Connecticut ZREC Program Faces a Bump in the Road

In July 2011, Connecticut passed legislation to create two new classes of renewable energy credits ("RECs"). Through this legislation, Connecticut Light & Power ("CL&P") and The United Illuminating Company were then directed by the state to launch a 22 year program which will promote, fund, and expand behind the meter renewable energy generation within these two new classes of RECs. Through a market driven RFP bidding process and a small tariff, these two utilities are looking to obtain a 15 year revenue stream from the sales of renewable energy credits.

The two new classes which qualify for these solicitations are LRECs and ZRECs. LRECs are low emission renewable energy credits, including credits from fuel cells and other technologies that meet certain low emission standards, for example, no more than 0.07 pounds per MWh or nitrogen oxides, 0.10 pounds per MWh of carbon monoxide, and 0.02 pounds per MWh of volatile organic compounds. ZRECs are zero emission renewable energy credits, including credits from solar, wind, hyrdo and other zero emission facilities. In order to qualify, ZRECs must meet the following standards: 1) be behind the meter and have a dedicated solar meter for reporting purposes to NEPOOL, 2) achieve commercial generation on or after July 1, 2011, 3) emit no pollutants, 4) be no larger than 1,000kW, and 5) be from a solar, wind, small hydro, or other zero emission facility.

The size qualifications are then broken down into three project classes, each with separate funding levels. Large projects (250 kW - 1,000 kW) and medium projects (100 kW - under 250 kW) will bid into the established RFP process. Small projects (under 100 kW) will then participate in a small ZREC tariff program once the medium RFP contracts are secured. This tariff will be secured on a first-come, first served basis.

For medium and large projects, there will be six annual ZREC solicitations with a starting price cap of $350/ZREC. The Public Utilities Regulatory Authority ("PURA") may reduce the ZREC price cap annually by 3-7%, if they choose. Funding for this RFP has been set by the legislation and will be regulated by PURA. This funding will act as one of the primary limiting factors towards distinguishing how many individual contracts each utility may enter into. For ZREC contracts specifically, utilities are required to spend $8 million annually. For LREC contracts, they are required to spend $4 million annually.

In December 2011, the utilities submitted their initial plan for a six year solicitation and then issued their first RFP in May 2012. The next RFP will likely be issued in April 2013; however, if the May 2012 RFP does not secure enough contracts, an additional RFP may be released.

For the May 2012 RFP, bidders submitted one bidder response form for each project. In July 2012, bidders were then selected based on the pricing provided and their ability to meet the qualifications. Since the participation in the program was quite significant, projects were put on a standby list. Connecticut Light & Power received 296 bids for medium and large-sized projects, and initially selected 84 bids as winning bids, while the United Illuminating Company received 72 bids for all ZREC and LREC tiers, and selected 21 bids total as winning bids.

Since winning bidders have been announced, CL&P and the United Illuminating Company have experienced a bump in the road in their pursuit to execute contracts. After developers were contacted in July to begin the process of executing contracts, it became fairly clear that the winning bids for projects were more speculative in nature and did not have a high probability of execution and completion. Many developers have had to drop out of the program due to their inability to obtain and secure financing for these projects early on. The inability to secure financing will then limit a developer's ability to meet contract requirements for the program, for example, the ability to post security for a developer's bid. This has allowed for those projects and bids on the "standby" list the opportunity to prove their ability to obtain and secure financing in order to successfully execute contracts with the program.

As a result, though not officially released, the average accepted bids range from $100-$140/ZREC. The United Illuminating Company, specifically, has released a statement placing their weighted average price for accepted "medium" tier bids for projects around $135.36/REC. Final weighted average prices will be posted once the bids for each utility are given final approval by PURA.

Sol Systems will continue to track this process on our blog and will provide any updates as these contracts progress. Should you have a project that has been awarded a ZREC contract and are in need of financing, please contact info@solmarket.com and our team would be happy to discuss your project with you and assess financing opportunities.