July 7, 2011

Connecticut's Energy Legislation: A Technology-Neutral Approach

State Touts Creation of Nation’s First “Green Bank” to Support Renewable Energy Investments
Holland & Knight Alert
Stephen J. Humes

Now that Connecticut Governor Dannel P. Malloy signed Public Act 11-80 (the Act) into law,1 the state’s energy and environmental protection agencies moved swiftly to consolidate into the newly-formed Department of Energy and Environmental Protection (DEEP). This move is indicative of Connecticut’s intent to join other states in the region in promoting job creation through enhanced environmental and energy efficiency, energy storage and renewable energy investments. While state incentives for creating and installing renewable energy projects have existed for quite some time in Connecticut with marginal success, the Act seeks to build on lessons learned in other states while offering a technology-neutral approach to renewable energy. At the same time, Connecticut claims it is creating the nation’s first “green bank” to coordinate economic development support for worthy projects. Connecticut’s approach may be one to watch as a trend that has the potential to spread elsewhere, including in New York, which attempted similar legislation this most recent session.

Unlike approaches taken in other Northeast states that favor specific technologies, such as solar photovoltaics (PV), the Connecticut legislation attempts to remain technology-neutral. The state invites the renewable energy industry to respond with a broader array of qualifying technologies offering “zero emission” and “low emission” technologies. Connecticut’s Commissioner of the newly-formed DEEP, Daniel C. Esty, has already stated publicly that this legislation sought to avoid the mistakes New Jersey may have made by paying too much to invite the development of solar PV without weighing the ratepayer costs against the ratepayer benefits. “We don’t think the state should be in the business of picking winners and losers either,” Esty said recently.

Renewable Energy Certificates

The Connecticut approach allows developers of qualifying technologies the opportunity to enter into long-term contracts for the sale of renewable energy certificates (RECs) to the electric distribution companies (EDCs), while also imposing limitations on cost and project size. In addition, the Act opens the door to direct utility ownership of renewable energy projects (utility scale and behind-the-meter). The Act also creates a residential solar program while allowing municipalities to partner with other municipalities in order to maximize the opportunities for accessing funds for long-term sustainable financing.

Some of the new renewable opportunities promoted by the Act are customer-side energy storage, energy efficiency, and on-site renewable and virtual net metering – all of which the state hopes will lead to a number of ratepayer benefits while promoting development of green jobs. Perhaps one of the more prominent points of emphasis throughout the Act is energy efficiency and energy storage as the state hopes to encourage businesses, municipalities and residential customers to reduce peak energy demand and shift load to off-peak hours.

In addition, the Act establishes a variety of programs to help encourage green jobs and the growth of an in-state renewable energy industry. The following are examples of some of the programs the Act promotes:

  • Property Assessed Clean Energy (PACE). Connecticut adopted a growing trend in other states by allowing property owners in any municipality that wishes to establish a publicly-financed sustainable energy program to facilitate the increase of energy efficiency and renewable energy with convenient low-cost financing.
  • Residential Solar Program. Under this program the Clean Energy Finance and Investment Authority, the formal name of the new green bank, must implement a residential solar investment program intended to result in a minimum of 30 MW of new residential solar photovoltaic installations located in Connecticut by December 31, 2022. In addition, the Authority will offer direct financial incentives for the purchase or lease of qualifying residential solar PV systems.
  • Zero Emission Generation Program. Beginning on January 1, 2012, this program requires that each EDC must solicit and file for approval with state utility regulators, one or more long-term procurement contracts for the purchase of RECs from owners or developers of customer-side Class I generation projects that emit no pollutants, are smaller than 1 MW and serve the distribution system of the EDC.
  • Low Emission Generation Program. Similar to the Zero Emission Generation Program, this program also requires each EDC to solicit and file for approval with regulators one or more 15-year procurement contracts for the purchase of RECs generated from customer-side clean generation projects. Under this program, the generation projects must be less than 2 MW, serve the distribution system, and use Class I technologies that emit no more than 0.07 pounds per megawatt-hour of nitrogen oxides, 0.10 pounds per megawatt-hour of carbon monoxide, 0.02 pounds per megawatt-hour of volatile organic compounds and a minimal amount of particulate matter.
  • Combined Heat and Power and Anaerobic Digester Program. The Authority is required to establish a three-year pilot program to promote the development of new combined heat and power projects in Connecticut that are below 2 MW and an anaerobic digester program.

Additional Benefits of the Act

In both the Zero Emission and Low Emission Generation Programs, the production of one megawatt-hour of electricity from a Class I renewable energy source creates one REC. The solicitation conducted by the EDCs is for the purpose of procuring these RECs rather than the renewable electricity output. The obligation of the EDCs to purchase the RECs is apportioned based on the EDCs respective distribution system loads.

The Act also resolves a lingering regulatory dispute in Connecticut between municipalities and the EDCs with respect to virtual net metering. Several municipalities have petitioned utility regulators in recent years for permission to aggregate municipal load at smaller governmental buildings while installing a large-scale renewable energy facility at a central plant location. The EDCs had argued that allowing for virtual net metering was a problem under federal energy law, allegedly wheeling of power and federal jurisdictional wholesale sales; energy regulators balked at requiring such action without a legislative mandate. The Act sides with municipalities by requiring the EDCs to provide virtual net metering to municipal customers while making any necessary interconnections. In addition, an EDC must interconnect with and provide virtual net metering equipment to any municipality that requests virtual net metering. One of the benefits of virtual net metering is the ability of the municipal customer to install larger renewables on some town-owned property while obtaining net metering credits on other municipal property to offset power purchases from the grid.

Many of the details in the Act will take time to implement as leading officials within DEEP focus on agency consolidation and program coordination. Nonetheless, Commissioner Esty is pledging to work with the industry in helping to accelerate delivery of intended benefits under the Act, indicating that if anyone thinks the Act is not written broadly enough to cover desirable clean energy technologies or appropriate energy saving solutions, interested parties should bring that matter to his attention so that legislative adjustments can be addressed in an upcoming session. Already, state leaders are discussing calling a legislative special session in September 2011 to focus on jobs which may be a near-term opportunity for further legislative action to support renewable energy and green jobs.

Energy industry participants and other state governments across the country will want to watch closely what happens in Connecticut for the upcoming regulatory proceedings as rulemakings are undertaken to implement the various programs under the Act.

1 The full name of the Act is "An Act Concerning the Establishment of the Department of Energy and Environmental Protection (DEEP) and Planning for Connecticut's Energy Future." In addition to the Act's renewable energy programs which are the focus of this article, the Act achieves a major agency consolidation of the state's energy and utilities regulator (Department of Public Utility Control) with the state's environmental quality and enforcement agency (Department of Environmental Protection) as the new DEEP.

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