Reverse Auctions Seen As Model for Clean Energy Renaissance

Connecticut is using an innovative – and successful – reverse auction model that fosters the use of clean energy while reducing the cost for taxpayers.

Proponents think so highly of the program that, if used nationallly, would "pave the way for renewable energy to become the third piece of the country’s predicted energy ‘renaissance’, reports AOL Energy.

Connecticut’s approach directs the state’s two utilities – United Illuminating and Connecticut Light & Power – to source renewable energy from the lowest bidders.

In the first auction, held in spring 2012, the utilities selected  87 solar and 10 fuel cell projects from 368 bids – that qualify for the state’s Low- and Zero-Emissions Renewable Energy Credit (LREC and ZREC) Program.

Rather than bidding on projects using dollar amounts, developers placed bids based on the renewable energy credits projects would generate – one REC per megawatt hour of electrical generation.

The bids were limited to $350 per renewable energy credit (REC) for large and medium Zero-Emissions projects and $200 per REC for Low-Emissions projects of any capacity.

But the state will wind up paying far less than that – it will pay an estimated $90 per REC for the 97 projects that were selected, which add up to 31 megawatts (MW) in capacity, reports AOL Energy.

"As predicted, the results showed that the program successfully drove down the cost of clean energy even more impressively than we had anticipated, which is a huge step towards grid parity," says Alex Kragie, a senior official with Connecticut’s Department of Energy and Environmental Protection (DEEP).

There’s also a big benefit for developers – the price of RECs paid for a project’s output won’t change over the 15-year contract, which isn’t the case with typical power purchase agreements (PPAs).

"This is the key to the program, because these [REC price] commitments enable the developers to get private sector loans to build out the projects," says Dan Esty, commission of DEEP. "We believe that the key innovations required for renewable energy development is much less in the area of technology than it is in the area of financing – particularly with government funding for subsidies being so limited."

On the federal level, a national, reverse auction mandate (Title III) is part of a comprehensive energy bill proposed last year in the House by Devin Nunes (R-CA). It languished in the last session but is likely to emerge again in the new one.

"Clean energy subsidies are typically too high or too small, so you have to think of a way to get the maximum amount of clean electricity for the least amount of money. And that’s what Connecticut has achieved with its reverse auction," says Reed Hundt, who served as FCC commissioner under Bill Clinton and is now CEO of the Coalition for Green Capital. 

They would also help eliminate inevitable boom-and-bust cycles that result when states "set lofty REC prices to encourage green energy development, leaving developers stuck with inadequate REC payments after the initial flood of projects saturates the market with RECs and their prices collapse," reports AOL Energy.

Reverse auctions are being used in India, where they have been helping cut solar costs by an average of 30% without government subsidies. Renewable energy auctions have also been held in Brazil, Uruguay and Peru.

Read about Connecticut’s other important program, solar leasing. 

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