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What's All This Small Solar Going to Cost Maine?
Maine legislation enacted in 2019 requires Maine electric utilities to buy the output of 375 megawatts (MW) of “distributed generation resources.” Importantly, the 375-MW portfolio must be comprised of projects less than 5 MW in nameplate capacity, i.e., “small solar.” Based on known facts and reasonable assumptions, this small solar legislation will likely have a net annual cost to Maine ratepayers of $14.3 to $45 million, plus administrative costs.
The Distributed Generation Act requires utilities to procure the output of a 375-MW portfolio of distributed generation resources, and to sell or use the output in a manner that maximizes value to ratepayers. The Public Utilities Commission and utilities must track the net costs of the distributed generation procurement (DGP) and recover its net costs from ratepayers.
The DGP’s net costs can be modeled as the aggregate contract costs that a utility will pay projects for their output, minus any value the utility recoups by reselling or otherwise monetizing the purchased output in the ISO New England (ISO-NE) markets.
Aggregate Annual DGP Contract Costs will equal the price per megawatt-hour ($/MWh) times the volume of megawatt-hours (MWhs) per year.
Price – Because the distributed generation resources that qualify for the DGP could generally also qualify for the Net Energy Billing–Tariff Rate or NEB-TR program, initial bids under the DGP will most likely be priced at the same level as credits under the NEB-TR. As of February 2020, the NEB-TR rates range from $118 to $151/MWh.
Quantity – DGP projects are expected to be solar PV facilities, given eligibility provisions and capital costs. Assuming ISO-NE’s stated Maine average solar capacity factor of 14.5%, 375 MWs of solar PV in Maine would create annual energy output of 476,325 MWhs.
Total DGP Contract Costs – Multiplying assumed DGP prices by expected DGP energy output yields annual DGP contract costs of $56 to $72 million. Maine consumers would also be responsible for paying the administrative costs of the utilities acting as standard buyers and sellers.
Aggregate Annual DGP Contract Revenues will equal the maximum combined value a utility can obtain in ISO-NE markets by selling or using the DGP output. DGP output includes energy, Renewable Energy Credits (RECs), and capacity.
Energy Revenue – Annual energy output of 476,325 MWhs at the 2018 average ISO-NE wholesale electricity price of $43.54 would yield $20.7 million in annual energy revenue.
REC Revenue – Annual energy output of 476,325 MWhs would also generate 476,325 RECs. If the RECs are sold in the Maine Class I market currently trading at $3.69/REC, it would yield $1.7 million in revenue. If the RECs are sold in the NH Class I market currently trading at $38.71/REC, it would yield $18.4 million in annual REC revenue.
Capacity Revenue – DGP output would also include a portion of the 375-MW nameplate capacity. Under ISO-NE market rules, on average, 29% of the nameplate capacity of a solar PV facility is accepted as Qualified Capacity. 108.75 MW (29% of 375 MW) multiplied by the $2/kilowatt-month Forward Capacity Auction 14 clearing price, would yield $2.6 million in annual capacity revenue.
Total DGP Contract Revenue – Summing the potential annual energy, REC, and capacity revenues, a utility might recoup $25 to $41.7 million to partially offset the $56 to $70 million in annual DGP contract costs.
Netting DGP contract costs ($56 to $70 million) against potential revenues ($25 to $41.7 million) yields annual net costs to Maine ratepayers of $14.3 to $45 million, plus administrative costs. Using the midpoints of the DGP contract cost range and DGP contract revenue range, the DGP annual net cost to Maine ratepayers would be about $30 million.