March 23, 2015

CT officials try to keep cost of energy policies in check

PHOTO | Steve Laschever
PHOTO | Steve Laschever
Dwight Schlichting maintains the Somers solar array for Dominion, which at five megawatts was New England’s largest solar farm at the time it was built.
PHOTO | Steve Laschever
The Somers solar array is part of Connecticut’s efforts to keep the rising cost of implementing its renewable policies to a minimum.
PHOTO | Contributed

Despite the Malloy Administration's efforts to rein in costs, the pricetag to implement Connecticut's renewable energy policies will add as much as $377 million annually to ratepayer bills over the next few years, prompting the state Senate's top Republican to raise concerns about the potential impact on residents and businesses.

The projected cost spike comes as Connecticut ramps up efforts to meet its renewable energy goals. And while state officials are trying to find ways to meet its policy benchmarks without breaking the bank, other factors that impact electricity costs — mainly natural gas prices in Connecticut — are also on the rise, meaning ratepayers' pocketbooks will take a bigger hit.

In its modeling for the next decade, the state Department of Energy & Environmental Protection projects implementing Connecticut's renewable portfolio standard (RPS) will add up to $377 million annually to ratepayer's bills through 2019. By comparison, the RPS added about $225 million to ratepayer bills last year. By 2024, that cost is expected to drop as low as $249 million.

The projected increase — coupled with overall electricity prices spiking 8.43 percent in 2014, making Connecticut the most expensive state for electricity outside of Hawaii and Alaska — led state Senate Minority Leader Len Fasano (R-North Haven) to recently propose a bill to study the impact of the RPS on ratepayers. If the study finds Connecticut's renewable portfolio standard overburdens businesses and residents, Fasano wants to reset the program and approach it in a more cost-effective way.

"Renewable energy is something everyone wants to strive to, but it also is the most expensive energy," Fasano said. "I'm concerned about the high electrical cost, and I understand that [RPS] could be a factor."

Connecticut's RPS calls for the state to have 27 percent of its electricity generated by renewables by the year 2020. To meet that goal, electricity suppliers have been asked — since 2005 — to increase their renewable energy output 1 percent every year. Starting this year, however, suppliers are being asked to increase their renewable output by 1.5 percent annually through 2020.

Meanwhile, Connecticut's RPS requirements are increasing at the same time as other states like New York, Massachusetts, and Rhode Island, further straining supply and driving up renewable energy prices, which are already above the typical market price for electricity.

Renewable advocates warn, however, that ratepayers and the state must take a longer-term view of the benefits solar, wind, hydro, and other alternative energy will have on the economy and environment.

In written testimony to the Energy and Technology Committee last week, Chris Phelps, state director of Environment Connecticut, said he opposed Fasano's proposal to study the cost effect of the state's RPS because it's based on an assumption that renewable generation only carries economic costs for consumers and provides no economic, societal, or environmental benefits.

"This assumption flies in the face of the facts, and is contrary to numerous laws enacted in Connecticut over the past two decades that have helped our state establish a leadership role creating new jobs in clean energy industries, building new renewable energy, and reducing the carbon pollution that fuels global warming," Phelps said.

Checking costs

Connecticut began implementing its renewable standards in 2005, but the program's initial costs were largely hidden to ratepayers because electricity prices were held in check by the Great Recession, which lowered electricity demand in New England, and a significant drop in natural gas prices.

Market forces, however, are starting to work against Connecticut. With rising natural gas prices, it will be harder to brunt the impact of RPS costs, which will become more noticeable to businesses and individuals, said Ken Nelson, president of New Haven energy consultant Blue Delta Energy.

"What happened in the past is there was much more volatility in the market, so the [impact] of the RPS was more muted," Nelson said. "As you keep increasing the percentage levels, you increase the [impact.]"

To stunt growing electricity prices, Malloy and DEEP officials are trying to use state government's buying power to fund cheaper renewables and rewriting state law to allow for more low-cost technologies to be considered renewable.

Malloy's latest effort came at the end of February when he joined with Rhode Island and Massachusetts governors to use their states' collective buying power to buy renewable energy at the lowest possible price.

Last year, Malloy and the legislature also changed the definition of renewable so more low-cost, large-scale hydro power can be factored into the RPS. Hartford utility parent Eversource Energy is developing a transmission line to bring such hydro power down from Canada.

The three-state effort to buy renewables plus a new Canadian hydro transmission line could help keep the cost of renewables from escalating further, starting around 2018, said Nelson.

"Sometimes state purchases actually increase the costs of renewables because you don't know how the terms of the contract are going to shake out," Nelson said. "That is the dilemma you walk into when you enter into these long-term, fixed-price deals."

Connecticut also has purchased renewable energy on its own, in an attempt to dictate market pricing and keep overall costs of implementing the RPS down. In 2013, DEEP authorized a $1 billion agreement to buy power from a 250 megawatt wind farm in Maine and a 20 megawatt solar array in Lisbon. Because of the size of the purchase, DEEP was able to get the electricity at a wholesale cost of less than 8 cents per kilowatt hour, which is less than the price of grid power.

However, not all the state's renewable energy funding has been as successful. DEEP's first renewable purchase was in 2011 when it agreed to buy power from solar arrays in Somers and East Lyme, both generating five megawatts. The 22 cents per kilowatt hour average price over the 20-year life of that agreement is considerably higher than grid power, which averages about 9 cents per kilowatt hour.

That 2011 purchase, however, did get Virginia energy giant Dominion to invest in Connecticut renewable energy. The company, which owns the nuclear Millstone Power Station in Waterford, ended up buying the Somers solar array, largely because DEEP guaranteed the power generated there would be purchased at a price where the installation would be profitable.

"Obviously, if there is a product that needs to be sold, if there is someone to buy it, that makes investing in it easier," said Dominion spokesman David Botkins.

Financial benefits

The goal of the RPS is to help fund the development and operation of power plants that use fuels Connecticut considers renewable: solar, wind, hydro, fuel cells, biomass, and landfill gas. By increasing the supply, the hope is to eventually drive down renewables' costs. RPS also aims to change the fuel mix of New England's power supply toward more sustainable options; today it relies heavily on natural gas and nuclear.

While implementing RPS will cost ratepayers, the policies should have long-term financial benefits beyond the increased security and lower-carbon emissions that come from locally sourced clean energy, said Jessie Stratton, DEEP's policy director.

One of those financial benefits will be distributed generation, which allows companies or entire city centers to buy a fuel cell and install it nearby to produce their own power, Stratton said. These systems reduce demand on the entire grid and lessen the need to transport electricity from far-off power plants, which drives up transmission and distribution infrastructure costs.

Eventually, benefits achieved by implementing the RPS will lower the overall increase in electricity costs to ratepayers to around $105 million annually by 2024, DEEP predicts.

"There is clearly a benefit to all ratepayers to reducing demand," Stratton said.

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