Connecticut has made a controversial choice in selecting a unique reverse auction system to foster renewable generation.

Connecticut’s two public utilities will launch a renewable-electricity program when they hold the first in a series of reverse auctions to foster “green” generation.

The auctions will allow the companies’ customers to bid for millions of dollars in long-term contracts for the electricity they propose to produce through the installation of technologies eligible for the state’s Low- and Zero-Emissions Renewable Energy Credit (LREC/ZREC) Program.

The program, which is open to residential as well as commercial customers, was mandated by the state’s Energy Act of 2011.

Although the law specifies a wide range of energy mandates, the LREC/ZREC program “is a centerpiece of [Gov. Dannel Malloy’s] commitment to finding new approaches to how government works and to clean energy leadership, in particular,” Alex Kragie, special assistant to the Department of Energy and Environmental Protection (DEEP) commissioner, told Breaking Energy.

The Two-Pronged Attack

In fact, stakeholders assert that Connecticut is the first state to mandate both a budget-driven and market-driven approach to promoting renewable-energy purchases by distribution companies.

Under a market-driven approach, the companies typically endeavor to meet their states’ renewable portfolio standards (RPS) by searching for the best energy deals. Under a budget-driven approach, there is a competition for the money available in an annual budget.

While market-driven approaches inevitably lead to far-flung energy purchases, the new program limits power purchases to the energy generated by customers of the Connecticut distribution companies, thereby promoting renewable-energy production, and job creation, within the state’s jurisdiction.

“There’s nothing exactly like this program anywhere else,” Kragie said. “We want to move away from the old model of overly rich subsidies and governments picking winners and losers among clean technologies, and we want to make this a competition to drive down costs.”

There’s nothing exactly like this program anywhere else,” Kragie said

The LREC/ZREC solicitation plan was approved by DEEP’s Public Utilities Regulatory Authority on April 4. The initial solicitation for project proposals should be issued “in a matter of weeks,” Christie Bradway, renewable power manager at Northeast Utilities subsidiary Connecticut Light & Power, told Breaking Energy.

Under the program, the state’s distribution companies, CL&P and United Illuminating, will select the lowest bids for, and eventually purchase, the renewable energy credits (REC’s) issued to account for the winning bidders’ power production on the basis of one REC for each megawatt hour of electricity.

The maximum rate that the companies can pay for ZREC’s is $350 apiece; for LREC’s, the maximum is $200 apiece – although the assumption is that bids will come in south of those caps.

Bradway says that CL&P will be selling all the REC’s it purchases through this program because the company already has enough of them from its bundled, renewable-energy contracts to keep it on track to comply with the state’s 9% renewable portfolio standard mandate for 2012. (The mandate ratchets up to 20% in 2020.)

The companies will annually solicit (for the next six years) $8 million worth of 15-year ZREC contracts for the power produced with such zero-emissions technologies as solar, wind, and hydro. In addition, they will annually solicit (for the next five years) $4 million worth of 15-year LREC contracts for projects using such power sources as fuel cells, gasified biomass and landfill methane.

The REC money will be available from the distribution companies in a ratio reflecting their share of the Connecticut market. So, CL&P, with 1.23 million customers, will be soliciting bids for about 80% of the REC-contract money; UI, with 325,000 customers, will solicit bids for about 20%.

Size Matters

Unlike the LREC contracts, which will be offered for projects with nameplate capacities ranging up to 2.0 megawatt hours, the ZREC contracts will be divided into three categories: “small” (1-to-100 kilowatt-hour projects), “medium” (101-to-250 kWh projects), and “large” (250-to-1,000 kWh projects).

Parties proposing “small” projects won’t have to bid; rather, they will be “price takers,” as Bradway puts it, who will be offered a REC price equaling the average price for “medium”-project REC’s – plus 10% of that average (as a bidding incentive).

Paul Michaud, president of Connecticut’s Renewable Energy and Energy Efficiency Business Association, told Breaking Energy that “there will be a role for wind energy” in the ZREC program, but added that “Connecticut doesn’t have a strong, statewide wind resource.” Consequently, most of the initial ZREC projects are likely to be solar, Michaud says.

He also praises the program as “very cleverly designed,” and expects all three tranches to be fully subscribed. (If all of the LREC and ZREC money isn’t allocated from the first 2012 auction, a second one will be held in October.)

UI spokesman Ed Crowder told Breaking Energy that his company is “doing our best to make sure that it results in the greatest amount of renewable energy for the least amount of dollars.”

Bang for the Buck

Kragie stresses that keeping renewable-energy costs low is the key to the program.

“We are focused on driving down the cost of electricity through the reverse auction structure,” he said. “We’re trying to get the most bang for the ratepayers’ dollars while making sure that we’re fostering a competitive and very healthy marketplace for clean energy. We think the program will deploy hundreds of projects across the state by attracting as much investment as we can in renewable energy projects.”

“From what people tell me,” said Michaud, “other states will be watching the results of the Connecticut program very closely.”