Maine tidal PPA terms for ORPC

Last month, the Maine Public Utilities Commission approved the terms of a 20-year power purchase agreement between three utilities and Ocean Renewable Power Company.  Projected for initial development later this year, ORPC's Maine Tidal Energy Project would ultimately include a series of hydrokinetic turbine generator units spread across three project sites and phases.

Acting under a 2010 state law, the Maine PUC held a request for proposals for long-term contracts for deep-water offshore wind pilot projects and tidal energy demonstration projects.  The law required applicants to demonstrate that their project will provide tangible economic benefits to the state, as well as a commitment to invest in related manufacturing facilities in Maine.

ORPC responded to the RFP, and was ultimately selected by the PUC for a contract.  While some details of the final power purchase agreement remain to be negotiated, last month PUC approved a term sheet specifying pricing terms and a variety of non-pricing terms.

Under the term sheet, ORPC will sell the utilities energy and capacity from the Maine project.  The price of energy will start at 21.5 cents per kilowatt-hour in the first year, escalating at 2% per year over the 20-year contract term.  If ORPC can qualify the project for capacity payments in the New England market - another energy-related product - it will receive the prevailing market price, although the grid operator has recently denied capacity payments to other renewable resources in eastern and northern Maine.  The deal does not include any renewable energy credits the project earns, which ORPC could retain or sell separately.

The term sheet approved by the Commission also include a series non-pricing terms intended to ensure that the state realizes the economic development benefits required by statute.  These terms include a variety of commitments by ORPC, including:

• to maintain or establish manufacturing, assembly, and testing operations in Maine
• to continue partnerships with entities in the downeast Washington County region
• to upgrade local distribution lines in Lubec, as needed to connect the project's power to the mainland grid
• to create and/or retain at least 80 direct full-time equivalent jobs in Maine during the development, construction and installation of the project
• to create and/or retain at least 12 direct full-time equivalent jobs in Maine during the operation and maintenance phase of the project
• to use commercially reasonable efforts to expend at least 50% of the project's capital investments and 50% of the operating expenditures in Maine

In approving the term sheet with these terms, the Commission found that the project would yield economic benefits including direct wage growth in Maine, direct investment in Maine, improved general economic conditions in the state, and the development of intellectual capital and an expert workforce capable of supporting long-term growth.

The parties are now negotiating the final details of the contract.  Expect the PUC to deliberate on a final contract later this year.

October 22, 2010 - renewable energy credits

Continuing to look at RECs (renewable energy certificates or credits): today, an overview of how RECs are tracked and traded, and the kinds of markets in which RECs have value.

Because RECs are not tangible commodities, RECs are typically held and traded electronically.  In New England, the New England Power Pool Generation Information System (NEPOOL GIS) tracks the creation of RECs in each of the six states.  In much of the Western United States, RECs are tracked by the Western Renewable Energy Generation Information System (WREGIS).  Other accounting systems cover various voluntary markets.  These systems track the production and characteristics of renewable power.  In general, for each MWh of eligible renewable power produced, the systems credit the owner’s GIS account with one REC.  Where stronger state incentives exist, some resource types are compensated more highly, earning more than one REC per megawatt-hour.  This “REC multiplier” concept can make some project types (e.g. solar power) more lucrative.  Account holders may then engage in bilateral transactions with other REC market participants, generally buying and selling RECs without restriction.  However, because RECs are traded on an over the counter basis, there is no standardized exchange where REC prices or sales volumes are regularly posted.

Across the various states, the potential market into which generators may sell RECs is significant.  Voluntary markets allow a buyer to purchase RECs in order to support claims that the power the buyer consumes came from renewable resources.  This can provide a variety of “goodwill” benefits ranging from enhanced green marketing opportunities (e.g. “our product is environmentally friendly”) to allowing the buyer to publicly and financially support a particular renewable project (e.g. “we support the city’s community-scale wind project”).

The larger opportunity to sell RECs may lie in compliance markets.  In the majority of U.S. states as well as the District of Columbia, RPS programs requires electric companies to supply a minimum amount of power from qualified resources.  Each state’s program varies in its implementation.  In general, utilities must source an increasing percentage of power from renewable resources over the next several decades. 

October 21, 2010 - renewable energy credits

Yesterday, we began a look at RECS: renewable energy credits, or renewable energy certificates.  A REC represents the renewable attributes associated with a particular megawatt-hour of generation.  This approach to placing a higher value on renewable generation as opposed to other technologies works well because electrons are generally fungible, and indeed because power transactions are often “virtual” as opposed to physical deliveries of electrons from a specific generator to a specific consumer.  RECs may thus be sold to any purchaser, even if no power actually changes hands.  In some jurisdictions, RECs may be traded and used for compliance even if the underlying power would not physically be deliverable to the REC buyer.  It is thus important to view RECs as a separate commodity offering renewable generators a new revenue stream.

Each REC contains a broad range of information about its origins: what type of renewable resource produced the power, the date the REC was created, when the renewable generator was built, and the location of the renewable generator.  RECs include this information to allow buyers to make specific claims regarding the nature of the power they consume.  For example, a manufacturer might elect to purchase RECs generated by wind resources in order to market its products as environmentally sustainable.

Because many U.S. states have enacted legislative standards (called Renewable Portfolio Standards, or RPS) requiring certain amounts of utility load served to be sourced from renewable power, RECs also include information on their eligibility for certification for compliance with these state requirements. 

October 20, 2010 - renewable energy certificates

Busy harbor in Norfolk, VA, with ships old and new.

I'm back from the TAPPI PEERS conference in Norfolk, Virginia.  TAPPI put on a great show, and the participants were very enthusiastic about the technical aspects of the pulp and paper industry.  I offered a presentation about renewable energy certificates (also known as renewable energy credits in some states - either way, RECs). A REC is a non-tangible trad\able commodity representing a set of the environmental, social and other non-power attributes of renewable electricity generation.
In the United States, federal and state policies favor renewable energy production by providing incentives for the development of renewable power resources. One primary state-level mechanism for rewarding renewable generators is the Renewable Energy Certificate (REC) market. In many states, laws and regulations require utilities to source a specified portion of their power from qualified renewable resources. Utilities satisfy this compliance obligation by purchasing or otherwise obtaining RECs to cover this load. In addition, a variety of voluntary markets exist for RECs.

Pulp and paper mills are well-positioned to participate in the REC market as sellers. As shaped by the forces of history and economics, today's mills often operate renewable generation such as a hydroelectric generation station or a biomass-fired steam turbine generator. For each megawatt-hour of qualified renewable power generated at a mill, a certified resource's owner will receive one REC. Owners can then sell these RECs in voluntary or compliance markets. The opportunity to sell RECs can enhance the economics of a mill and its renewable generation.

September 8, 2010 - Maine ocean energy RFP

Backup diesel generators on Mount Desert Island, Maine.  "Keeping the lights on" on island communities poses special challenges; diesel generators like these can be used to cover peak loads, or even provide backup power in the event of an outage.  Photo courtesy of Drew Landry.

Of all the feedback I hear from developers of renewable energy projects, one of the most consistent observations is that it is difficult to finance and build a project without a long-term contract for the project's output.  Because energy prices are so volatile, and because projects are typically capital-intensive and can have relatively long payback periods, a long-term contract is often viewed as necessary to attract the financing required to build a project.  However, many buyers observe that they aren't interested in long-term contracts at the required prices for similar reasons of uncertainty.

To remedy this problem, in its most recent session the Maine Legislature enacted "An Act To Implement the Recommendations of the Governor’s Ocean Energy Task Force", P.L. 2009, ch. 615.  The Act directs the Maine PUC to issued an RFP for long-term contracts for deep-water offshore wind energy pilot projects and tidal energy demonstration projects.  The RFP was published on September 1, 2010.

Here's a link to the MPUC's website for the RFP.

Here's the RFP itself (Word).

What is the Commission looking for?  Up to 30 megawatts of installed capacity (and associated renewable energy and RECs) from deep-water offshore wind energy pilot projects or tidal energy demonstration projects; up to 5 of the megawatts can come from tidal energy demonstration projects.

Initial Proposals for deep-water offshore wind energy pilot projects and tidal energy demonstration projects will be due on or before May 1, 2011.