve the contract.  However, this is not the first time Vermont has sourced its power from Canadian hydro; Vermont has been buying from Hydro-Quebec for nearly 30 years.  The current agreement between Vermont and Hydro-Quebec, which was signed in 1987, will largely end by 2016.  Vermont utilities see this deal as one way to help maintain lower prices and reliable service.  On the other hand, the deal does little to incentivize the development of renewable resources within Vermont itself, and arguably forestalls such development unless it can compete on a price basis against the Canadian power.  In future posts, I'll explore the relationships between Hydro-Quebec and its neighbors in more depth.

July 20, 2010 - China passes US as world's largest energy consumer; NextEra signs wind deal with Google

China has passed the United States as the world's largest consumer of energy. The International Energy Agency measures states' energy consumption in a unit called "oil equivalent". The most recent IEA report shows that China used 2.252 billion tons of oil equivalent, whereas the U.S. used only 2.170 billion tons of oil equivalent. This reverses the trend for more than the past 100 years, when the United States has been considered to consume more energy than any other country. While energy consumption has traditionally been viewed as directly correlated to GDP, this shift breaks that trend as well. Commentators point to China's increased industrial activity, particularly in light of the stagnant consumer-driven American economy.

Interestingly, American energy intensity remains high: the average U.S. citizen uses five times as much energy as does the average Chinese citizen. What will happen when China reaches the energy intensity of the U.S.?

NextEra's competitive energy subsidiary, NextEra Energy Resources, has entered into a power purchase agreement with Google Energy, LLC. Under the deal, Google will buy 114 megawatts of power from NextEra Energy Resources' Story II Wind Energy Center in Iowa.

2/17/10

More information on the DOE nuclear loan guarantees: the US will guarantee $8.3 billion of the $14 billion Plant Vogtle development spearheaded by the Southern Company -- and the developers are still saying they are exposed to risks from private financing for the rest. DOE is reportedly looking at three more sites: Unistar's third reactor at Calvert Cliffs in Maryland; a troubled San Antonio, Texas project, facing rising cost estimates and a lawsuit filed by San Antonio's municipal utility against its partner in the project, NRG; and the joint Scana Corporation and Santee Cooper proposal near Jenkinsville, S.C.

An interesting take by Michael Northrup: there is a clean energy gold rush, but the US is being left behind. We have only one out of the top 10 wind manufacturers (General Electric) and only two of the top 10 solar manufacturers (First Solar and Sun Power, both of whom actually make stuff overseas). An interesting tie to Habib Dagher's vision that the opportunities for renewables lie not only in having installed capacity, but in manufacturing the equipment needed for development. Under this model, your production is not limited by your local demand, but rather the global market -- meaning we can import dollars into the country (or our states) from abroad, resulting in a net increase of the pie.

Solar news: NV Energy and NextLight Renewable Power, LLC announced a 25-year power purchase agreement for power from NextLight's Silver State Solar Power photovoltaic plant. This 50 MW project located near Primm, NV should see groundbreak by the end of 2010, employing 230 construction workers and coming online in May 2011. The specific terms of the power purchase agreement were not disclosed, but we do know that the long-term agreement stems from NV Energy's 2009 Request for Proposals for renewable energy and requires approval by Nevada's Public Utilities Commission.

In Maryland, some are pushing for property-assessed energy efficiency loans, and increased incentives for solar. Maine faces a similar proposal in the form of LD 1717.

In Connecticut, U.S. Sen. Chris Dodd calls for rebuilding the Kleen Energy plant that recently exploded while under construction.

$14 million in stimulus grants to Maine ports (Searsport, Eastport, Portland), stated as supporting "green cargo" like wind turbine parts.

Diesel from algae? DARPA says yes, and that it will be cost-competitive with true fossil fuel.

$9 million loan program to retool the old Ethan Allen furniture factory in Island Pond, Vermont, into a pellet factory.