$32 Million Targets Renewable Energy Developers

As any developer knows, getting financing can be the biggest challenge to the success of a renewable energy project. One of the most effective ways to make a project more attractive to would-be financiers is to show long term profits, and nothing does this better than securing long-term purchase agreements for the power.

Westborough, Massachusetts – November 14, 2003 [SolarAccess.com] For precisely that reason the Massachusetts Technology Collaborative (MTC) announced awards topping US$32 million in long-term funding commitments from the state’s Renewable Energy Trust. The funding, most of which is in the form of long term Renewable Energy Certificate (REC) commitments, will greatly help support projects that could create an influx of close to 100 MW of new, clean renewable energy to the New England electric grid. This recent initiative serves to help satisfy Massachusetts’ new Renewable Portfolio Standard (RPS) legislation, that mandates the state derive a small percentage of its electrical demand from renewable energy; and to help foster local projects that provide that renewable energy for the RPS, while at the same time providing the region cleaner air, energy independence, and economic stimulation. Although renewable energy projects are a laudable improvement in numerous ways over traditional electrical generation, they pose their own challenges when it comes to financing, often because they are so capital intensive up front, and because the future market for their clean electricity is less certain. “Long term contracts are the toughest thing you need to get as a developer,” said Renewable Energy Trust Director Rob Pratt, who himself used to be a renewable energy project developer. “If you have long term contracts, you can get financing. There is an elegant simplicity to what we are doing here and it really does make a difference. The likelihood of these (projects) getting done is now very high.” The projects receiving support include: Berkshire Wind Power, LLC Hancock, MA 13.5 MW Wind CommonWealth Resource Management Dartmouth, MA 3.1 MW Landfill Gas enXco, Inc. Florida & Monroe, MA 28.8 MW Wind Pepperell Hydro, LLC Pepperell, MA 1.9 MW Hydro Public Service Company of New Hampshire Portsmouth, NH 47.0 MW Biomass While Pratt said the current market for RECs is quite good because of a short supply, the long term prospects are less clear, and it’s that uncertainty that can make or break a project. Many of the MTC’s arrangements are specifically targeted toward this future market structure by offering purchase of RECs many years from now when the market is less certain. For example, Berkshire Wind Power is developing a 13.5 MW wind project on Brodie Mountain in Hancock, Massachusetts. The MTC will purchase 100 percent of the project’s RECs in years six through 15 of its operation (Value $8,703,000). While the company stands a great chance of finding the right price for their RECs in the current market, they can rest assured that they will have a set income at many years from now. Financiers scrutinizing the company’s balance sheet can also rest assured that years 6-15 are accounted for. “People know of the RPS and know that RECs would be worth something, but if you’re a developer, it’s very difficult to know what they’re going to be worth when going into a financing entity,” Pratt said. “We all know they (RECs) are worth something, so what this first-in-the-nation effort does is give them long term contracts that are both guaranteed and escrowed.” This funding, which flows from MTC’s Massachusetts Green Power Partnership (MGPP), is only the first of what could be many rounds. Pratt said the MTC expects to recoup a substantial portion of this funding commitment through the resale of renewable energy certificates in the green power market. As RECs get sold or come back in, the MTC will be able to “recycle” the money, leading to further funding commitments and projects. The next round of funding could be released within eight months. The projects were chosen through a highly competitive process, which included expert analysis to determine the viability of each proposal. The funding commitments are strictly contingent on each project receiving all necessary state and local permits and on the actual construction and operation of the facility by 2005. In order to maintain flexibility and sourcing options, the Massachusetts RPS is set up so that any new renewable energy projects connected to the New England Power Pool (NEPOOL), stretching over much of New England, are eligible to sell their RECs to help satisfy the state’s requirements. While nearly all the projects in this round of financing are located in Massachusetts, one of them is Public Service of New Hampshire’s (PSNH) 47 MW Northern Wood Power Project, serving as an example that Massachusetts’ small RPS can make a big regional difference (see related story at the link below). Currently the Massachusetts RPS requires 1 percent renewable energy in 2003. The legislation is set up to increase in half percentage increments until 2009 when it will have reached 4 percent. From then on it will increase in one percent increments. After seeing what the state’s conservative 1 percent can do for renewable energy, one can only imagine what a difference a national RPS could have. Apparently the U.S. Congress couldn’t. The possibility of a Federal RPS has since been dropped from the current Energy Bill committee debates. The Energy Bill committee wrangling, controlled largely by Republicans in closed-door sessions, looks as though it will offer only minor consolation prizes for the renewable energy industries. Critics say anything of real substance has been left out in place of lavish subsidies for the fossil fuel industries. “The federal RPS would be terribly importantýsuddenly it allows the renewable energy industries to play on a level playing field,” Pratt said. “Often people don’t know about the massive subsidies that the fossil fuel, and nuclear industries receive. It (a Federal RPS) would create enormous demand, particularly in states that do not have an RPS. This is what the market needs, you need to show market demand. It’s quite safe to say that without the (Massachusetts) RPS, none of these projects would be coming on line.” For a full description of each project, see the MTC Projects link below.
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