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New England Interview: Andrew Dzykewicz, Commissioner, Rhode Island Office of Energy Resources

New England Interview: Andrew Dzykewicz, Commissioner, Rhode Island Office of Energy Resources

Date: 8/31/2007

Location: RI

Our smallest state, Rhode Island has few native energy sources and high energy prices. After its legislature passed an aggressive renewable energy standard, Governor Carcieri established the RIWINDS program, with its goal of meeting 15% of the state's electricity demand with wind energy from within the state. As the Governor's energy right-hand man, Andy Dzykewicz has taken the helm of the newly formed Office of Energy Resources as the primary architect of this vision, recently rechristened RI Energy Independence 1 to reflect the mission behind the goal. With roots in the Rhode Island Economic Development Corporation and the Quonset Point industrial park, where he developed the park's power plant, Andy is applying his 40 years of experience in energy engineering, economics, and development to reshaping Rhode Island's energy landscape.

Q. RI Energy Independence 1 is a departure from historic wind energy development efforts in the region. How was the concept developed, and what was its motivation?

A. The concept was born out of the Governor's desire to harness renewable energy to meet a significant portion of the state's needs. There are a number of motivations: price stability, energy independence, economic development, and environment. We realize our coastal location gives us a great wind resource, allowing us to establish a goal of getting 15% of the state's electricity demand from local wind energy. But we've seen how the typical developer approach — finding a single site and forging ahead even in the face of stiff resistance — has yielded limited success in New England. So we opted for a radical departure: the public sector, through the RI Energy Independence program, will identify a number of feasible sites and then proceed with the locations that are consensus driven and therefore most likely to succeed. We also recognize the economic development potential from this type of development: jobs to build projects, but also luring companies in the wind energy field to locate and expand within the state. We also expect increased electric price stability to help make Rhode Island more attractive to current and future businesses.

Q. What barriers does this program seek to overcome? How does this approach deal with these barriers differently than the traditional development approach?

A. The two biggest barriers we've seen in New England are identification and approval of project sites that are acceptable to local residents, environmental stakeholders, and project owners, and attracting financing in our restructured electricity market where few credit-worthy buyers are willing to enter the kind of long-term contracts that capital-intensive wind generators need to be cost-competitive. We've also seen that when projects are built, often the local ratepayers have not received the benefits.

This program attempts to reduce and address the siting challenges by building consensus around a few sites that meet societal goals, rather than linking the entire program's success to a single location regardless of its local acceptance. Credit-worthy entities offering contracts of 15 years or longer can reduce developer risk substantially, lowering the cost of energy and increasing the likelihood of completing a project.

Q. How do current bills to establish a Rhode Island Power Authority fit in?

A. A proposed power authority is envisioned to fill the gap where the market is currently not working for large-scale development by enabling long-term contracting and financing. Both the House and Senate are considering bills to establish a Rhode Island Power Authority. The bills would accomplish four things. First, they would establish a Power Authority and governance structure — including Board of Directors. Second, the Authority would have the ability to enter long-term contracts. Third, the Authority would have the ability to issue long-term bonds to finance power-generating projects. These would be strictly revenue bonds, not general obligation bonds, so each project investment is to be evaluated and stand on its own. Lastly, the bills would consolidate all of Rhode Island's funds for renewable energy development to a single agency. This would put under one roof the Renewable Energy Fund, the Renewable Energy Development Fund, as well as Funds from auction of Regional Greenhouse Gas Initiative (RGGI) allowance allocations, emissions offsets, and FCM payments.

Because the power authority would have the ability both to issue bonds and to enter long-term contracts, it would be able to capture wind generated electricity at fixed prices that are based on long-term project financing costs and not on expected long-term electricity market price trends. Of course, any eventual power authority would be only one of several ownership and financing options present in the market. The state would seek to capitalize on its abilities, but would expect there to be ample additional competition in the market.

Editors' note: shortly before press time, the proposed Power Authority Bill was not passed by the legislature; the impact on the overall plan is yet to be determined.

Q. What did the results of the preliminary RI Winds study reveal about the ability of the plan to meet 15% of the state's electric load from in-state wind? What needs to happen to meet this goal?

A. The Phase 1 Siting Study revealed that Rhode Island has five times as much feasibly developable wind resource area, between onshore and offshore locations, than needed to meet our goals. To meet a 15% target, most of the wind development would need to be offshore because of the state's limited available land and because the winds are much better offshore. There are advantages to being a small state, though, in meeting such an aggressive target. With an annual average state load of approximately 1000 MW, we need about 150 average MW — corresponding to roughly 450 MW of wind turbine capacity — a more feasible target than if we had a larger load.

The study identified no permitting "show stoppers" among the selected locations. This means we have a stable of viable sites for local stakeholders to choose from. Of course, we understand that there will be important issues to discuss and investigate further, but at this time no obvious permitting barriers have come to our attention.

Q. How will Rhode Island address the topics that have delayed offshore wind development in Massachusetts?

A. In the typical approach, where a developer advances only one potential site, the tendency is to focus on the perceived ills of that site. Instead, we offer interested stakeholders the opportunity to play a significant role in narrowing the considered locations. We only need to come to agreement on selecting the best 20% of most acceptable sites to meet our target. Along the same lines, the possibility of having a state run power authority own the facility and/or purchase all of the output opens the door to create wind generation that is developed by, owned by and creates benefits for Rhode Island consumers. This represents a dramatic departure from our current experience with wind energy, where the public perceives that most of the benefits are privatized.

Q. How has the Rhode Island public responded?

A. All of the feedback to date has been positive. The program objectives and Phase 1 results have been discussed publicly and are well received; there have been no adverse reactions. Of course, that may be because we haven't picked a site yet. As we narrow the process of considering specific sites, we anticipate more questions or concerns. But that's what the stakeholder process is about, to identify the problematic sites early and recommend a group of sites that are most likely to be successfully developed. Of course, it's possible that no material resistance will develop, but based on my experience, that seems unlikely. Based on feedback so far, we remain cautiously optimistic that our stakeholder process and the overall approach will produce a broad consensus on sufficient sites to meet our targets.

Q. What do you see as the role of government versus the private sector in achieving these goals?

A. The role of government is to address the barriers faced by the private sector. At the same time, Rhode Island wants title to the output to capture the long-term price benefits of these projects. The open question is how best to achieve private investment and public benefit. If the state is investing its natural resources, we need to receive the benefits locally. To capture the price and price stability benefits we believe we can achieve, we want the electricity produced to be sold to the state's retail load-serving entities — the utilities and non-regulated power providers — rather than into the regional electricity market. We can ensure this through ownership, or through contract.

If the power authority is set up, it could seek proposals to either design, build and operate state-owned generation projects, or instead seek proposals to design, build, finance and operate privately-owned wind generators. The power authority would enter a long-term contract for the plant's output with the selected entity, making payment sufficient for the development cost and a fair profit. The power authority would then offer to sell the power to Rhode Island's retail load-serving entities, and sell any excess to the regional grid. If this can work at today's market electricity prices, it will only be more competitive as time goes on.

Q. Where does this effort go from here? What is the process to pare down the sites identified in the RI Winds study?

Map showing screening areas separated by wind speed and final area designation. Source: Final Report RIWINDS Phase 1: Wind Energy Siting Study, page 65.

Map showing screening areas separated by wind speed and final area designation. Source: Final Report RIWINDS Phase 1: Wind Energy Siting Study (PDF 11.7 MB) Download Adobe Reader, page 65.

A. The next step is to assemble a local stakeholder group. We've identified about three dozen individuals and organizations that we believe would make valuable contributions, some of which have already asked to be included. To be successful, the entire process will have to be open; to do otherwise would defeat the purpose of having a stakeholder process. We envision that such a group could begin meeting this summer (2007), and continue as long as it takes, with the help of a professional facilitator who we'll hire to help organize and run the process. In the end, we envision the product of this working group to be a consensus document expressing the stakeholders' opinions and objectives, which would be included as part of an RFP (request for proposal) for selected sites. We're not planning another study... that effort was systematically and thoroughly completed in Phase 1. The time for study is over, the time to start developing our energy independence is now, once we decide where.

Q. Now that a number of potentially viable project locations have been identified, what plans do you have to help facilitate the permitting process?

A. The most significant contributor to successful permitting will be the consensus opinion of the stakeholder group, because if it proceeds as hoped, the wide range of stakeholders with vested interests will be on-board. Most of the sites are within state water, so permitting can be simpler, involving fewer agencies, permits, stakeholders and issues than projects in federal waters. The proposed power authority bill could also contribute to the permitting process by including a provision to grant expedited permit review — but not relief from permitting requirements — to projects of the power authority. In this case, any state agency would need to treat an application related to the power authority in an expedited fashion. By placing the state, through the power authority or otherwise, in the role of permit applicant, it sends a clear signal that the project is something that the state wants to see to successful completion.

Q. When do you expect the first projects to come on-line?

A. This all takes time. Optimistically, we're looking five years out, but more realistically, perhaps seven years. We want to be successful, and we want to do it right. If it takes longer than that, I'd question whether it would ever get done. This presumes, for larger off-shore projects, about a year to conduct the stakeholder process, circulate an RFP and qualify one or more vendors. From there, estimate two years for development, including state permitting (and federal, if necessary), and two years from beginning of construction until full commercial operation. To the extent that several smaller onshore sites are identified and financially viable, these may be developed on a shorter timeline. I don't envision a request for proposals process for on-shore, which would move along separate tracks.

Q. Will communities have both hosting and ownership opportunities?

A. Yes. In some cases community hosting and ownership will make sense. In other cases it will not. In general, we encourage communities to pursue small (one- and two-turbine) installations where they are economically viable, and we will assist those that are viable in any way we can. Another avenue that may make more sense is for communities to aggregate their power purchase requirements and financially support the construction of a single, larger, project. This will enable scale economies to be reflected in both the project capital cost and the power price. Longer-term contracts for power can help drive down prices, and a community's credit behind a purchase from the power authority could leverage the ability for the power authority to secure a strong bond rating to borrow at low interest rates. Each of these has the potential to benefit the community, depending on its role.

Q. How can you ensure that some of the price-stability benefit of wind energy will accrue to Rhode Island consumers?

A. As a fuel-free resource, wind generators can offer fixed-price energy over long term. But if all of the output is sold to the grid, then both Rhode Island and New England would benefit from spot market price suppression, but because Rhode Island is only 6% of the regional load, the benefits would be highly diluted. Price stability benefits go hand in hand with ownership or long-term contracts. If a community builds a project to consume the power itself, it will have fixed the price of that energy for more than twenty years. If the power authority enters long-term contracts, then Rhode Island communities will get first crack at 100% of the price stability benefits. Given the significant Renewable Energy Standard demand, as well as the potential value of having long-term fixed price supply in the portfolio, we hope that much of this wind power can be sold to National Grid for the remaining standard offer customers. In that case, the price stability benefit would certainly be conveyed through regulated retail rates.

This information was last updated on August 21, 2007