One objective of the bid assurance collateral is for the bidder to show that the bidder will be able to meet the Collateral Requirement under the REC Contract. Not meeting the Collateral Requirement would lead to supplier default, termination of the REC Contract, and failure of the procurement event to procure the number of RECs intended.

The bid assurance collateral in 2017 was set assuming that the typical situation would be one where bid assurance collateral would be posted for an average solar Project. While Bidders that are presenting projects on behalf of multiple Sellers have the option to submit bid assurance collateral for each project separately, this option generally was not used. The consequence was that bidders that presented multiple projects, or bidders presenting large facilities, were potentially under-collateralized. For example, suppose a bidder presented two winning projects, a 30 MW project and a 20 MW project. If the Seller for the 30 MW project failed to sign the REC Contract, the entire amount of bid assurance collateral could be drawn. If subsequently the Seller for the 20 MW project failed to meet the Collateral Requirement or to pay the Supplier Fees, there would be no further draw possible as bid assurance collateral would have been exhausted. Thus “under-collateralized” here means that the bid assurance collateral amounts were insufficient to allow for a financial penalty in circumstances where such penalty was intended.

There are several consequences to this under-collateralization. First, bidders presenting a single smaller project could perceive that they were not treated on a completely even footing with bidders presenting multiple projects or large facilities. Second, the incentives to follow through with the transaction once projects are selected are weaker in the case of multiple Sellers as there may not be any financial consequence to failing to execute the REC Contract, not paying the supplier fees, or failing to meet the Collateral Requirement for one or more of the Sellers. This, in turn, increases the risk of an unsuccessful procurement event that fails to procure the targeted number of RECs. The Procurement Administrator’s perception of this risk is informed by a number of bidder questions relating to the consequences (or lack thereof) of a winning Seller not following through with execution of the REC contract.

The basis for the ceilings in the 2018 procurement events, instead of being an average situation related to a typical project, is a situation where a bidder is presenting one or multiple facilities that could be sufficient to win the entire target of 400,000 RECs. If the ceilings for the 2017 procurement event had been set on this basis, they would have been half of the ceilings in the 2018 procurement events because the target at that time was 200,000 RECs.