Fulfilling the Promise of Renewable Energy with LongTerm

Fulfilling the Promise of Renewable Energy with Long-Term Contracts April 29, 2005

Mass Energy’s Role • Supplier to voluntary market – New England Green Start (for National Grid customers) – New England Wind (tag) • Advocate for RPS

Promise To Fulfill • Allies: – Clean Water Action – Conservation Law Foundation – MASSPIRG – Union of Concerned Scientists

Expectations • Law passed in 1997, with RPS starting in 2003 • REC prices should be ~ $25 – projection made back when energy was cheap! • Restructuring complicates things – but we can meet RPS without interfering with competitive markets

Status Quo • DOER: – 2004: ~ $15 million in Alternative Compliance Payments and “remain approximately level over the next three years if numerous projects in the pipeline can become operational” • “The level of ACPs is not an indication of flaws in the program. ” • Our View: – meant to be a safety valve – we can do better

Evidence • In 2003, vintage 2003 RECs only contributed 304, 112 towards compliance (60%) • REC prices are close to the ACP in the spot market, which most LSE’s are buying from • 2006 obligation = 1. 3 million RECs – 4 X amount of 2003 vintage RECs purchased for RPS obligation – CT, RI, and NY all have competing RPS’

Not Enough New Projects • Even Cape Wind would not eliminate ACP without a change in RPS – An administration opposing Cape Wind should not base RPS policy on the likelihood of Cape Wind contributing to the Mass. RPS

Market Failure • Levelized cost of renewables are increasingly competitive, but capital intensity calls for longterm financing • Discos don’t know what their basic service load will be years from now, but they do know what their distribution service load will be • Most competitive suppliers don’t know what their load will be in two years – they cannot make long-term speculative commitments for energy and/or RECs

Why It’s a Problem • If existing projects can get more (either higher short term prices or length of term) from CT, RI, or NY, then RECs will flow to those states – not to mention the energy itself • Sum of spot market prices for energy and RECs (or ACP) are now ~ 11 cents, more than most projects need – Berkshire Wind: < 7 cents for the bundle • low cost energy will go customers of municipal utilities that are exempt from RPS!

Renewables Trump Natural Gas • New England Governor’s Conference, “Meeting New England’s Future Natural Gas Demands: Nine Scenarios and Their Impacts” – http: //www. negc. org/DOCUMENTS/NATURALGA SSTUDY. PDF – renewables are best supply solution available – better than scenarios involving more natural gas, coal gasification, switching to oil, and nuclear • purely in terms of providing additional energy supply at lower cost, not even considering environmental benefits

What Works – Public Power • Projects involving public power get built – – MWRA Deer Island digester gas Chicopee Municipal Light (LFG, w/ MTC project) Hull Municipal Light Plant (wind - Hull 1 and Hull 2) Princeton Municipal Light Plant (wind repowering, with MTC support) – MMWEC (Berkshire Wind – also MTC and RI Renewable Energy Fund) – Washington Electric Coop. & Cape Light Compact (Coventry LFG) – Burlington Electric (Equinox wind) – Lydonville Municipal Light Plant (East Haven Wind)

What Works – MGPP • MTC’s Mass. Green Power Partnership – Round 1, a success: • REC prices average $25 • “Long-Term Revenue Support to Help Developers Secure Project Financing” by Karlynn Cory, Nils Bolgen, and Barry Sheingold, March 2004 – Round 2, proposals submitted on March 18, 2005

What Works – Long-Term Contracts • Mass. RPS implementation should learn from public power and MGPP • Prudent: L-T contracts for renewables for at least 4 -10% of the load – Environmental benefits are obvious – Economic benefits: save 4 cents / k. Wh when buying both energy and RECs

Short-Term Solutions • 1) Do more MGPP with 2004 ACP and 2005 ACP • 2) Support community wind projects, particularly those with municipal aggregators such as the Cape Light Compact

Long-Term Solutions • Work by MTC & DOER to coordinate long-term voluntary PPAs with HEFA, AIM, etc. is great, but not sufficient – we need 1. 3 million MWh by 2006! – to provide energy price stability to basic service customers – to provide energy price stability to Commonwealth taxpayers – the state itself should buy renewable energy) • Two bills – H. D. 3470: changes RPS obligation from LSE’s to discos • prudently incurred long-term contracts for energy and RECs can be put into rate base – no stranded costs if prudently incurred – H. D. 3471: NY model of central procurement

Design for Success • RPS is a social obligation (actually, an opportunity) for all of us, not just discos and not just competitive suppliers • Rather than foisting the obligation onto uncertain market players, make procurement simple and have ratepayers pay commensurate to the benefits

Mass Energy Larry Chretien 670 Centre Street Boston, MA 02130 617 -524 -3950 larry@massenergy. com www. massenergy. com