MA Solar Carve-Out Chaos

So by now, most people in the solar industry know that the MA Solar Carve-out is done.  The big question on everyone's mind is "What's next?". The Massachusetts Department of Energy Resources (DOER) hosted a stakeholder forum to provide an update on future policy support for solar on June 7th. At this point, its still a little hazy as to exactly what the future program will look like, but DOER has significantly expanded on several ideas presented during the 3/22/2013 policy session, most notably the Solar Renewable Energy Credit (SREC) Factor (more on this later). 

The other big question is where to draw the line regarding eligibility in the current 400 MW Solar Carve-Out (SCO) program. The SCO was born through "Emergency Regulations" in January 2010 and it will close through "Emergency Regulations" as DOER needs a way to determine which projects will qualify for the 400 MW cap and which ones won't. Right now, they have more applications than capacity and will need to determine which projects make the cut and which ones will need to wait for the successor program. DOER has stated that they will expand the current 400 MW cap for projects that "are demonstrably well invested in the development cycle and for small projects to continue to proceed." This also means that the steady state SREC compliance obligation for years 2014 - 2022 will need to be adjusted upward to accommodate the expanded capacity ceiling of the SCO. Here is what we know so far regarding who will qualify for the existing SCO:

  • All residential and small commercial (<100 kW) projects will qualify until the regulations for the successor program are promulgated
  • All projects with utility Interconnection Service Agreements signed prior to June 7th, 2013 so long as they "meet proscribed project construction timelines" 
  • "Proscribed construction timelines" means: Authorization to Interconnect before 12/31/2013; or 50% of total construction costs are expended by 12/31/2013 and Authorization to Interconnect is granted by 3/31/2014.

As for the future, Energy Tariff Experts (ETE) is encouraged by the ambitious policy support for future solar build-out in MA. There are several good things in the current DOER proposal for the successor to the SCO. There are also some concerning aspects of the current proposal, namely the complexity of the proposed regime which at first glance seems like a highly complex, Rube Goldberg contraption that will be hard for many to grasp. There are also several inherent contradictions in the current proposal regarding stated goals and likely outcomes for ratepayers.

First, lets start with the good things. ETE is especially encouraged that the proposal for the successor program includes provisions for the following:

  • A long policy horizon to support the build out of ~ 1,200 MW of additional solar PV
  • Ten year term limits on SRECs
  • A Clearinghouse Auction price support mechanism
  • Forward SREC minting for small/residential PV installations
  • Consideration of plans to mitigate aggressive ground mount developments (e.g., cutting down forested land to build solar PV arrays) through land use criteria and/or inter-agency regulation.

Now lets discuss the contradictions. MA DOER states that they are concerned about ratepayers costs and want to achieve solar cost parity with the current Class I REC market. At the same time, they propose a mechanism to "manage supply" by limiting the amount of larger ground mounted systems accepted into the marketplace. By having a mechanism to "manage supply", DOER can keep SREC prices high and avoid "unfettered market expansion and oversupply." It seems that DOER is very concerned for the welfare of solar developers, but if there is to be a REC market why not let market forces drive the rate of build outs? Why should DOER have a mechanism to control growth? DOER's current proposal to manage the supply of larger ground mounted systems is worrisome because their proposed criteria are as follows: " Managed supply will be qualified competitively based on criteria including, for example, price (applicants bid SREC Factor), and non-price criteria such as land use attributes, tree cutting, development timeline and likelihood of success, local benefits, etc."  These non-price criteria could to open the door to politicization of the acceptance process, which would be a bad thing. If DOER is worried about solar ground mounts, they should promulgate regulations around land use criteria or limit the size of SREC eligible ground mount developments instead of creating an opaque mechanism for "managed supply."

MA DPU, Post 400 MW Solar Program Policy Design Stakeholder Briefing, June 7th, 2013. Slide 20

MA DPU, Post 400 MW Solar Program Policy Design Stakeholder Briefing, June 7th, 2013. Slide 20

The proposed SREC Factor, while conceptually coherent, could prove to be very difficult to implement in practice. DOER's stated goal is to achieve cost parity between SRECs and Class I RECs. The SREC Factor is the mechanism they plan to use to achieve this as the SREC factor will be used in a formula that will determine the REC payment for the output of PV systems built in each year of the successor program. The easiest way to think about it is to compare it to a blending process. Each MWh of Solar PV will be split between SRECs and Class I RECs. At the beginning of the program, small systems will get 1 SREC for each MWh produced (see graphic). Over time, as costs decline for new systems, the SREC factor will decrease and small units will get less SRECs and more Class I RECs and therefore the dollars received through REC payments will be incrementally lowered each year for new capacity installations. Note that larger systems will start off with a lower SREC factor since they require lower SREC payments in order to be economic. The table below shows how DOER is thinking about this. They plan to assign progressively declining SREC factors for different classes of systems based up the cumulative MW of solar build out to date. 

MA DPU, Post 400 MW Solar Program Policy Design Stakeholder Briefing, June 7th, 2013. Slide 21

MA DPU, Post 400 MW Solar Program Policy Design Stakeholder Briefing, June 7th, 2013. Slide 21

The graphic to the right below provides a visual illustration as to how the SREC Factor will be used to determine the dollar value of the RECs generated for each MWh of solar PV production. The SREC factor is essentially the multiplier used to divide

SREC Factor Illustration.png

the 1 MWh up into Class I REC and SREC fractional components. Each fraction is then multiplied by the then current price of each REC type to determine the REC incentive that the owner of the solar PV system will receive. Now, the contradiction with this mechanism is that it looks less like a REC market and more like a Feed-in-Tariff (FiT) in disguise. DOER is very concerned with price stability and predictability, but creating a FiT is beyond the scope of what they can accomplish in the next few months to keep the solar industry going in MA. DOER seems overly concerned with a New Jersey style bust in the solar market and the price support mechanisms in the current proposal along with the declining SREC factors are meant to prevent a boom and bust cycle of development. The future solar regime in MA looks like it will be very friendly to developers and expensive for consumers (at least in the near term). At ETE we have simple advice, if you have a sunny roof in MA, go solar.