Because decarbonizing Maine’s economy requires the electrification of transportation, heating, and other sectors currently dominated by fossil fuel use, the price and reliability of electricity must remain reasonable for the transition to occur at the scale and pace necessary to address climate change. Given the significant investment that must be made at public expense for the transition to succeed, Maine must use ratepayer and other public dollars as efficiently as possible.

 

Economies of scale dictate that all else equal, larger enterprises have cost advantages over smaller enterprises due to their scale of operation. This fundamental economic principle has practical consequences for Maine. For example, it means that, in general, we will be able to purchase more renewable energy at a lower per-unit cost from a large solar project than from a small solar project.

 

The Maine Public Utilities Commission’s recent experience contracting for solar power and other forms of renewable energy proves this principle. The Commission has recently contracted for solar power under two distinct programs – one limited to small projects, one unrestricted – with highly divergent pricing points:

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• The Capacity Resource Adequacy Program under 35-A M.R.S. § 3210-C features no size limit on participating generators, no price ceiling or floor, and no mandate that the Commission order contracts unless it finds that doing so is it the best interest of customers. Recently awarded contracts under the unrestricted program include an agreement to purchase the output of 75 megawatts of solar generation from Dirigo Solar, LLC at a price of 3.4 cents/kWh escalating at 2.5% annually for 20 years, and an agreement to purchase the output of 100 megawatts of solar generation from Three Rivers Solar Power, LLC at a price of 3.5 cents/kWh escalating at 2.5% annually.

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• The Community-Based Renewable Energy Pilot Program under 35-A M.R.S. § 3603 was restricted to generators less than 10 megawatts, with a price ceiling of 10 cents per kWh, and a mandate that the Commission procure the output of up to 50 megawatts in aggregate. The two most recent contracts awarded under the Community-Based Renewable Energy Pilot Program were to Pittsfield Solar, LLC at 8.45 cents/kWh, and to Georges River Energy, LLC at 9.9 cents/kWh. Other projects received contract prices as high as 10 cents/kWh.

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Comparing these programs’ requirements – and their results – illustrates that Maine cannot escape the realities of economics. The chart below demonstrates that Maine’s purchases of renewable electricity under the unrestricted Capacity Resource Adequacy Program are significantly more cost-effective in terms per-unit cost compared to purchases under the boutique small-projects-only program. The three projects in the green circle represent low-cost, high-volume purchases from large projects under the unrestricted Capacity Resource Adequacy Program, while the six projects in the green oval represent increasingly smaller and higher-cost purchases from small projects under the restricted Community-Based Renewable Energy Pilot Program.

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As Maine moves forward to address climate change, consumers cannot afford for their money to be spent in any way other than the most cost-effective. Electricity will increasingly displace fossil fuels used in transportation and heating, meaning demands for clean electricity will only increase. Both economic principles and firsthand experience demonstrate that most cost-effective procurements of renewable energy can be obtained from larger projects. Practically speaking, this means Maine must move away from boutique-oriented procurement policies, in favor of cost-effective large-scale procurements.