DOER’s Solar Incentive Straw Proposal: Optimism, Anxiety, Uncertainty.

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On September 23, DOER presented a straw proposal for the next phase of Massachusetts solar incentives. DOER’s ambitious proposal for a tariff-based program reflects a thoughtful development process and a laudable goal of crafting a program that is more efficient at promoting sustained solar deployment. There is plenty to like. But, DOER has bitten off quite a mouthful by proposing a structure that departs so dramatically from the SREC approach.  Massachusetts stakeholders have seven years of experience with SRECs; a tariff-based program will be something new.

Given the novelty and complexity of DOER’s proposal, the biggest concern among solar developers may not be that DOER is unable to design a workable new program, but that DOER is unable to complete the design and implementation of its new program in time to avoid a period of policy uncertainty that stalls the development of new projects. Even aside from worry about an actual gap in incentive eligibility between the current, expiring SREC II program and the next program, an extended period of uncertainty about the details of the next program could cause the pipeline of new projects – many of which have long development cycles – to freeze up.

Some details on the proposal:

  • Projects 5 MW AC or less that are not qualified under SREC I or SREC II, that are not sited in prohibited areas, and that interconnect after January 1, 2017 would be eligible;
  • Projects would receive payments for Class I RECs through a 10-15 year fixed-price tariff that would be available from all electric distribution companies (EDCs);
  • Tariff payments would be net of the value of energy produced by the project (i.e. the tariff payments would adjust to maintain a net compensation level that takes into account the value of energy that is sold, net metered, or perhaps even used on-site) – a feature designed, in part, to avoid market disruption if net metering caps are reached;
  • Tariff payments would decline over time through a series of declining blocks (proportionally attributed to each EDC): as each block of 200 MW is filled, the tariff value for the next block would decrease by approximately 5%;
  • Tariff payments would be based on project size with the following values provided by DOER for “illustrative” purposes (capacity in kW AC, incentive in $/kWh):
    • ≤ 25 kW (low income)                     $0.35     10-year term
    • ≤ 25 kW                                          $0.30     10-year term
    • > 25 kW – 250 kW                          $0.23     15-year term
    • > 250 kW – 1,000 kW                     $0.18     15-year term
    • > 1,000 kW – 5,000 kW                  $0.15     15-year term
  • Taking a page from SREC II’s increased incentives for projects with particular off-taker and site characteristics, projects with preferred characteristics would be eligible for “adders,” which in this proposal would be cumulative – again, DOER provided “illustrative” values ($/kWh):
    • Building mounted                                      $0.02
    • Brownfield/Landfill                                     $0.03
    • Solar Canopy                                            $0.04
    • Community Shared Solar                          $0.04
    • Low Income Property Owner                    $0.04
    • Low Income Community Shared Solar     $0.06
    • Behind-the-Meter Energy Storage            $0.03
    • Standalone Solar with Energy Storage     $0.05
    • Non-Net Metered                                      $0.05

Because DOER’s straw proposal would be administered through a tariff, it would require not only new regulations from DOER, but also approval of the necessary tariffs by the Department of Public Utilities (DPU). DOER hopes to begin the implementation process by issuing emergency regulations before the end of 2016 so that the EDCs can file a model tariff with the DPU this winter. On that timeline, DOER could finalize permanent regulations in early 2017, and the DPU could approve a model tariff sometime in the Spring, alowing final tariffs to be approved at the DPU and the program to go into effect sometime in the summer of 2017.

DOER’s timeline is ambitious and assumes that the details of the program can be worked out by stakeholders without contentious diversions or disputes. Beyond getting the values right, the details of how this program would work for community solar and generation that is used behind the meter will require substantial thought.  Ongoing external processes could also complicate implementation of DOER’s proposal. For instance, the DPU is currently exploring whether to implement a “minimum monthly reliability charge” for electric customers, and the DPU is set to decide soon whether to approve a rate design proposal from National Grid that would impose new fees on some distributed generation.  Both policies have the potential to directly affect the economics of DOER’s proposal.

Given the complexities of the proposal and the tight timeline, DOER may have to implement a policy patch to prevent significant negative impacts to the project pipeline – likely some sort of extension to the current SREC II program. Whether DOER implements an interim fix or not, the next Massachusetts solar incentive program, and the policy transition thereto, will be shaped over the next few months. Comments to DOER on its proposal are due by October 28th.  Stay tuned.

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