Tuesday, December 28, 2010

Delaware Tea Party Sees RECs as Wasteful

They're not exactly money, and they're not a direct government handout.

But they are seen as the state-backed boost that solar and wind energy need to compete with power generated from fossil fuels in the coming decade.

Trouble is, they may be the next target for Delaware tea party activists, who see them as wasteful government intervention into the free market system that just end up costing consumers more for electricity.

They're renewable energy credits, or RECs. Owners of a wind or solar system, big or small, get one for every unit of energy they generate. The credits can be sold on the open market, including to utilities that need them to help satisfy state requirements that a set percentage of the power they provide be obtained from renewable energy sources.

In Delaware, each electric utility is required to buy 25 percent of its power from renewable sources by 2025. Thirty-two states and the District of Columbia have enacted renewable energy purchase requirements, and Congress is considering some kind of nationwide requirement.

Utilities can satisfy the state requirements with the renewable electricity itself, or the credits.

Delaware and local solar industry officials are increasingly looking to the credits -- and gradually away from lump-sum government subsidies -- as the best way to make solar power accessible to the masses.

But in a charged political climate, some see the credits as no different from a direct government subsidy.

"Every time a solar panel goes up, we pay for it," said John Nichols, a self-described "citizen activist" and a member of the First State Patriots. "If you want to put a solar panel on your roof, or a turbine in your backyard, and you don't create a noise problem, you should be allowed to do it and sell the energy back to the grid. But I don't want to subsidize it."

He's backing an effort to repeal the state's renewable energy purchase requirements, as well as its participation in the Regional Greenhouse Gas Initiative, a 10-state program that includes Delaware, to reduce carbon emissions that also generates funds the state uses to help underwrite energy-efficiency programs.

Under the law, Delmarva Power is required this year to get 5.5 percent of its power from renewable sources. It's costing the average Delmarva residential customer, defined as using 1,000 kilowatt-hours of power per month, an additional $1.54 monthly, to cover the higher costs for alternative energy purchases, the company reported.

It's unknown how much the premium will be as time goes by and additional contracts get signed, said Delmarva spokeswoman Bridget Shelton.

Some of those contracts will include purchases of solar power from individual home and business owners. They have, in turn, relied upon the state to help them put their solar projects in place.

Since 2002, Delaware has relied on the Green Energy Fund, a small line item on Delmarva Power customers' bills, to fund solar rebates, which offered grants for up to 50 percent of a project until last year.

Today, with the price of solar panels dropping and demand increasing, the state grants are generally less than half of what they were. Federal grants for 30 percent of a solar project remain available.

State officials like natural resources secretary Collin O'Mara say RECs are the long-term solution, with grants expected to be phased out over time. Because renewable power is generally more expensive than old-school fuel, the credits provide a second revenue stream that pays out over the life of the installation.

O'Mara said solar RECs are the long-term key to creating a "more level playing field" with fossil fuels, which receive any number of indirect subsidies through tax preferences at the state and federal level.

For decades, businesses that have extracted, combusted and delivered traditional fuels have received subsidies, and their prices have excluded societal impacts like air pollution in their price, he said.

"We have to make sure the policies are in place to incentivize the cleaner alternative," he said.

But Nichols is among a growing contingent of skeptics. He questions whether buying more renewables will lead to "green jobs" and calls them an unreliable source of energy, dependent on whether the wind is blowing or the sun is shining.

Nichols said he expects Delaware lawmakers to introduce legislation next year to repeal the renewable energy purchase requirements and the greenhouse-gas program, which operates as a regional cap-and-trade system.

An ally in the repeal effort will be the Caesar Rodney Institute, a local conservative think tank.

"The cost to the ratepayers has not been adequately addressed and put forth to the public," said its chairman and CEO, Barrett Kidner.

Rep. John Kowalko, D-Newark, said he doesn't see much of a chance for success and said the programs have been helpful in supporting renewable energy and green jobs. "I believe it's just posturing."

To help satisfy its state requirements, Delmarva is currently buying half the output of a 67-turbine wind farm in Troy, Pa. That includes half of the energy and the RECs created by the project. Delmarva also has contracts to buy from two western Maryland wind projects that are not yet up and running.

Looking further out in time, Delmarva will buy up to 200 megawatts from the planned NRG Bluewater Wind offshore project, currently slated to come on-line by 2016. That will add an additional $1.58 to each Delmarva Power customer's monthly bill, during the life of the 25-year contract.

And Delmarva will buy RECs from the Dover SunPark for 20 years, costing the utility a cumulative $42.6 million. It's expected to begin operating next summer.

Despite the price premium, Shelton said, her company supports the state requirement that it buy renewables.

The Sustainable Energy Utility is expected to play a role in making sure people with small solar installations can get guaranteed long-term contracts for their RECs. The program is expected to provide additional incentives for those who buy from Delaware manufacturers, like Motech, and use an in-state installer.

The guaranteed revenue stream that RECs provide should make banks more comfortable with loaning for solar projects, said Jim Kelley, president of KWSolar, based in Newark.

He said his company has been doing good business, despite the changes in the credits. KW recently installed panels at the Hockessin library.

Commercial customers, however, have been unhappy about the latest change, which limits the size of the large up-front grant they used to receive, Kelley said.

Despite that loss, the new system should be cost-effective over time, Kelley said, noting that with dropping solar prices, "it sort of evened itself out."

Len Fry, of Eclipse Solar in Wilmington, said after the first reduction in Delaware rebates last year, "our business dropped off dramatically." Solar installation business is still good for jobs in surrounding states, he said.

But he said an REC-based system can work, if people know what they can expect to earn.

"You've got to be able to look at something for the long term," Fry said.


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