Massachusetts substantially changed its energy portfolio programs on July 2, 2008, when Governor Deval Patrick signed into law the state’s long-awaited energy bill, the Green Communities Act (the “Act”). The changes include replacing the existing renewable energy portfolio standard (“RPS”) program with a two-tiered RPS program and creating a new alternative energy portfolio standards (“APS”) program to promote lower emission, non-renewable power generation technologies. The changes give the Department of Energy Resources (“DOER”) (formerly the “Division of Energy Resources”) additional influence over the development of renewable energy in Massachusetts and create new market opportunities for businesses in the energy technology and renewables sector.
An Ambitious Energy Agenda
The Act establishes an aggressive timeline for increasing the role of renewable and alternative energy sources in meeting the state’s electric load. Under the Act, Massachusetts must meet at least 20 percent of its electric load through renewable or alternative energy generation by 2020. In addition, at least 25 percent of the state’s electric load must be met by resources that reduce demand on the grid, including energy efficiency, demand response, and behind-the-meter generation such as combine heat and power (“CHP”).
A Two-Tiered RPS Program
The Act replaces Massachusetts’ existing RPS program with a two-tiered system consisting of Class I and Class II resources. The Class I RPS goal is, for the most part, a continuation of Massachusetts’ existing RPS program. The minimum percentage that an electricity supplier must purchase from Class I sources follows the existing RPS requirements, which will be 4% in 2009 and will increase one percent every year thereafter. However, the Act eliminates language that formerly allowed DOER to cap the RPS goal at its discretion. The types of generating facilities eligible as Class I generating sources are also similar to the existing RPS program: only new facilities or new generating capacity – i.e., operational after December 31, 1997 – may qualify. Unlike the existing RPS, however, Class I expressly includes marine and hydrokinetic energy, which appears to anticipate expanded off-shore renewable energy production following passage of the Oceans Act of 2008.
Whereas Class I RPS is intended to encourage the development of new renewable generation capacity, the new Class II will promote the continued operation of existing facilities. The Act accomplishes this in two ways. First, only existing renewable energy sources – those that came online before December 31, 1997 – are eligible as Class II sources. Second, the Act vests considerable discretion and authority in DOER to craft Class II RPS goals to target those existing facilities. That authority includes setting the Class II RPS goal and specifying a minimum percentage of that Class II RPS that must come from specific energy technologies or fuel sources. Which technologies and fuels are specified, and how many renewable energy credits (RECs”) an electricity supplier must purchase from those sources, will be driven by DOER’s assessment of what is necessary to encourage the continued operation of existing renewable energy facilities.
The New APS Program
The Act creates a new alternative energy portfolio standard, the APS program, that requires electricity suppliers to buy a minimum percentage of power (set by DOER) from eligible generating sources. The primary difference between the RPS and APS programs is the types of energy technologies and fuel sources allowed. Qualified APS generation sources include CHP facilities, certain steam technologies, and facilities using gasification and carbon sequestration. Importantly, coal- and natural gas-fired power plants that do not use gasification or CHP, and power generated from oil or nuclear fuels, are expressly precluded from qualifying as an APS source. Regardless of fuel source, any facility that seeks qualification as an APS source must demonstrate that its carbon dioxide emissions are no greater than those of an existing natural gas power plant. Thus, the APS program may be seen as promoting lower emission, non-renewable energy generation.
Looking Forward: New Market Opportunities
The new RPS and APS programs may create significant new business opportunities for behind-the-meter renewable energy generation, older renewable energy facilities, and for energy projects utilizing particular energy technologies.
The Act creates new incentives to invest in behind-the-meter renewable generation. Both Class I and Class II RPS goals may be met by purchasing RECs from behind-the-meter generating sources located in ISO New England, potentially creating value for maintaining or expanding existing facilities. In addition, the Act expressly requires that some portion of the Class I RPS goal be met by purchasing power from small (i.e., 2 MW or less), on-site renewable facilities located in Massachusetts. These provisions could encourage greater interest and investment in distributed generation, including third-party ownership projects.
Older renewable generation facilities also have new incentives to remain online. Under the existing RPS system, a facility built before December 31, 1997 could not qualify for RECs unless it added new capacity – and then it could only earn RECs for that additional capacity. Under the new, two-tiered RPS system, such a facility could continue to earn RECs for its new capacity under the Class I RPS and might also earn RECs for its existing capacity under the Class II RPS.
Specific energy technologies might see more incentive for development, although which technologies will receive the greatest boost will depend on DOER actions. Thus, the new APS program could result in increased reliance on proven technologies such as CHP and promote investment in emerging carbon capture and storage technology, but the costs associated with developing those resources will ultimately depend on emissions, performance, and efficiency standards promulgated by DOER. Similarly, it is not yet known what renewable energy resources will be emphasized in the Class II RPS. The result of these agency determinations will have considerable impact on the development of energy projects in Massachusetts and will create significant opportunities for businesses that are positioned to take advantage of these changes.