Waste-Energy Crossroads

Lee D. Hoffman
Hartford Business Journal's CT Green Guide
Spring 2016

Connecticut’s solid waste management and renewable energy policies are at a crossroads. For years, the state has relied on waste-to-energy plants to dispose of municipal waste, allowing it to shutter many of its landfills. But shifting energy markets have hurt the economics of the plants, which may lead to higher disposal fees for businesses and residents.

First, the good news: Connecticut leads the nation in sustainable solid waste management practices, according to Columbia University’s Earth Engineering Center. Although several states have better recycling or composting rates, Connecticut garners the top spot by having the highest waste-to-energy conversion rate. As a result, it landfills less waste than most states.

Connecticut long ago recognized the value of reducing landfilling, and took steps to keep the costs of landfill closures to a minimum. Out of this effort was born the Connecticut Resources Recovery Authority, now known as the Materials Innovation and Recycling Authority (MIRA). Municipalities rely on MIRA to dispose of their waste in waste-to-energy plants. MIRA charges a tipping fee based on the tonnage disposed, and augments that fee with revenues from the production of electricity.  Other public and private entities have started to provide similar services to towns and businesses. Whether through MIRA or another entity, the result is the same — tipping fees are offset by electricity sales.

Recent shifts in the energy markets have conspired to make the economics of waste-to-energy more difficult.  Waste-to-energy projects in Connecticut are all considered to be “Class II” renewable energy sources. Under Connecticut law, each electricity supplier must purchase a minimum number of Class II renewable energy credits (RECs).  Unfortunately, there is a glut of Class II renewable energy credits for sale in New England, and their price has never exceeded the pricing floor. Credits generated by Connecticut plants contribute little to no revenues to those plants.

By itself, anemic REC prices may not cause economic strain on the industry, but they are causing significant shortfalls when coupled with recent developments in the wholesale electricity market. Many waste-to-energy plants entered into long-term electricity supply contracts when wholesale prices were much higher than they are today.  Contracts have now expired and wholesale prices have dropped. Combined with cheap RECs, the waste-to-energy industry is feeling strain.

Beyond the industry, it has the potential to affect most of Connecticut’s businesses and residents. Because local landfills are no longer an option, the only choice remaining is waste-to-energy plants or shipping waste out of state. There are only a few companies that have the capacity to ship waste out of state by rail. For now, their ability to corner the market and charge hauling premiums
is held in check by waste-to-energy competition.

But if the state’s waste-to-energy plants become no longer economically viable, tipping fees could rise dramatically, and Connecticut will lose the ability to address waste generation inside its own borders. Massachusetts recognized this problem several years ago and took steps to address it by altering its Class II renewable energy market.  Connecticut’s leaders have been looking for a solution for the past several years, but one has not emerged. If something doesn’t change, it could be residents and businesses who bear the cost.

Lee D. Hoffman is chairman of Hartford law firm Pullman & Comley’s Regulatory, Energy & Telecommunications Department.

This article was originally published in the Hartford Business Journal's CT Green Guide: Spring 2016.