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Tales of a Northeast energy retailer -- Uncertain and risky

The near term market for wind and other renewable energy in the northeastern United States remains highly uncertain and quite risky, but long term prospects look increasingly bright, says an executive in the thick of things, Mark A. Hanks of Connecticut-based Select Energy. The company buys and sells energy in the region's competitive marketplace.

The states of Connecticut, Massachusetts and Maine require energy retailers like Select Energy to buy a certain proportion of their energy from renewable sources. Those percentages are low right now -- generally hovering around 1% -- but the legislation calls for yearly incremental increases. Other states in the region may soon adopt similar legislation, known as a renewables portfolio standard (RPS).

At first glance, these regulations promise a rosy future for wind. But Hanks cautions that some states are sending mixed messages. "The Connecticut renewable portfolio standard went into effect in 2000," Hanks says. "But now there's legislation that would postpone those requirements until 2006, pushing it back four years in effect. That just underscores this regulatory uncertainty." Hanks, manager of the Regulatory and Market Planning Division, makes decisions regarding the viability of short term and long term energy contracts.

Select Energy, he says, welcomed regulations that forced the company "to back into" renewable energy purchases. But without the regulations, he says, the company cannot afford to become involved. With no federal leadership on the issue, state governments must send clear signals that they will not back-pedal before trading companies can whip-up much interest in long term renewable energy contracts. He expects the Connecticut vote on postponement to come up sometime this summer -- but even that could change quickly.

"Under these circumstances, companies are reluctant to commit themselves to deals that might make their energy more expensive, given the intensely competitive energy market in the Northeast today. There's the regulatory risk and there's also the business risk, the risk that people you are working with will not be able to provide the resource." These factors "weigh heavily on a supplier's commitment to purchase long term power." Given those uncertainties, Hanks adds, "We would be looking at short term purchases, short term maybe being two to five years." But renewable energy developers are looking to sign longer term deals in order to gain project financing. "It's a chicken-and-egg kind of thing," Hanks says.

POSITIVE LONG TERM

The long term market, however, looks very positive once the initial difficulties of kick-starting the shift away from gas and coal (the primary electricity sources in New England) are dealt with. "Companies are realising that renewable energy is the direction of the future. Over and above compliance requirements that exist in certain states, these sorts of products are going to become more and more prevalent. In light of September 11, they see fuel diversity as a very healthy thing. People are talking more and more about that from a national security point of view. Renewable energy is being seen as a way to be more self-sufficient"

Select Energy is part of Northeast Utilities, once the monopoly power supplier in many areas of New England before deregulation made competitive pricing of electricity essential. "Therefore, the price of wind power must be competitive," says Hanks. "We are always looking at the prevailing market place."

Meanwhile, Massachusetts has introduced a penalty for not meeting the RPS. Beginning January 1, 2003, suppliers like Select Energy that fail to complete their renewable energy purchases must pay $50 per unfulfilled mega-

watt hour to a state fund. In many cases, Hanks says, companies who cannot secure renewable power at a reasonable price will choose to pay the fine, called an Alternative Compliance Payment (ACP). Revenues from the ACP go to the Massachusetts Renewable Energy Trust Fund to pay for more renewable energy projects. Currently the fund contains more than $100 million.

That money, Hanks says, will help bring down the price of wind power. When it happens, he expects the market to buy whatever becomes available.

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