United States: Putting Together The Renewable Energy Puzzle

Last Updated: November 6 2012
Article by Eric K. Runge

Including more renewable energy as part of our electric energy supply mix is a public policy goal most people would agree with in principle. It makes sense in at least two key ways: First, renewable energy (such as wind and solar power) tends to be clean energy, thus promoting a cleaner environment, and second, more reliance on renewable energy means less reliance on oil-producing foreign nations, thus improving our national security. While the public policy goal seems like a good one that has broad support, making it a reality is challenging and requires putting together many pieces of a puzzle. Two of the big pieces of that puzzle are (1) how to get the energy from remotely located resources (such as wind farms in Northern Maine) to load centers (such as Boston) where the electricity is consumed, and (2) how to secure financing for new renewable energy project development.

In New England generally and in Massachusetts in particular, renewable energy is becoming more of a reality each year as new federal and state rules affecting electric transmission and wholesale markets take effect. Below are two examples of such developments -- one at the national level and one in Massachusetts -- that will help shape our renewable energy future.

At the national level, the Federal Energy Regulatory Commission (FERC), the agency that oversees interstate sales and transmission of electricity, last year issued a landmark order ("Order 1000") governing how the transmission of energy gets planned and paid for on a regional basis. Prior to Order 1000, transmission providers generally planned the system only to reliably meet the needs of customers -- to keep the lights on. Now they must also consider public policy requirements that drive transmission needs and evaluate potential solutions in the form of new transmission. For example, most of the states in New England have requirements that a certain percentage of the electricity supplied to retail customers come from qualified renewable energy resources. Wind power is the primary renewable resource being developed. Most of the major wind power production is being developed in Northern New England, especially Northern Maine, because of the favorable wind conditions, relatively low land costs and lack of population to be concerned with the presence of wind turbines. Getting that wind power in Northern New England to population centers such as Boston requires major transmission upgrades to the existing regional transmission network. Order 1000 has now opened a way to get that transmission capacity built.

At the state level, in response to Order 1000, the New England states put together a proposal (filed with the FERC on October 25, 2012) that would not only allow for the consideration of transmission needed to meet public policy requirements but also get that transmission built and paid for. Under the proposal, the New England states would work collectively to identify public policy requirements that drive transmission needs, work with the independent system operator of the regional electricity system to identify potential scenarios to meet those needs, and then conduct a competitive solicitation process for qualified transmission developers to propose and build specific transmission projects to meet those needs, with the costs of such projects being allocated according to an agreement among the participating states. The kinds of projects that are envisioned here are generally major transmission projects (costing in the range of hundreds of millions to billions of dollars) that could bring substantial amounts of renewable energy into participating states. These transmission projects would likely be coupled with long-term (10-to-20-year) power purchase agreements between the states -- or the utilities subject to state jurisdiction -- and the renewable energy suppliers.

Such long-term energy supply contracts are another piece of the renewable energy puzzle that must be put in place to make the goal a reality. In Massachusetts, Governor Patrick recently signed legislation that will allow for, among other things, distribution utilities in Massachusetts to enter into additional long-term renewable energy contracts. The new legislation provides that between January 1, 2013, and December 31, 2016, all distribution companies are required twice to solicit proposals from renewable energy developers through a competitive bidding process and enter into long-term contracts under certain conditions. The purpose of such legislation and earlier similar legislation in Massachusetts is to spur renewable energy development by ensuring a revenue stream, in the form of long-term power purchase agreements, to project developers.

Massachusetts regulators and other state officials are becoming increasingly involved in wholesale power markets and transmission, which are under federal jurisdiction, as they seek to carry out the public policy goal of including more renewable energy in our energy supply mix. By developing rules for getting transmission planned and paid for to deliver remote renewable energy and for the financing of renewable energy projects, they are helping put the pieces of the renewable energy puzzle together in a way that works.1

Footnotes

1. Day Pitney lawyers have been extensively involved in the Order 1000 compliance efforts, New England transmission matters, wholesale electricity markets and renewable energy project development.

www.daypitney.com

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