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<span/>Amid utility
contentions that the initiative is not a cost-effective greenhouse
gas reduction strategy, Massachusetts officials released a final
version of the nation's first "clean peak standard," which requires
utilities to buy credits showing they are using increasing amounts
of renewable energy at times of peak electricity demand.
The Massachusetts Department of Energy Resources (DOER) March 20
sent final rules for the new program to the legislature for final
review, which will focus on substantial changes made by the agency
since it first proposed key elements of the clean peak standard
(CPS) last year.
DOER plans to implement the program in June, making
Massachusetts the first state to carry out a concept initially
floated in Arizona to boost the value of renewables by requiring
utilities to use them to meet peak demand periods when power prices
are highest.
The CPS also is designed to cut greenhouse gas emissions by
reducing use of gas-fired "peaker" plants typically dispatched by
utilities to meet demand spikes in the evening and morning. And it
is aimed at spurring deployment of storage to ensure green power is
available even when intermittent solar and wind plants cannot
provide supply.
The Massachusetts' CPS rules require the state's investor-owned
distribution utilities—National Grid, Unitil and Eversource
Energy—to buy credits corresponding to 1.5 percent of their
electricity sales in 2020, and rising by 1.5 percent annually, from
eligible renewable energy, demand response and new storage
resources that can deliver power in specified peak hours throughout
the year.
The CPS is meant to supplement the state's renewable portfolio
standard, which incentivizes renewable capacity but doesn't
differentiate between power delivered at times of low- or high
demand, which have widely different values in terms of price and
value to reliability.
Highlighting the growing importance of using carbon-free
renewables when the power is needed most—as opposed to simply
whenever the sun happens to be shining and the wind
blowing—DOER made major changes to the CPS since last year
meant to increase the incentives to deploy storage and new
demand-response resources that can "chase the peak."
Among other tweaks, DOE in its final CPS rules substantially
increased multipliers for how many clean peak credits resources
will earn if they can deliver power during high-demand hours in the
heightened summer and winter peak seasons. The agency nearly
doubled the multiplier to 25x for resources that deliver during
each month's single highest peak hour, according to the
proposal.
Also, the final version raises the "alternative compliance
payment" (ACP) that utilities must pay if they don't buy enough CPS
credits from eligible resources from $30 to $45. The ACP
effectively sets a price ceiling for the credits, so raising it
substantially is meant to bolster the value of CPS credits and
thereby increase revenues for eligible resources.
In joint comments filed with DOER in October 2019, National Grid
and Unitil generally applauded the effort to develop the nation's
first CPS, but said the proposed design would raise ratepayer costs
by $235 million a year starting in 2020 and reach nearly $5 billion
in total costs through 2050.
They and others also questioned whether the program will be
successful in attracting new resources or even whether it will
significantly reduce GHG emissions given that emissions from the
current generation mix on New England's grid usually does not
change much throughout the day most of the time.
"The electric distribution companies (EDC) are concerned that
with the current draft regulations, the CPES program, as currently
designed, will not significantly drive new deployments of
resources, nor sufficiently reduce GHG emission levels in a
cost-effective manner," National Grid and Unitil wrote.
"The EDCs would recommend that the DOER consider a program cost
structure that would both limit the total amount of ratepayer
funding required, and focus these funds on the hours and resources
that are most effective in reducing GHG emissions and energy costs
at peak," they added.
The utilities offered several suggestions for capping costs and
targeting incentives to specific resources that might not otherwise
be deployed under the program, but National Grid officials said
Friday those changes did not make it into the final version.
Massachusetts is the first state to launch a CPS although
Arizona and other states interested in the concept—notably
California—have largely seen it as a solution for growing
oversupplies of solar in the middle of the day.
Massachusetts has substantially less solar than those sunnier
states, but it is leading the nation in development of
utility-scale offshore wind projects, a major part of its strategy
for reaching net-zero carbon emissions by 2050.
DOER said its analyses indicate that the CPS will play a key
role in helping the state reach that goal.
"The clean peak energy standard 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," DOER wrote in a summary of the CPS released Wednesday.
"The market signal will reduce the commonwealth's reliance on
high-emissions and high-cost power plants and enable the continued
integration of renewable resources."
<span/>The CPS is
projected to reduce carbon emissions by 560,000 metric tons in the
first 10 years in addition to emissions reductions provided by new
and existing renewable energy resources, according to DOER.
And contrary to contentions by utilities, the agency said the
CPS is projected to provide overall net savings to ratepayers
within 5 years and approximately $400 million of cost savings in
the first 10 years, primarily by shaving off peak power prices and
more efficiently using transmission infrastructure.
Under DOER's final rules, resources eligible to receive the
clean peak energy certificates include new renewable resources,
existing renewables that pair with new storage, new storage that
charges primarily from renewables and demand-response
resources.
Forecasts from DOER for a typical five-day period in winter 2030
indicate that without the CPS, there would be little or no clean
energy delivered during peak evening demand on two days—even
with 3,200 MW of offshore wind and 5,000 MW of solar capacity on
the grid.
With the CPS, however, the DOER forecasts show that on each day
over the same five-day period, at least 3,000 MW of eligible
resources—and on other days more than 6,000 MW—could be
delivered in peak periods, primarily from charging storage
resources using offshore wind while demand is low overnight.
Among other concerns raised in the CPS proceeding, many
commenters questioned whether the standard would actually cut GHG
emissions—a problem highlighted by numerous analyses in
California and other jurisdictions that have found that storage
resources have not, in fact, been an effective GHG reduction
mechanism so far.
In response to comments on the CPS, DOER said last week that it
has taken specific steps to design the CPS to successfully lower
GHG emissions.
"The proposed design aligns storage charge hours with periods of
high renewables production consistent with the enabling statute and
provides an additional mechanism to leverage storage asset
performance in a manner that reduces overall emissions," DOER
wrote.
Specifically, the department made adjustments to the CPS "that
better align financial incentives for participating resources to
dispatch in the highest total and marginal emission periods."
In response to many commenters who said the original proposal
would not provide enough incentive to meaningfully increase
deployment of storage or other eligible resources, DOER
significantly increased the multipliers and raised the ACP rate
that effectively serves as a price ceiling.
"The department determined there was a risk that, at the
proposed ACP rate and without refinement to the program structure,
projects may not move forward and participate in the program," DOER
wrote in explaining its changes.
The agency also included provisions to require the EDCs to buy
more certificates if the CPS market is undersupplied, increasing
the incentive for storage deployment. Similarly, EDC procurement
targets will be cut if the market becomes saturated.
Reprinted from The Energy Daily. For more comprehensive
daily coverage of US energy policy, regulatory, and business trends
from IHS Markit, visit
The Energy Daily website.
Jim Day is a Senior Journalist for Energy at IHS
Markit.