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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.

  1. Background

    • 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.

  • 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).

  1. Draft Regulations

    • Process

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.

  • Substance

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.

  1. Considerations

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.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.

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About this Author

Michael Altieri Environmental Attorney Hunton Andrews Kurth Law Firm
Senior Attorney

Michael’s decades of government experience provide clients a valuable resource for permitting, compliance and enforcement issues relating to air, water and waste.

Prior to joining private practice, Michael worked for natural resources agencies in Massachusetts and New York, where he oversaw permitting, dispute resolutions and enforcement actions involving infrastructure construction projects, energy projects, contaminated lands and much more. Michael’s extensive agency background provides clients with in-depth knowledge of the interplay between state and federal environmental law...

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David C. McSweeney Environmental, Health & Safety Attorney Hunton Andrews Kurth Boston, MA
Counsel

David counsels clients through the lens of a former in-house attorney to provide insightful and practical advice. He understands a client’s business and the unique policies related to environmental, health and safety (EHS) legal issues associated with permitting, compliance, transactional due diligence, regulatory development, enforcement defense and related litigation.

David’s practice focuses on EHS matters, especially those involving the Clean Air Act (CAA), Clean Water Act (CWA), Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and Resource Conservation and Recovery Act (RCRA). He has nearly 20 years of experience working with energy clients, including oil, natural gas and natural gas liquids (NGL) companies, renewable energy companies, pipelines, domestic and international manufacturers, banking institutions, and corporate and individual clients. In addition to a myriad of matters associated with environmental and land use permitting, compliance and/or enforcement, David provides experienced corporate counseling for institutional clients regarding issues associated with environmental, social and governance (ESG) concerns, including internal assessments and auditing, reporting and disclosure concerns, with a focus on climate change. David has led environmental legal due diligence and transactional negotiations for asset and equity based transactions, brownfields redevelopments, and coordinated response and remedial actions for hazardous environmental releases. His work with clients on permitting, compliance and enforcement defense matters has led him to regular interaction with agency staffs, at US Environmental Protection Agency (EPA), US Army Corps of Engineers (Corps), US Fish and Wildlife Service (FWS) and equivalent state agencies and historic preservation officers.

Prior to joining Hunton Andrews Kurth, David was lead in-house environmental counsel for a Fortune 500, diverse midstream energy company.

Relevant Experience

  • Extensive experience with siting, permitting and compliance counseling for energy facility and linear projects, including but not limited to pipeline projects, associated compressor and/or boosting stations, natural gas/NGL processingplants and fractionation facilities, and onshore wind power generation projects.
  • Specific project involvements include, but are not limited to, legal advice and consultation on the following: New Source Review (NSR) (including Prevention of Significant Deterioration and/or Non-Attainment NSR) and/or Title V Permitting under the Clean Air Act and related state statutes/regulations; National Environmental Policy Act (NEPA) matters involved with both Federal Energy Regulatory Commission (FERC) pipeline construction projects, including pursuit of Department of State Presidential Permits for international boundary crossings; wetlands and waterways permitting under the CWA and related regulations, including federal Nationwide Permits; endangered species permitting, compliance and consultation under federal and state endangered species acts and regulations; and cultural resource compliance under the National Historic Preservation Act (NHPA) and related consultations between federal, state and tribal authorities.
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