Connecticut's $1 billion program to develop clean energy installations throughout the state suffered early bumps in the road as preliminary project awardees were forced to drop out due to unrealistic bids and contractual obligations.
The initial winners for the state's Zero Emissions and Low Emissions Renewable Energy Credit Program — better known as ZREC/LREC — bid so low into order to secure the project that they could not obtain the necessary financing for their developments. Winning bidders also dropped out of the program when it came time to put up real money to secure their contracts or when problems arose with the many requirements in the contracts.
"When it came time to honor their bids, they couldn't sign the contracts," said Michael Trahan, executive director of the industry trade group Solar Connecticut, Inc. "Some companies could not honor their bids because they couldn't comply with all the administrative requirements."
As a result, proposed projects that were initially put on a wait list or even told they had no chance of securing a contract ended up getting awards, although the identities of the awardees will remain confidential until their contracts receive regulatory approval.
"Every minute, we are waiting with baited breath," said Greg Renshaw, developer of the Cargill Falls Mill in Putnam. "It is really a big deal for our project."
Renshaw has spent $3 million to develop a mixed use housing project in Putnam, including an 875 kilowatt hydropower dam. Renshaw submitted a bid for the ZREC program and initially was told he had no chance at an award. But with other bidders dropping out, Renshaw has been upgraded to the wait list.
"A lot of solar companies have been moving into Connecticut because of this ZREC program, and a lot of their proposals were speculative," Renshaw said.
The delay caused by the initial winning bidders dropping out also pushed back a $240 million second phase of the program, which is contingent on the first phase obtaining regulatory approval.
"Time is now a factor because building here in the Northeast can be a little iffy once winter comes," Trahan said.
The ZREC and LREC programs were launched by the Connecticut General Assembly in 2011 as a way to proliferate clean energy installations such as solar and fuel cells throughout the state. The programs provide contracts where owners of installations receive credits for the amount of electricity produce. The amount the project owners receive for each credit is determined by how much they bid in order to obtain the contract.
State utilities Connecticut Light &Power and United Illuminating are administering the program, as the money for each credit comes from ratepayers. For the ZREC portion, the utilities must enter into $8 million worth of annual 15-year contracts every year for six years. For LRECs, the utilities must enter into $4 million worth of annual 15-year contracts every year for five years.
CL&P is awarding 80 percent of the annual funding while UI awards the remainder.
When the program was developed, it was hailed as a national model to encourage clean energy installations. Since the credit contracts are competitively bid, the awardees must cut their proposals as low as possible, which allows for the utilities to contract with the greatest number of projects annually. The steady funding over the life of the 15-year contract helps the developers better secure financing, as they know the exact payout from their credits each year.
"The interest is obviously significant," UI spokesman Michael West said.
The ZREC program attracted a number of clean energy companies, particularly solar, to Connecticut, such as Renewable Resources of Scotland, Borrego Solar of California, and SolarCity of California. The LREC program was seen as a boon to Connecticut's fuel cell industry, particularly for UTC Power of South Windsor and FuelCell Energy, Inc. of Danbury.
When the bids for the first year of the program came in on June 6, CL&P received 296 bids while UI received 72 bids. CL&P preliminarily picked 84, and UI picked 20.
However, when the selected winners were supposed to enter in their contracts by Aug. 7 — according to the original timeline developed by the utilities — many of the selected bowed out of the program.
"We've seen bids from all levels drop out," West said.
UI filed its procurement plan on Sept. 11, announcing ZRECs for 19 solar projects and LREC for two fuel cell projects. The New Haven utility was able to award 21 projects — up from its preliminary 20 — because of the attrition from early bidders, according to its regulatory filing.
CL&P is still trying to finish awarding its bidders and getting the contracts signed through the procurement process, and the utility had no schedule for when it might finish, said Al Lara, spokesman for CL&P parent Northeast Utilities. NU declined further comment for this story, saying the process is confidential.
Much of the issue with bidders dropping out came from the confidential competitive bid process. Since this is the first year for the program, bidders were guessing at the price that would win, trying to be as competitive as possible.
While CL&P wouldn't confirm an actual number, the lowest bids for the ZREC program came in around $100 per credit while they were close to $40-50 per credit for the LREC program. In UI's filing, the average accepted ZREC bids were $117 for large projects and $135 for medium projects, while LRECs were $51.
Similar solar-only programs in Massachusetts and Maryland price credits around $200.
After those low bids were selected preliminarily, the bidders had to put down a cash deposit to guarantee the project would come to fruition. They also had a set amount of time to bring the project online, roughly a year from when the contract was finalized. Bidders dropped out as they had trouble securing financing because the amount of their contracts would be so low, due to their low bids, or had difficulty coming up with the cash to guarantee the project.
Other bidders dropped out because of requirements, such as an obligation for property owners to remain onsite and draw power from the renewable energy installation for the entire 15-year life of the contract.
These safeguards were put into the contracts to protect CL&P and UI and guarantee the awards went to projects that would be complete. If a contract awardee doesn't honor the contract, then the utilities must pay a penalty for each ZREC and LREC that goes unfulfilled.
As the low bidders rolled off, more realistic bids were upgraded to awards.
FuelCell Energy announced in an investor earnings call on Sept. 6 that the company initially was awarded a 1.4 megawatt projects and then was later notified it received another project greater than 1 megawatt. The company believes more awards may be forthcoming, said Chip Bottone, FuelCell president and chief executive, in the conference call.
"It is all about your project doing what it says it can do," said Kurt Goddard, FuelCell vice president for investor relations.
Because of the delay in the awards, CL&P is behind its initial schedule for having the contracts ready for regulatory approval. The timeline planned on submitting this year's ZREC and LREC awards to the Public Utilities Regulatory Commission on Sept. 11, a deadline UI made but CL&P missed.
The delay not only slows the initial phase of construction but slows down the next phase of the ZREC program.
ZRECs are awarded in three categories: large, medium, and small installations. The large and medium awards are part of the competitive bid process still underway, but the start of the small awards program is dependent on PURA approving the credit prices in the medium program.
The small program awards will be made on a first-come, first-served basis, and developers are ready with proposals of 100 kilowatts or smaller.
"There are many installers with projects that are ready to go who are waiting for the green light from the utilities to submit applications," Trahan said. "It should be a red flag to all those other bidders out there to have their financing in order. If not, it slows down the process for everybody down the road."
Despite the turnover in original contract recipients, the state Department of Energy & Environmental Protection — who is helping CL&P and UI develop the program — sees this first year as a success and expected these initial problems, said Alex Kragie, special assistant to DEEP Commissioner Dan Esty.
"It is not of crisis proportions. It is not even close," Kragie said. "These are extremely modest bumps in the road, if you can even call them that."