Renewable Energy in Rhode Island Makes Cents
posted Feb 20, 2012 by John E. Surrette, Jr., CPA, CFE
There’s some good news on the renewable energy front in Rhode Island, and chances are you have not heard about it. On June 29, 2011, the Distributed Generation Standard Contracts Act (the “Act”) became effective, which has significant implications for developers and prospective owners of renewable energy projects in Rhode Island.
Under the Act, National Grid, the primary energy provider in Rhode Island, is required to enter into contracts for an aggregate capacity of at least 40 megawatts (MW) of Distributed Generation projects from renewable energy projects by 2014, spread over a four year schedule that started in 2011. The following minimums are required under the Act:
By December 31, 2012 – minimum aggregate capacity of 20 MW
By December 31, 2013 – minimum aggregate capacity of 30 MW
By December 31, 2014 – minimum aggregate capacity of 40 MW
Each year, National Grid is required to have three (3) enrollment periods, which will be open for two weeks, and in which they are not required to accept more than one-third of the annual capacity for the given year. Applicants for the program are required to fill out an application, which requires, among other items, the identification of the owner of the project, its location, nameplate capacity, and renewable energy class. To be eligible for the program, the project must be a “newly developed renewable energy resource”, which is defined as an electric generation unit that exclusively uses an eligible renewable energy resource as defined by the Rhode Island General Law governing the implementation of renewable energy standards. There are no restrictions as to who can apply for the program.
The benefits of this program are quite beneficial for small distributed generation projects. Small projects are defined as those that have a nameplate capacity of no more than 500 kilowatts (kW) for Solar, 1.5MW for Wind, and 1MW for other technologies. The Act requires National Grid to enter into standard 15 year contracts at the applicable ceiling price for accepted projects (the prices are reviewed on a periodic basis to remain in line with market rates and are based on the size of the project). As a point of reference, the largest solar project currently operating in Rhode Island has a nameplate capacity of 445kW (and consists of over 1,500 solar panels). Larger projects are subject to different pricing standards under the Act.
There are certain thresholds that must be met by the project owner in order to be considered for inclusion in the program. The owner is responsible for the cost of connecting their project to the energy grid (also known as “interconnection”) and progress towards interconnection is required prior to applying for the program. This means that costs will have to be incurred prior to knowing whether your project will be accepted under the program, which certainly presents some risks. In addition, the project is required to produce the output detailed in their accepted application within 18 months of acceptance, and is required to post a guarantee deposit with National Grid which is based on the estimated renewable energy certificates (“RECs”) expected to be generated by the project. If the output requirement is not met within that timeframe, the deposit is forfeited. Certain other requirements are also dictated within the program guidance.
For those of you who have been considering such a project, but have been hesitant to pursue one due to some uncertainties on pricing, now may be the time to reconsider. The 15 year guaranteed price contract should allow for favorable financing terms, and the ceiling prices under the contract will also allow for project owners to realize an acceptable return on their investment. This new Rhode Island renewable energy program combined with existing federal tax incentives makes for a much more attractive return on investment. We are here to help and can help you analyze the costs and benefits of such a project. Please contact me or one of the other members of our team to learn more about the program.