Article

Vagaries of the energy market: A boom in renewables leads to higher rates for co-op

A boom in renewable energy around New England has led to higher rates for a small Vermont utility. The reason has to do with the declining value of an energy commodity know as "renewable energy credits."

Think of renewable energy credits as one slice of a renewable project that can be sold to another utility. But we’re not talking about the actual electricity the solar or wind plant produces. Maria Fischer, an economics analyst with the state Department of Public Service, explained how they work:

“When energy is generated by a renewable resource, it generates a megawatt hour of energy but also an environmental attribute,” she said. “And that environmental attribute is what we call a REC, or renewable energy credit.”

Environmental attribute. Remember that phrase.

The fact those electrons were produced renewably, without generating greenhouse gases, for example – has value itself in energy markets.

Utilities in Massachusetts and Connecticut buy these credits – those environmental attributes – to satisfy state requirements that a certain percentage of their energy portfolio come from greener sources. The credit sales have been a bonanza over the years for... more [truncated due to possible copyright]  

A boom in renewable energy around New England has led to higher rates for a small Vermont utility. The reason has to do with the declining value of an energy commodity know as "renewable energy credits."

Think of renewable energy credits as one slice of a renewable project that can be sold to another utility. But we’re not talking about the actual electricity the solar or wind plant produces. Maria Fischer, an economics analyst with the state Department of Public Service, explained how they work:

“When energy is generated by a renewable resource, it generates a megawatt hour of energy but also an environmental attribute,” she said. “And that environmental attribute is what we call a REC, or renewable energy credit.”

Environmental attribute. Remember that phrase.

The fact those electrons were produced renewably, without generating greenhouse gases, for example – has value itself in energy markets.

Utilities in Massachusetts and Connecticut buy these credits – those environmental attributes – to satisfy state requirements that a certain percentage of their energy portfolio come from greener sources. The credit sales have been a bonanza over the years for Washington Electric Co-op, a small member-owned utility based in East Montpelier.

But the price for renewable energy credits has dropped precipitously. And now the co-op’s ratepayers will see the impact in their bills.

“It’s a classic supply-demand situation,” said Patty Richards, the  co-op’s general manager. “We have more supply, in terms of wind projects, hydro projects, solar projects, anybody selling into the REC market. We have too much supply. And the demand has dropped off across New England.”

The co-op sells the credits from a wind project in Sheffield and landfill gas generators in Coventry. But when the renewable credit market crashed, REC revenue for the utility declined by about a million dollars from 2017 to 2018. That meant the co-op had to raise rates. Utility regulators just approved a 5.49 percent increase starting in January.

Richards says she hopes the market recovers. And that could happen if states like Massachusetts and Connecticut boost the renewable requirements for their utilities. But she’s worried what will happen if prices stay low.

“It’s definitely a concern because what it’s going to translate into is rate increases,” she said. “Because the more the REC prices stay low, the longer that sustains itself, it will continue to put upward pressure on rates.”

Predicting the REC market – like predicting any market – is tough, especially when the market can be affected by a change in state energy policy. Yet prices could indeed stay low.

Kevin Jones is director of the Vermont Law School’s institute for energy and the environment. He said REC prices essentially are pegged to the cost difference between conventional generation – such as a natural gas fired power plant – and the cost of a renewable resource, such as a wind turbine. The cost of generating those green, renewable electrons is declining.

“And while natural gas prices have stayed low, the cost of wind and solar has dropped dramatically in recent years,” he said. “In addition, the larger states that are participating, both [Massachusetts] and Connecticut, have done significant renewable procurements in recent years.”

Vermont utilities and their ratepayers could feel the impact of this market upheaval, although larger utilities can more easily absorb the price swings. Maria Fischer, the analyst with the Department of Public service, said REC prices have slumped from a high of around $60 dollars a megawatt hour five years ago to a low of around $10.  

“A hundred thousand RECs for a supply that’s sold at $60 brings in $6 million in a year. And now that it’s down to $10, for example, that’s $1 million,” she said. “So for a smaller utility that’s a very significant impact.”

There are upsides to all this. First, more renewable projects are being built and that’s good if you want to cut greenhouse gases. And second, Vermont law requires utilities to also meet renewable standards. And they can do that by buying RECs and  “retiring” them – in other words, retaining those environmental attributes and not re-selling them again.

Ed McNamara, director of energy planning and resources at the department of public service, said that’s good for companies retiring the RECs.

“When they’re selling it, they want the higher price. Retiring RECs for compliance you want the lower price. So [it] depends on the position each individual utility is at,” he said.

So just like any market, the REC market has winners and losers. McNamara said it’s hard to apply hindsight to the Washington Electric Co-op’s heavy reliance on REC revenue. He pointed out the co-op’s member-owners supported renewable energy projects long before state mandates, which meant the co-op and its ratepayers benefited greatly in the years REC prices were high.


Source: http://digital.vpr.net/post...

JAN 4 2019
http://www.windaction.org/posts/49272-vagaries-of-the-energy-market-a-boom-in-renewables-leads-to-higher-rates-for-co-op
back to top