The Right Renewable Energy Contract Mechanism Aaron Rothschild November 14, 2011 Keeping Rates Low By Aligning The Interests Of Investors And Consumers

What Is the Goal of Promoting Renewable Generation In the U.S.? It’s not just about providing renewable generation as cheaply as possible to consumers It’s also about promoting the economy, energy security and innovation

What Are The Major Problems? Pricing subsidies Offering investors a long-term subsidy price schedule Lack of developed long-term renewable generation contract trading market

What Do Conflicting Policy Goals Mean? Keeping rates as low as possible is more complicated, but no less important And there is plenty we can do I will present a long-term renewable contract that would provide the win/win for investors and consumers we are looking for

What Do Investors Want? Long-term certainty Eligible Technology (Solar, Wind…) Volume Cap (Energy, Capacity…) Subsidy Size ($ kWh and/or RECs…) Location (State, Utility, Corn Field…)

Benefits of Providing Investors What They Are Looking For Lower cost of capital Lower electricity rates

Risk of Over Emphasizing Investors Exorbitant profits at the expense of consumers

The Challenge of Providing Long- Term Certainty It is difficult to impossible know how technological advancement will affect the cost The option to change policy goals can become expensive if too many long- term contracts are in place

Types Of Long-Term Contracts Available To Regulators Feed-in Tariffs (FITs) for general offerings Power Purchase Agreements (PPAs) for project specific contracts

Components Of Long-Term Contracts Pricing Volume (Energy & Capacity) Technology Preference Location (Generation & Transmission)

Options For Pricing Regulator Sets Price for FIT or PPA Market-Based - On-Going Market-Based - Long-Term Fixed Price Market-Based - Long-Term Fixed Price Contract That Does Not Start For 5 years + After Auction

Regulator sets price

Market-based subsidy rates

Market-based long-term contracts

The Most Effective Long-Term Renewable Contract

There is More Than Pricing Flexible Volume Management Builds Into Contract Auction Mechanism Market-Based Least-Cost Zones Incorporated Into Auction Mechanism Geographical Flexibility of Long-Term Contract Price for Energy/Capacity Contract

Role Of Administrative Organization Coordinating with Policy Makers Translating Policy Objectives Into Auction and Technical Requirements Running Auction Structuring Contracts For Institutional Investors, Including Credit Rating and Contract Market Resource Planning Model and Simulation

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