Massachusetts Races to Decarbonize the Peak
Following months of development and building on a host of previous renewable and alternative energy portfolio programs intended to incrementally decarbonize the electric sector, Massachusetts is poised to codify a Clean Energy Peak Standard (CPS) in the summer of 2020. In contrast to the existing Massachusetts programs, which have incentivized renewable and alternative energy sources simply to “show-up,” the CPS takes aim at incentivizing new and existing generation resources to “show-up at the right time” in order to further reduce greenhouse gas (“GHG”) emissions. Electricity generators and commercial, industrial and residential energy consumers alike should understand this new incentive program.
- Renewable and Alternative Energy Portfolio Standards
Massachusetts has a Renewable Portfolio Standard (RPS), which requires electricity suppliers such as regulated distribution companies and competitive suppliers to obtain a certain percentage of the electricity they provide to customers from qualifying renewable energy facilities. M.G.L. Ch. 25A Section 11F. The required percentage increases on an annual basis. Electricity suppliers must accumulate enough renewable energy certificates (RECs) in order to satisfy their annual percentage compliance obligation. RECs are earned by the generation of each megawatt of power from renewable energy facilities and are traded, purchased and sold like any other commodity generally subject only to the factors of supply and demand. There is a failsafe component built into the program whereby, if prices for RECs get too high, entities may make an “alternative compliance payment,” paid to the Massachusetts Clean Energy Center (MassCEC), a state economic development agency dedicated to accelerating the growth of the clean energy sector across the Commonwealth. In turn, the funds are used to further foster renewable energy development.
Changes in 2009 ushered in a new wave of similar portfolio standard programs in Massachusetts, albeit targeting different types of renewable and alternative energy resources. Collectively, these changes resulted in differentiated “classes” of RPS resources (Classes I and II) and introduced an Alternative Energy Portfolio Standard (APS) program. M.G.L. c. 25A, §§ 11F & 11F1/2; 225 CMR §§15.00 and 16.00, et seq.
In general, eligible RPS “Class I” resources need to have begun commercial operation after 1997 and must generate electricity using any of the following technologies: solar photovoltaic; solar thermal; wind energy; small hydropower (i.e., under 30 MW); landfill methane and anaerobic digester gas; marine or hydrokinetic energy; geothermal energy; or eligible biomass fuel. M.G.L. c. 25A, § 11F; 225 CMR §14.05(1). Likewise, RPS Class II resources must use eligible renewable resources but must have a commercial operation date prior to January 1, 1998. Accordingly, the Class II RPS program helps provide financial operating support for pre-1998 vintage facilities. Understanding which resources that have either previously qualified or will qualify as Class I or II resources is important to understanding some of the nuances of the CPS.
In 2018, Massachusetts passed an Act to Advance Clean Energy (Act). The Act, among other things, empowered the Massachusetts Department of Energy Resources (DOER) to usher in a first-in-the-nation approach of ensuring that a certain minimum percentage of electricity kilowatt-hour sales to end-use customers in the commonwealth comes from “clean peak resources.” M.G.L. c.25A, § 17. These resources generally fall into one of four buckets, including:
(1) RPS Class I resources that became operational on January 1, 2019, or later;
(2) RPS Class I / Class II resources, operational prior to January 1, 2019, which are paired with a Qualified Energy Storage System;
(3) Qualified Energy Storage Systems, which primarily store and discharge renewable energy; and
(4) Demand Response Resources.
The Act authorized the DOER to promulgate regulations to implement the Act for several purposes, including: (i) the establishment of seasonal peak periods; (ii) the methodology by which clean peak certificate values shall be established, which may include a process by which electric distribution companies competitively procure clean peak certificates from clean peak resources and enter into long-term contracts, subject to the approval of the department of public utilities; (iii) the establishment of a minimum percentage of clean peak certificates that must be derived from demand response resources; (iv) an alternative compliance mechanism for retail electricity suppliers; and (v) the procedures by which each retail electricity supplier shall annually submit for the department’s review a filing demonstrating its compliance with the requirements of this section. Id. at § 17(c). Note, per the statute, municipal lighting plants are exempted from the CPS requirements. Id. at § 17(d).
DOER’s draft CPS regulations were many months in the making. In early 2019, DOER began the process with a stakeholder written question-and-answer session, followed by the release of a straw proposal for stakeholder comment. DOER also conducted a modeling study to assess the impacts of the CPS on GHG emissions. Next the DOER held stakeholder meetings in August 2019.
In September 2019, DOER moved to the formal notice-and-comment rulemaking stage, accepting written comment and holding public hearings on the draft regulations, 225 CMR § 21.00. Finally, DOER’s enabling Act requires a 30-day review at the Massachusetts Legislature, which commenced on or about March 19, 2020. DOER will need to consider any comments offered by the legislature for a period of not less than 30 days. If the schedule holds, final regulations for the CPS will be in place by about June 2020.
The regulations do not alter the eligible types of CPS resources, which as set forth above, include qualified renewable energy generators, energy storage resources and demand response resources. These resources will, in turn, generate Clean Peak Energy Certificates (CPECs) for every megawatt hour of electricity they produce or reduce coincident with “Seasonal Peak Periods,” as defined in the regulations. Seasonal Peak Periods represent the times of day in which demand for electricity is typically the highest, and they include the following: (a) Spring (March 1 through May 14); (b) Summer (May 15 through September 14); (c) Fall (September 15 through November 30); and (d) Winter (December 1 through February 28). 225 CMR 21.05(3). The Seasonal Peak Periods are set as the periods of all Business Days in each Clean Peak Season that historically coincide with Massachusetts’ peak electricity demand, including: (a) Spring (from 5 p.m. until 9 p.m.); (b) Summer (from 3 p.m. until 7 p.m.); (c) Fall (from 4 p.m. until 8 p.m.); and (d) Winter (from 4 p.m. until 8 p.m.) 225 CMR § 21.05(4).
Once generated, CPECs may be purchased by retail electricity suppliers, who have an annual obligation to document that they have procured a certain quantity of CPECs for the corresponding compliance year. For 2020, this equates to 1.5% of their total electricity sales to end-use customers. In general, this requirement increases by 1.5 percentage points each subsequent year. As designed, the DOER believes that the CPS “…will send a market signal to clean energy generation to invest in storage technologies to deliver energy to users and to reduce demand during peak periods, thereby reducing the emissions and costs associated with these periods.” See DOER’s “Regulation Summary – Summary of Draft Clean Peak Energy Standard –225 CMR 21.00” at paragraph 5.
There are several important considerations for Massachusetts energy consumers and other stakeholders in light of the CPS:
Although the CPS standard is the latest iteration of regulations to implement Massachusetts’ policies designed to affirmatively incentivize cleaner power generation during periods of peak demand, there may be opportunities for other electric generation sources, as the program does not require zero carbon emissions, in order to participate. In fact, DOER resisted calls to exclude non-zero emitting resources from the CPS, finding that the Act does not authorize such exclusion. An asset-specific review combined with analysis of the final CPS standards and/or associated guidance from DOER is required to evaluate such an issue.
The additional incentive provided by the CPS may tip additional renewable projects in favor of implementation from a pure benefit/cost calculation. In other words, where the payback for a renewable energy project may have been too long on REC revenue alone, the CPS may shorten the payback period.
Energy consumers with existing renewable Class I or II RPS facilities may be particularly well poised to add battery storage to these existing systems. In addition, the CPS itself may drive ancillary development in battery technology designed to facilitate these standards.
Energy consumers may see significant value in installing standalone battery storage or Demand Response Resources.