Massachusetts
Green Power Partnership
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| The Brockton Brightfield project, supported by an MGPP renewable energy certificate (REC) contract, transformed a polluted "brownfield" into a solar photovoltaic park. |
This initiative is currently closed, and there are currently no plans to reopen it. However, the initiative description and materials may be relevant for those interested in the Renewable Energy Certificate market.
Background
The Massachusetts Green Power Partnership (“MGPP”) was designed to stimulate private investment in construction of new clean electric generating facilities in Massachusetts and New England. These facilities will be built to satisfy both voluntary demand for green power among Massachusetts consumers and the requirements of the mandatory Massachusetts renewable portfolio standard (“RPS”) established under Massachusetts law.
New renewable facilities require long-term REC cash-flow. Renewable energy developers are dependent on revenue streams from power sales, tax incentives, and sale of attributes (Renewable Energy Certificates - “RECs”) to cover future payments to equity and debt investors and generate project income. Already faced with considerable uncertainty regarding future market prices of power, project developers must also deal with the uncertain future value of RECs. Demand for RECs, particularly over time, is uncertain. The RPS can be modified or eliminated at any time. Further, in competitive electricity markets nationwide no substantial voluntary demand for RECs has developed. As a consequence, there have been few if any long term contracts executed for RECs in Massachusetts.
MGPP provided certainty for REC cash-flow. The absence of long term contracts for RECs with creditworthy entities makes it difficult for developers to secure equity and debt financing for their projects. The MGPP aimed to address the lack of REC cash-flow certainty by providing long term REC contracts, assuming the risk that government mandated demand will persist under substantially similar terms and that a voluntary market for RECs will develop. By placing funds into an escrow account to support MTC’s REC purchase commitments, we also provided the creditworthiness required by equity and debt investors.
Contract Types. MTC offered three types of REC contracts through MGPP:
- Purchase Agreements under which the bidder is obliged to sell and MTC is obliged to purchase a specified quantity of RECs over multiple years at the prices bid in the proposal.
- Put Options under which a Bidder secures the right, but not the obligation, to sell RECs to MTC over the contract period at the prices set in the proposal (the “put option strike price”). Bidders may also propose to combine a Put-Back Option with a put option. The put-back allows MTC to require that the seller buy back the RECs at a set per-unit price that is lower than the put option strike price.
- Price Collars (combined Put and Call Options) under which a Bidder secures the right to sell RECs to MTC and MTC also obtains the right to purchase RECs from the Bidder at a specified higher price (a Call Option). This contract type allows MTC to share some of the “up side potential” if the market price for RECs reaches higher levels.
MTC re-sells RECs. MTC will re-sell the RECs that it purchases with Renewable Energy Trust (RET) funds and, under certain circumstances, may also re-sell RECs purchased with Massachusetts RPS Alternative Compliance Payment (ACP) funds1. This will return funds to the RET and ACP accounts. Companies that purchase RECs from MTC will use them for sale in the voluntary market or for compliance with the Massachusetts renewable portfolio standard.
Round 1
The MGPP Round 1 solicitation was issued in May 2003. Eleven applications representing over 120 MW of proposed new renewable generating capacity were received in September 2003. The MTC Board of Directors approved 6 awards with a present value exposure2 to MTC at the time of award of $21 million. These funds will support over $33 million in REC purchase commitments over time (nominal value). Table 1 lists and describes the projects that have been awarded REC contracts under Round 1.
Round 2
In January 2005 MTC issued the round 2 MGPP request for proposals – with up to $15 million in Renewable Energy Trust (RET) funds available (present value) to support up to $25 million in REC purchase commitments over time (nominal value). At the time of project selections, these funds were supplemented with $13 million in RPS Alternative Compliance Payment (ACP) funds. The RFP and other documents are available here.
In June 2005 MTC selected seven projects for long-term REC contracts. The contracts with five RPS-eligible projects will be backed by a combination of RET and ACP funds in approximately a 50/50 ratio. The contracts with two hydro projects, which are not eligible for the Massachusetts RPS, will be backed by RET funds only.
As a condition for award of the REC contract, MTC required six of the projects to enter into power sales arrangements (or other financial transactions) that could provide customers who pay into the RET with some protection against fuel and electricity price increases. This direct economic benefit is available because the cost of power from the renewable projects is not linked to variable fossil fuel prices. The award condition is part of an MTC pilot effort to capture this benefit for contributors to the RET. Table 1 lists only those projects that have satisfied this award condition.
Table 1. MGPP REC Contract Awards (updated June 2007)
Developer |
|
|
|
RET Nominal Value |
ACP |
Development Status |
Round 1 (2003) |
|
|
|
|
|
|
Berkshire Wind Power, LLC |
Wind/ |
15 |
Purchase |
9.9 |
0 |
Financing (2007) |
Brockton, City |
PV/ |
.4 |
Put Option |
.9 |
0 |
Operating (2006) |
CommonWealth New Bedford Energy |
LFG/ |
3.3 |
Put w/ Put-Back |
3.0 |
0 |
Operating (2005) |
Hoosac Wind, LLC |
Wind/ |
30 |
Collar |
17.1 |
0 |
Permitting |
Pepperell Hydro, LLC |
Hydro/ |
1.3* |
Purchase |
.8 |
0 |
Operating (2006) |
Public Service Co. of New Hampshire |
Bio/ |
50 |
Collar |
2.7 |
0 |
Operating (2006) |
Round 1 Totals |
100 |
|
$34.4 |
$0 |
$34.4 million round 1 |
|
Round 2 (2005) |
|
|
|
|
|
|
Greenville Steam Company |
Bio/ |
19 |
Collar |
2.8 |
2.8 |
Operating (2006) |
Indian River Power Supply, LLC |
Hydro/ |
1.6 |
Purchase |
2.2 |
0 |
Financing (2008) |
Panda Development Group |
Bio/ |
30 |
Purchase |
4.9 |
5.0 |
Cancelled; Lost Site |
Woronoco Hydro LLC |
Hydro/ |
0.9* |
Purchase |
1.8 |
0 |
Construction (2007) |
CEI–New Hampshire Wind, LLC |
Wind/ |
24 |
Collar |
2.1 |
2.1 |
Permitting (2008) |
UPC Vermont Wind |
Wind/ |
30 |
Collar |
5.4 |
5.5 |
Permitting (2008) |
Round 2 Totals |
106 |
__ |
$19.2 |
$15.4 |
$34.6 million round 2 |
|
Combined Round 1&2 Totals |
207 | __ |
$53.6 | $15.4 | $69 million grand total | |
* Represents new capacity at a site that was already in operation.
August 25, 2006
1Pursuant to MTC’s Memorandum with the Massachusetts Division of Energy Resources regarding use of RPS Alternative Compliance Payment (ACP) funds, MTC will retire the same amount of RECs as were displaced by 2004 ACPs. Under certain circumstances (e.g. when the REC market has a shortage of RECs), MTC may re-sell some of the RECs purchased with ACP funds.
2MTC’s present value exposure at the time of award represents the amount of funds that would be set-aside (e.g. placed into escrow accounts) to support future purchases of RECs. With interest earned on these funds MTC is able to meet its cumulative REC purchase or guarantee obligations over time.
CONTACT
Program Manager, Nils Bolgen, 508.870.0312, ext. 402
All inquiries should be submitted to: Nils Bolgen, Program Manager: bolgen@masstech.org.