As the price of solar energy credits in Pennsylvania continued to tumble last year, other renewable energy resources saw a boost, giving hope to some alternative energy advocates that such credits might incentivize more clean power development.
Renewable energy credits are an economic carrot to develop more alternative generation. Each megawatt hour of power produced by a renewable energy resource qualifies for one renewable energy certificate. Utilities are mandated by the state to buy alternative energy, either directly from generators or through these credits.
Last year, credits generated from wind, geothermal and landfill gas resources fetched, on average, $9.78 each. Now, they’re trading at double that price, said Ed Johnstonbaugh, a renewable energy educator with Penn State Extension Westmoreland who also serves as a broker for renewable energy resource generators across the state.
The uptick may be due to timing: the Pennsylvania Public Utility Commission projected that this year demand for such credits would outpace supply.
“I wouldn’t be surprised if it continued to increase as the buying season gets into full swing later this month,” Mr. Johnstonbaugh said in early February.
Is it enough to incentivize new projects? He believes it is.
“I know that new projects have factored in the credit as part of the cash flow,” he said.
That’s how Mr. Johnstonbaugh got to know George Myers, superintendent of the Milton Regional Sewer Authority in Northumberland County. Mr. Myers’ facility is the process of expanding its wastewater plant and adding equipment to generate up to 2 megawatts per day of electricity from biogas.
The sewer authority considered the possible revenue from selling renewable energy tax credits as an additional source of funds for the organization, Mr. Myers said, but “these credits were never really a major factor in the final decision.”
That’s partly because their value has fluctuated greatly in the seven years since they’ve been around, he said, making budgeting around them difficult for a public entity.
The volatility in the state’s renewable energy credit market is undeniable, although annual averages for Tier 1 resources – that is, renewable sources of generation excluding solar photovoltaic – have been on a modest but unmistakably steady march uphill, gaining 105 percent since 2010.
In contrast, while solar photovoltaic credits, which are priced separately, still fetch 10 times the price of other Tier 1 resources, they have lost about 70 percent of their value since 2010. Five years ago, a solar credit got an average of $325 per megawatt hour of generation, while last year it only beckoned $94.39.
The market for both types of credits is driven entirely by utilities’ mandates, which were spelled out in the state’s Alternative Energy Portfolio Standards Act in 2004.
The legislation requires that by 2021, Tier 1 resources should comprise 8 percent of an electric utility’s energy mix. A number of bills through the years have been proposed to increase that amount, which would, in turn, increase the price of the credits. None have succeeded.
Last month, Rep. Greg Vitali, D-Delaware, reintroduced a similar bill to one that died in committee during the last legislative session. It seeks to nearly double Tier 1 requirements.
Until legislation changes, the credit prices will revolve around current supply. Judging from the high capital cost of some alternative energy projects and their payback time frames, they may not play a central role in development decisions.
“Higher (credit) prices certainly help the economics of building new wind farms,” said Katie Bellezza, marketing manager at Strip District-based EverPower Wind Holdings, which owns about 752 megawatts of wind capacity in Pennsylvania and three other states.
The market for such credits is only liquid for about three years, she said.
“In a 25- or 30-year asset life, there’s still a lot of risk,” Ms. Bellezza said.
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