Market Update

MA Clean Peak Energy Standard

Does the New Massachusetts Clean Peak Energy Standard Get Energy Storage Over the Hump?

There is always a Next Big Thing.  First it was sliced bread. Then lots of other things, like the light bulb, automobiles, airplanes, refrigerators, washers and driers, the Broadway musical Cats, India Pale Ales, and, after 2008 in Massachusetts, solar PV.

Now the Next Big Thing is Energy Storage. And I don’t mean Energy Storage that is tied to solar PV and paid for by a combination of SMART payments and a generous Investment Tax Credit.  I mean stand-alone (i.e., not tied to solar PV), Behind the Meter (BTM), grid-tied Energy Storage that off-sets site loads.  The kind that can be widely deployed to charge when electricity is clean/cheap and discharge when energy is dirty/expensive.

To help the economics of Energy Storage projects, the Massachusetts Department of Energy Resources (DOER) recently filed with the General Court (i.e., in Massachusetts-speak, “Legislature”) the first of its kind Clean Peak Energy Standard, or CPS.  The CPS is “designed to provide incentives to clean energy technologies that can supply electricity or reduce demand during seasonal peak demand periods”. The DOER is hoping that the CPS will provide another arrow in the quiver of the pro-forma of Energy Storage projects and help make them more financeable.

It’s a novel idea from a state (or Commonwealth, I guess) that continues to push the envelope in terms of renewable and alternative energy.  The idea is that there is another payment for cleaning up the times when the grid is most expensive, and therefore most dirty, by deploying “cleaner” resources.  A number of technologies qualify but, let’s be honest, it’s largely aimed at providing another revenue stream for Energy Storage. Some dispute how effective this really is in terms of being clean, but I give credit to the state for trying.  It’s not easy being first and my money is on it being refined and improved over time.

The opportunity is immense.  There are thousands of sites in MA that have sufficiently high peak loads to support Energy Storage, if these projects can get to the point that they are “financeable” and easily replicable.  That would have a profound impact on reducing the need for traditional energy infrastructure (i.e., transmission and distribution lines, large substations like what has been proposed in Kendall Square, fossil fuel power plants, etc.), as well as “shift” low carbon energy to high peak demand times.  So, while others may see a mall or office building, I see Energy Storage. My family is super entertained as we drive down the street and I point out all these interesting Energy Storage possibilities!

But the question remains is BTM Energy Storage financeable?

To try to answer this, let’s leave out the CPS and break the other revenue streams into “Financeable” and “Upside” buckets.  In this scenario, “Financeable” means the revenue streams are well understood, reliable, expected to be there for years to come, and are cont (or at least not going anywhere).

“Upside” means the revenue streams that cannot be contracted and therefore cannot be counted for financing purposes.

And, to review, this only applies to Behind the Meter, customer-sited Energy Storage.  Not some big system out in a field someplace, or Energy Storage attached to a SMART application.  I am focusing on stand-alone BTM because, in my opinion, the biggest opportunity from an infrastructure and carbon-shifting perspective lies in siting storage at the point where energy is used. Others may disagree with this premise but I am the one writing this piece so I get to make the rules.

Financeable Bucket

  1. Installed Capacity (ICAP) charge – unfortunately, these values are way down right now because they are tied to Forward Capacity Market (FCM) values, which are at historic lows.
  2. Utility demand charges – well understood but difficult to assume more than 25% of the capacity of the Energy Storage system. Therefore, it doesn’t provide a lot of value, especially in NGRID territories where demand charges are relatively low.
  3. Utility Connected Solutions Demand Response Program – Very valuable at $225/kW per year but only guaranteed for five years, so it’s limited from a financing perspective.
  4. Forward Capacity Market payments (FCM) – Very low values for the foreseeable future.

Upside Bucket

  1. ISO Revenues, including:
    • Energy
    • Frequency Regulation
    • Reserves

So, where does the Clean Peak program fit?  Is it in the Financeable Bucket or the Upside Bucket?  Many of the comments filed on the program urged the DOER to move it into the Financeable Bucket by creating a floor price similar And, in response to those comments, DOER made some important changes to the regulations, including a provision that would adjust the supply demand dynamics of the market to mitigate falling prices based on the supply of Clean Peak Energy Credits (CPECs) generated.  The DOER also increased the value of the credits; they are now worth in excess of $100,000 per year per MW, depending on duration.

But were the changes enough to move the Clean Peak into the Financeable Bucket?  And is there enough value in the Financeable Bucket to really move the needle, especially with historically low FCM and ICAP values?

The ones to answer these questions are likely the folks on Wall Street; the ones with the money.  My bet is that, eventually, we will see widespread deployment of stand-alone, BTM Energy Storage projects, and the CPS is an important step in that process.  But I think we may need more long-term certainty in some of the revenue streams to really make it happen.

Author: Matthew Wolfe, Managing Partner

SMART Program Update

Massachusetts solar system owners can currently benefit from solar renewable energy credits (SRECs), which like the APS program, provides credits for energy generation that is traded to obligated suppliers for revenue. The renewable energy portfolio standards (RPS) were designed to lower solar costs to promote increased penetration of renewable energy in the state. Regulations are being finalized to replace this program with a new structure, the Solar Massachusetts Renewable Target (SMART) Program.

The current market-based $/MWh structure with be replaced with a declining block tariff-based structure, outlined below.  DOER filed the proposed final version of the regulations[1] on August 11 which has been officially promulgated by the state as of August 25th. The program is expected to start  January 1, 2018.

Overview

The program provides a $/kwh incentive for solar systems, for up to 1,600 MW of new solar generation capacity. It is structured with 8 capacity blocks, with the incentive declining by 4% each block. Capacity available is proportional to each electric utility’s load (i.e. Eversource customers can fulfill more capacity than National Grid). Incentive amounts vary based on size of system and other provisions; the tariff has “adders” to the base rate for certain types of systems, including:

  • Low Income Property Generation Units
  • Community Shared Solar
  • Energy Storage pairing
  • Floating Solar (solar on bodies of water)

 How it Works

  • The first capacity block sets the rate for the rest of the program, not to exceed the ceiling price of $0.17/kWh
  • Owners/authorized representatives of system sizes 1 to 5 MW bid in the first capacity block with a base price (not including adders)
  • The distribution company selects proposals up to their MW allotment (total capacity across all utilities in the first block is 100 MW)
  • Prices are established based on the bids received:
    • Clearing price is the highest requested base compensation among the proposals, established separately for each distribution company
    • Base compensation is the average price of all proposals in the distribution company territory
    • After the base compensations are established in Block 1, only units eligible to receive Adders (described below), or systems 1 MW or less in capacity can qualify for Block 1
  • After the first block concludes successfully, the base percent decreases by 4% each block
    • The compensation adders similarly decline by 4% for every portion of capacity designated available by DOER

Compensation Rates

The new incentive program rewards beneficial siting and implementation of energy storage through adders to the base rate. For systems larger than 25kW, the calculated incentive is provided for 20 years. For behind-the-meter systems, the calculation of the compensation rate is as follows:

= (Capacity Based Rate + Compensation Rate Adders-Greenfield Subtractor[2]) – (distribution kWh charge+ transmission kwh charge+ transition kwh charge+ three-year average of basic service kWh charge)

The following rate factors are applied to the base compensation price determined, depending on the type and size of the generation unit.

Examples of other Adders are as follows:

Off-Taker Based Adder:

Location Based Adder:

Solar PV + Storage: Varies by system size and storage size. DOER provides a storage calculator on their webpage.

Those who are in the solar development process can still capitalize on the current SREC II program through 2018, as long as they are qualified with DOER, a service that Next Grid provides. Please contact us if you need assistance calculating the SMART factor.

More information on the SMART program can be found at: http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/rps-aps/development-of-the-next-solar-incentive.html

[1] 225 CMR 20.00 Solar Massachusetts Renewable Target (SMART) Program

[2] To encourage environmentally preferred installations, there is a subtractor for solar built on Greenfields.

MA Thermal Regulations Update

The Massachusetts Department of Energy Resources (DOER) is continuing the regulatory process in revising the APS (225 CMR 16.00) to incorporate the eligibility of renewable thermal technologies. The most recent draft regulations were filed on June 2, 2017. The revisions have not yet been finalized as DOER is reviewing comments received from the public hearings and comment period, which concluded on August 7, 2017.

Eligible Technologies

Under the latest draft, technologies that are included to receive credits for thermal generation include:

  • Air-Source Heat Pump
  • Ground Source Heat Pump
  • Deep Geothermal Heat Exchange
  • Solar Thermal
  • Woody Biomass
  • Biogas
  • Liquid Biofuels

Technologies can earn APS credits for each net MWh of new useful thermal energy generated on a quarterly basis. The calculations for APS credits vary by technology and size.

The revisions also establish provisions for alternative energy credit (AEC) “multipliers”, where one unit of energy production earns two or more credits. Renewable thermal generation units that do not emit criteria air pollutants are eligible for these extra AECs per unit of thermal production. Multipliers are also based on system size.  A summary of the AEC multipliers is provided in Table 1.

AEC Multiplier for Non-Emitting Technologies

Non-Emitting Technology AEC Multiplier
System size Small Intermediate Large
Active solar hot water systems used for domestic hot water 3 3 3
Active solar hot water systems used for domestic hot water and/or space heating 1 1 1
Active solar hot air systems 5 5
Solar sludge dryer 1
Ground source heat pumps 5 5 5
Deep geothermal 1
Air source heat pumps (electric or engine driven) – partial system 2 1 1
Air source heat pump (electric or engine driven) – all other 3 3 3
Biomass, biofuels, biogas N/A N/A N/A

A renewable thermal generation unit will retain the multiplier provided at the outset for its lifetime. DOER may re-evaluate the multipliers periodically considering several factors including observed market uptake of the different technologies, rebates, and grants available from federal or state agencies.

In addition, any small ground source heat pump or air source heat pump installed in a building will be given an additional multiplier of 2 (added to the base multiplier) if:

  • The residential building achieves a Home Energy Rating System (HERS) Index rating of 50 or less, or
  • The non-residential building meets the definition of “Zero Energy” as defined by the U.S. Department of Energy.

It is expected that the regulations will be finalized at some point in Q4 2017. Once the qualification and metering requirements are finalized, Next Grid can work with you to enroll in the program.

For more information on the regulations, please refer to this link: http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/renewable-thermal/eligible-technologies-alternative-portfolio-std-rulemaking.html