Communitysolardevelopers in Colorado are in disagreement with Xcel Energy and state regulators over how to price renewable energy credits in the state.

Earlier this month, Xcel selected winning bids from three community solar developers for 29.5 megawatts of projects in nine communities around the state. If completed, the projects will bring Colorado's total community solar capacity to nearly 40 megawatts.

The awards are part of an eruption of activity in community solar in Colorado, Minnesota and Massachusetts that could amount to 115 megawatts this year. By 2020, GTM Research expects the market for shared solar to reach 500 megawatts.

There's just one problem, however. For the first time this fall, renewable energy credit (REC) prices went negative in Colorado.

Two leading developers, Clean Energy Collective and SunShare, say the bidding process in Colorado is skewed because there's no floor price for the credits. So rather than get paid for the RECs they generate from every megawatt-hour of solar electricity fed into the grid, developers must now pay Xcel to take them off their hands.

From the solar industry's perspective, that's not how REC markets were designed to work.

It's impossible to say how much Xcel will get paid for the RECs, as the bids are confidential. But developers say it sets a worrisome precedent for future projects in Colorado and other states. 

"It's a race to the bottom in Colorado right now," said SunShare spokesperson Karen Gados. "We need to have a floor price."

So how did Colorado get negative prices anyway?

RECs represent the environmental trait of renewable electricity, not the actual electrons. As in every state with a renewable energy mandate, Colorado's regulated utilities must accumulate a certain number of credits each year to meet their targets. The credits for community solar projects are priced through a bidding process as companies compete to offer contracts to Xcel.

However, unlike many REC markets on the East Coast, there's no floor price in Colorado -- so prices have gone nowhere but down.

The dispute over REC pricing in the state surfaced since last spring. In testimony as part of the renewable energy standard compliance plan, SunShare CEO David Amster-Olszewski worried about where the REC market was headed. Credit prices had been trending near $0.00 per kilowatt-hour for community solar projects, and it looked like developers would soon start bidding in negative territory in order to win contracts.

RECs were designed as a product that utilities must buy. Without generating and retiring credits, a power company can't prove it has procured the renewable resources to meet its mandated target. But as of this month, community solar developers must now pay Xcel to take the credits. Amster-Olszewski mentioned the possibility of this scenario in testimony last spring.

"The Colorado community solar garden statute and the Commission rules implementing the same both clearly state that the qualifying retail utility 'shall purchase all of the electricity and renewable energy credits' generated by the community solar garden project," he said.

"A purchase requires the recipient of the goods to spend money, not receive money and the purchased goods. Allowing a negative REC payment would completely undermine the entire concept of RECs, as they are intended to represent the value of the environmental attributes associated with the energy produced from a renewable energy system."

Tom Hunt, VP of corporate development for Clean Energy Collective, put it more succinctly: "We were all wondering if we were soon going to have to start paying to put renewable energy on the grid."

In a procedural move, Xcel asked an administrative law judge to strike the testimony. The utility argued that SunShare's REC comments came too late in the process and created "never-before-discussed barriers for bidding." The request was granted.

The back and forth continued into 2015 as Xcel prepared to open another round of bidding. In a June request for proposals, the utility mentioned the possibility of negative pricing for the first time.

"Should a Respondent’s bid pricing contemplate payments being made to Public Service (Negative Bid Price), such payments will be flowed through to Public Service’s customers in a manner to be determined," wrote Xcel. 

This alarmed developers and solar advocates who believe negative pricing is illegal under Colorado's renewable energy mandate. In September, the Colorado Solar Energy Industries Association and Western Resource Advocates filed applications to rehear the REC issue at the Public Utilities Commission. Both requests were denied last week.

So when the contracts are finally signed for the latest round of projects, community solar developers will be paying Xcel to take their RECs. 

"It’s very unfortunate that we never had the opportunity to discuss the implications of negative RECs," said SunShare's Gados.

Xcel argues that negative RECs are good for Colorado ratepayers. 

"We are providing a marketplace for the vendors to come in and bid. We opened it up, and they bid what they bid. We have been very clear that those dollars will be returned to customers," said Alice Jackson, Xcel's regional vice president of rates and regulatory affairs in Colorado. 

Allowing negative pricing isn't a penalty on developers, said Jackson. Xcel simply wants to get the best deal for ratepayers. 

"We value their participation. They help us fill a niche and provide solar access to a broader range of customers. But we want to do it in the most cost-effective way possible," she said.

The developers were also careful about attacking Xcel. They characterized the problem as an arcane regulatory issue -- not a devious plot to slow solar development.

"There's a feeling in the industry that this issue wasn't fully contemplated in the regulatory process," said Clean Energy Collective's Hunt. 

However, both Clean Energy Collective and SunShare worried about the future implications of negative REC pricing.

"If the negative RECs continue, it will be difficult to invest in Colorado as we have in the past," said Gados.

"We're also worried about what happens in other states," she continued. "Then it's all about how much you are willing to pay to connect these projects to the grid."

If the issue is not dealt with at the public utilities commission, developers say it could get litigated in a district court.