Troutman Sanders LLP: New York Public Service Commission Authorizes Longer Term NYSERDA REC Agreements

In a July order, the New York Public Service Commission authorizes the New York State Energy Research and Development Authority (NYSERDA) to offer longer-term, fixed-price renewable energy credit agreements, extending the maximum term from ten to twenty years. Following the 2004 creation of the New York State Renewable Portfolio Standard, NYSERDA has implemented a program for the procurement of attributes associated with the production of renewable energy, so-called “renewable energy credits” (RECs).  Through a competitive solicitation process, NYSERDA enters into REC agreements under which it pays a production incentive for the RECs associated with renewable energy generated and delivered for end use in New York.

Previously, the term of such REC agreements was capped at ten years. In December of 2013, a group of advocacy organizations submitted a petition challenging, among other things, the ten year cap as unduly restrictive. Citing the stability of longer-term agreements, the petitioners argue that twenty year REC agreements would allow developers to hedge risk, ultimately leading to cheaper financing for renewable energy projects. Massachusetts and Connecticut have recently made changes to their REC agreement policies to permit the mitigation of market price risk though bundled energy and REC agreements. And the Commission notes that the “increasing availability of long-term agreements, especially in nearby states, makes it more difficult for New York to compete for these projects.”

Acknowledging the persuasiveness of the comments, the Commission authorizes NYSERDA to enter into REC agreements with terms of up to twenty years. However, the term extensions will not apply retroactively to existing NYSERDA REC agreements. And NYSERDA may still award REC agreements with shorter terms in its discretion. Indeed the Commission expressly encourages NYSERDA “not to enter into contracts for terms longer than the expected useful life of the project.”

Commenters also advanced the adoption of incentive mechanisms alternative to fixed-price REC Agreements including “contracts-for-differences,” which generally provide for a variable attribute price tied to wholesale electricity prices, cushioning the fluctuations of the market. The Commission declined to rule on such proposals in this order, reserving the issue for two other proceedings. Case 14-M-0101, Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision, Order Commencing Proceeding (Issued April 25, 2014); Case 14-M-0094, Proceeding on Motion of the Commission to Consider a Clean Energy Fund, Order Commencing Proceeding (Issued May 8, 2014).

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