FORECAST: SUPPLY AND DEMAND FOR CLASS I RESOURCES, 2014-

The 2014 IRP projects that demand for Class I renewable energy resources in New England will double over the next decade to meet current state RPS rules and regulations. Because regional energy needs are projected to be virtually flat over the study period, growth in demand for Class I renewable energy resources will be entirely driven by the ramp-up of RPS requirements as a percentage of load. Since the 2012 IRP, the projection of New England’s load growth subject to RPS requirements has decreased due to an increase in the expected impact from energy efficiency programs and the growth of distributed solar generation.

Among the New England states, Connecticut has the most ambitious Class I target as a percentage of load (11% in 2014, increasing up to 20% by 2020). The Connecticut RPS accounts for approximately one-third of the regional renewable energy demand in 2020 (second only to Massachusetts). Connecticut’s RPS has unique eligibility characteristics, with some resources qualifying for Class I status only in Connecticut.94 _{In estimating the supply and demand balance}

of the regional Class I Renewable Energy Credit (REC) market, the analysis has taken into account resources that are specific to certain states, including Connecticut. DEEP also has considered the long-term contracts executed in Connecticut and Massachusetts in the Base Case, along with Class I renewable resources already built, under construction, or qualified across the New England states.

With these assumptions, the 2014 IRP projects that the renewable supply in New England will hover around the region’s Class I RPS target levels through 2017, with some years slightly below the target. After 2018, the region will not have sufficient Class I supply to meet the states’ RPS commitments without additional procurement or merchant build-out. SeeFigure 15 below.

94 _{DEEP, Restructuring Connecticut’s Renewable Portfolio Standard 55 (April 26, 2013), available at}

Figure 15

New England Class I Renewable Resource Supply and Demand Balance (Cumulative GWh)

Starting in 2018, regional Class I supply will not be sufficient to meet the region’s RPS targets.

Connecticut also expects to have insufficient RECs to meet state RPS targets starting in 2018. The shortage is currently projected to be roughly 300 GWh in 2018, growing to 3,000 GWh in 2022 and beyond.95

95 _{See Appendix D (Renewable Energy) for more details on the expected supply and demand balance for}

Figure 16

Connecticut Class I Renewable Resource Supply and Demand Balance in the Base Case

Note that the Base Case assumption in the 2014 IRP is significantly different from the Base Case assumption in the 2012 IRP in several respects. The amount of renewable resource supply assumed in the 2014 Base Case is not based on a forecast of planned projects that are likely to occur. Instead, it only assumes that resources that are known to be built, procured, or contracted through existing renewable procurement programs will be developed.96 _{As such, for the Base}

Case in the 2014 IRP, the Department assumed future LREC/ZREC growth based on the established program and projected solar costs; the Department did not assume any incremental Class I renewables due to procurements allowed under Section 7 or Section 9 of Public Act 13- 303.

Section 7 of Public Act 13-303 allows DEEP to solicit an incremental 1,620 GWh (5% of Connecticut’s Base Case energy requirement) of new Class I renewables or large-scale hydropower. Section 9 of Public Act 13-303 allows DEEP to solicit additional proposals for Class I renewables if the Commissioner determines that there is a material and sustained Class I REC shortage. The magnitude of additional procurements of Class I resources under Section 7 and Section 9 of Public Act 13-303 would help Connecticut meet its RPS goals, but may not be

96 _{As described in more detail in Appendix D (Renewable Energy), we assume future procurement of renewable}

capacity through the ongoing LREC and ZREC programs based on the known funding levels and projections of future renewable costs.

sufficient to completely satisfy the 20% Class I requirements with contracted resources by 2020. For instance, if DEEP assumes that additional procurement under Section 7 would yield approximately 535 MW of onshore wind and 56 MW of solar (similar to mix of resources recently procured through PA 13-303 Section 6), the result would still leave Connecticut to be approximately 1,400 GWh short of the state’s 2022 mandate.97 _{However, excess resources from}

the rest of New England may help meet Connecticut’s requirements, and if so, Connecticut could be in a better situation — approximately 300 GWh short of the 2020 RPS mandate of roughly 6,000 GWh. Connecticut load-serving entities will continue to be exposed to some risks associated with purchasing from the spot market for RECs. Because Connecticut’s ACP is lower than the Massachusetts ACP in New England, whenever the region is short of Class I RECs, suppliers will prefer to sell RECs to the load-serving entities in Massachusetts before Connecticut. Thus, whenever the region is short of Class I RECs, Connecticut’s load-serving entities will likely pay the ACP for at least a portion of the Class I requirements.

The annual cost of complying with Class I requirements in the Base Case is estimated to be approximately $229 million in 2014 and $388 million in 2024 (of which $139 million are estimated ACP payments that would be credited back to ratepayers in 2024, under a provision enacted in Public Act 13-303). The 2012 IRP estimated that it would cost about $460 million to comply with Class I RPS requirements by 2022, about $70 million greater than the estimated cost to comply by 2024 in this IRP.

The RPS costs estimated in this IRP assumes that the portion of RECs purchased under long- term contracts or state programs will reflect long-term costs needed to provide suppliers with an adequate return on their investments, while another portion will be based on paying a spot REC price close to Connecticut’s ACP. It is assumed that the REC spot price will reflect the condition that the region falls short of the target levels, and thus prices are assumed to approach the ACPs. Even in years when the supply is slightly above the demand (in 2014, and 2016-2018), the 2014 IRP assumes that the excess margin is small enough that REC prices remain close to the ACP.