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KEMA:
Many green contracts won't deliver?
States should
generally expect 20-30% of big, long-term green power contracts
to fail to meet delivery goals, says a draft KEMA Consulting report
for the California Energy Commission.
In
fact, failures could swell to over half of all contracts, especially
for projects that use pre-commercial technologies or are likely
to face siting, permitting, supply, grid or other barriers, KEMA
added.
KEMA
probed 21,500 mw of green contracts nationally, adding that failure
rates vary considerably among utilities, types of buying and technologies.
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The
goal is a safety margin in green buying to make sure delivery failures
don't keep IOUs from reaching targets.
California
IOUs have had high failure rates in recent buying, KEMA discovered.
KEMA
doesn't expect deliveries to become more dependable as IOUs dig
deeper into the pool of viable projects.
The
PUC requires IOUs to buy 20% more power than they need as a safety
net, although IOUs can propose other levels where justified.
The
big three IOUs don't want a uniform rule here.
They
favor tailoring safety margins to the risks of individual RFPs.
Grid
constraints are perhaps the biggest cause for delivery failures,
Southern California Edison has argued.
For
SCE, solutions should ease grid constraints rather than favor over-buying.
The
three IOUs use a variety of strategies to cut risk such as strict
pre-conditions, bidding fees, qualification processes, lists of
backup projects, milestones linked to forfeitures, performance guarantees,
project ownership and due diligence.
KEMA
couldn't determine the most successful strategies for ensuring delivery
because of confidential data and suggested that the CEC probe more
deeply.
Landfill
gas projects had the lowest failure rates in KEMA's survey.
Originally
published in Restructuring
Today on January 17, 2006
Green
power demand exceeded
supply in Massachusetts
Penalties,
rising standard drive
green generation boom
Green power demand exceeded the supply of renewable energy
credits (RECs) available in Massachusetts in 2004.
That
means that those not meeting the state's standard fixed at 1.5%
of sales in that year had to pay the penalty.
In
2004, 13 suppliers came up 245,127 mwh short of their needs. The
payment rose last year to $53.19/mwh - adjusted for inflation.
RECs
are certified as tradable assets by the NEPOOL Generation Information
System -- each representing 1 mwh of power.
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Market
prices for RECs pretty much track the penalty (RT,
2/4).
For
example, the winner in an October auction of 2,807 first and second
quarter 2005 RECs paid $52.80 - pretty close to the penalty.
A
major result of the rising standard, penalties and boosted values
of RECs is a boom in green generation building in Massachusetts
and surrounding states, the Division of Energy Resources (DOER)
reported.
Penalties
($13.6 million recently) go into a fund at the Massachusetts Technology
Collaborative (MTC).
DOER
supervises how MTC invests the money to get more green generation
built.
Only
a third of green credits in 2004 were generated in Massachusetts,
DOER reported.
New
green generators in Vermont, Maine, Massachusetts, New York and
Rhode Island qualified for Massachusetts credits last year, adding
46 mw for suppliers seeking 2005 credits.
The
standard rose to 2% of mwh sold last year, creating demand for more
than 1 million mwh of credits, and rises to 2.5% this year -- boosting
demand to nearly 1.3 million, DOER predicted.
With
power use growing and the standard rising to 3% next year, the Massachusetts
market grows to more than 1.5 million mwh, DOER estimates.
Renewable
standards in neighboring states are competing now for energy credits,
DOER noted, and that may cut supplies available to Massachusetts'
retailers if REC prices rise in those states (RT,
10/3).
So
far, Massachusetts is competing successfully for the RECs, DOER
reported.
But
DOER expects supplies will grow this year as new landfill gas and
biomass facilities begin producing and expansions at existing plants
kick in.
Green
generators grew to 19 in 2004 and six new ones were added last year,
DOER reported.
Credits
likely will fall short of demand by about the same amount as in
recent years.
Two
Massachusetts biomass projects - the 50-mw Russell Biomass Plant
and 21-mw EcoPower plant -- are well along in getting permits or
under construction, DOER reports, along with 170 mw of plants elsewhere
in New England.
Several
wind and landfill projects are being developed but not all will
be built, DOER cautioned.
The
standard, DOE found, has lowered pollution while creating a more
diverse generation fleet in the region -- easing the impact of natural
gas price spikes.
But
what about keeping up with the REC demand?
Developers
have to overcome constraints such as plant siting and financing
challenges.
Sales
to customers in IOU territories have to meet the standard but munis
are exempt.
Originally
published in Restructuring
Today on January 17, 2006
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