Today, National Grid procures the majority of the electricity that Rhode Islanders use on a very short-term basis from natural gas-fired generators. All the costs and all the long-term risk are passed on to ratepayers.
To hedge risk, we need a diversified supply of electricity resources and a healthy mix of both short-term and long-term procurement arrangements. Rhode Island electricity prices track natural gas prices. In the last year, natural gas prices doubled. Judging from world gas markets, prices are likely to increase more. Hedging against fuel price volatility and inflation is critically important for ratepayers.
Two years ago, Rhode Island introduced a market-based distributed generation contract law that has been praised as a national model for encouraging clean locally produced energy. Since the program’s inception, pricing for locally produced clean energy has come down significantly in Rhode Island. But the program is too small to significantly influence our overall energy mix.
Thanks to the leadership of Representatives Deborah Ruggiero (D-Jamestown) and Arthur Handy (D-Cranston) and Sen. Susan Sosnowski (D-South Kingstown), efforts are being made to expand the program and extend contract terms, which will bring prices down further.
Investment in solar energy saves money for ratepayers by reducing demand when electricity is most expensive. High wholesale prices for electricity typically occur on summer days when air conditioning use is heaviest and solar is producing well. Reducing the need for electricity during high-demand periods reduces wholesale prices, with savings getting passed on to ratepayers.
According to a study by Synapse Energy Economics, Massachusetts ratepayers would save about $23 million annually this way from 250 megawatts of solar. A proportionately sized solar investment would save Rhode Island ratepayers about $3.2 million a year.
Electricity generation near the point of use also reduces distribution losses and the need for electric transmission system investments and has proven in Europe to reduce power failures as well. There are also significant environmental benefits from the distributed generation contracts law.
Our total installed capacity of wind and solar generation in Rhode Island today is under 20 megawatts. We have a long way to go to start getting close to what neighboring states are doing with clean energy.
Massachusetts recently reached its target of installing 250 megawatts of solar four years ahead of schedule. Governor Patrick set a new goal for developing 1,600 megawatts of just solar energy by 2020. Massachusetts is also aggressively pursuing wind, biomass and other renewables. Today in Massachusetts, the clean-energy sector involves 5,000 companies and over 70,000 jobs. Significant increases in state and local tax revenues have come along with all that activity.
Connecticut’s new ZREC program is committed to investing a billion dollars over four years to rapidly develop the clean-energy industry.
I recently provided a spreadsheet to legislators showing the impact of the distributed generation contracts on Rhode Island ratepayers under various scenarios. My spreadsheet works from the Synapse study results and other easy-to-determine numbers like wholesale electricity costs and the inflation rate to make reasonable estimates of the value that distributed solar would provide for ratepayers.
Using conservative assumptions, distributed-generation contracts would provide ratepayer savings of at least $50 million under the pending legislation. If the inflation rate reaches the 6.3 percent that it averaged between 1968 and 1987, the fixed-price contracts would save Rhode Island ratepayers over $240 million.
Opponents argue that the contract prices are higher than today’s energy prices. But because they are fixed at the same price for many years, over their full term, these contracts will save ratepayers millions of dollars. Nobody can predict with certainty what gas prices, inflation and other factors will do to electricity pricing over the next 20 years. But arguing that ratepayers are well served by only short-term procurement from gas-fired generators is like recommending investing your entire retirement savings with a Wall Street day trader who speculates on only one stock. It’s way too risky.
Hopefully, everyone at the State House will help protect Rhode Island ratepayers by passing the expansion of the distributed generation contracts law. Under reasonably foreseeable scenarios, these long-term contracts will provide a huge financial savings for ratepayers and help our economy create new jobs.
Entering 40 megawatts of supply contracts per year for four years, as currently proposed, would represent less than 2.5 percent of our overall supply. That is hardly a significant risk, especially when those contracts are highly likely to provide a minimum of $50 million in ratepayer savings.
Fred Unger is president of Heartwood Group Inc., a Providence-based clean-energy development company.