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Kicking the can: Massachusetts solar law buys time, but full incentive plan remains elusive

The state's new law lifts solar caps, but plans for a comprehensive incentive system are still in their early stages

It took months of legislative wrangling, but Massachusetts’ solar sector finally got some breathing room this week.

On Monday, Gov. Charlie Baker (R) signed a piece of solar legislation raising the caps on private and public large-scale net metered solar systems. The approval came after both houses of the Massachusetts Legislature passed the compromise solar package last week after months of disagreement. 

Previously, net metered solar projects were capped at 4% of a utility's load for private projects and 5% for municipal and government projects. Last spring, major electricity providers in the state hit their aggregate caps for large distributed solar systems, with National Grid among the first. The rapid pace of installations, especially community solar projects, meant many of the state's smaller utilities were close to breaching their caps throughout the year.

Massachusetts was the fourth largest solar market in the United States in 2015, and the state had over 1 GW of solar installed at the end of the year, ranking it sixth in the nation. Much of the installed capacity comes from community solar programs, as the state does not confine net metering to smaller residential and commercial systems. 

Hitting the caps stalled more than 500 projects valued at about $617 million, according to the Solar Energy Industries Association (SEIA), pressuring lawmakers to come up with a solution as quickly as possible.

Both chambers pushed separate proposals toward the end of 2015, but failed to reconcile the differences before the session concluded. As a result, lawmakers formed joint conference committee last year of six members each from the House and Senate to hash out a solution.

The end result was a bill that raised the cap by 3% of a utility's peak load for both public and private solar projects. Net metered systems in the state are now capped at 7% of load for private systems and 8% for public projects. 

The bill also cut the remuneration rate for large-scale private systems by 40% — decreasing it from the retail rate of electricity to a level near the wholesale rate. That change, however, will only go into effect after the state hits a 1,600 MW solar capacity goal set by former Gov. Deval Patrick (D) in 2013.

Critics have called the bill a stop-gap measure, since the caps have been hit and raised before, leading to the 2016 debate. 

But this time, there appears to be more confidence from both utilities and solar advocates that the state can come up with a more comprehensive distributed solar policy before the caps are hit again — something stakeholders say could happen by the end of this year.

“I think everyone the stakeholders involved are pleased that something is happening,” said Autumn Proudlove, a senior policy analyst at N.C. Clean Energy Technology Center, which analyzes state solar policies. “At least development can move forward. This seems a pretty good compromise between the two proposals  out there between the Senate and the House ... some give and take on both sides." 

"But," Proudlove said, "they are going to have to address it again.”

If they don't, Massachusetts stakeholders told Utility Dive, the solar market in the state will continue to face an uncertain future, and the outlook could be particularly bleak for community solar providers.

The cap-and-raise cycle

Massachusetts’ net metering policy is a little broader than many states. Instead of just compensating residential solar customers for excess solar sent to the grid, the net metering policy puts distributed solar in three camps:

  • Class I facilities: Systems up to 60 kW in capacity;
  • Class II facilities: Systems between 60 kW and 1 MW in capacity;
  • Class III facilities: Systems between 1 MW and 2 MW in capacity.

If a private solar system exceeds 2 MW in capacity, it is considered utility-scale and not eligible for net metering. Municipal- or government-owned distributed solar systems can have a capacity up to 10 MW, but generally fall under the Class II or III categories. 

The aggregate caps were levied on public and private distributed generation projects, but not on residential systems under 10 kW on a single phase circuit or under 25 kW on a three-phase circuit.

The caps have since been raised three times since 2008, when the Green Communities Act set the cap for all net metering systems at 1%, according to the Northeast Clean Energy Council (NECEC).

“Because the policy worked so well, we saw a lot of increases,” said Janet Gail Besser, former chair of the Massachusetts Department of Public Utilities and now executive vice president at NECEC. “It was clear [the caps] were going to be hit in 2014 in National Grid’s distribution territory; the caps were increased but they were essentially going to be hit and very quickly.”

The desire to find a longer-term solution for solar than simply raising utility caps is not new, Besser said. When utilities began to approach their caps in 2014, they and clean energy stakeholders began trying to come up with a consensus bill that would provide a more comprehensive solar valuation system. 

But the resulting bill failed to muster enough support from all those involved, the former DPU chair said. So, at nearly the 11th hour, the legislature chose to raise the cap again and form a net metering task force to address the cost-shift arguments from utilities and worries about fair compensation from the solar sector.

What came out of the task force set the stage for the latest legislation, but it failed to garner agreement on granular details of how to compensate both sides for using the grid and exporting excess energy.

“The task force recommended that if the utilities were provided with compensation for use of distribution system fairly and the distributed generators got fair compensation for the value they provided than you wouldn’t really need to have caps at all,” Besser said. “Now the details of that ... weren’t really agreed upon but that was the general overall agreement.”

Part of the reason the net metering policy worked so well in the past was because generous solar incentive program from the Massachusetts’ Department of Energy Resources (DOER) called Solar Renewable Energy Certificate program, Besser noted. The program gave distributed solar owners a return on their investment as utilities used the generation to help comply with the state's renewable energy mandate, which added an incentive beyond just net metering.

The program was capped initially at 400 MW in its first iteration, known as SREC I. Later the Department of Energy Resources launched SREC-II to include 1,600 MW after the 400 MW cap was reached in 2013. But now that program has closed to large-scale projects since installations have nearly maxed it out, leaving only a small portion for small-scale projects.

The newly-signed law also directs the DOER to come up with a new solar incentive program to replace or extend the SREC programs. But utilities and business groups such as the Associated Industries of Massachusetts (AIM), argue participants in SRECs and net metering programs don’t pay their fair share to maintain the grid. AIM claims the average homeowner paid $83 extra in 2015 to support solar.

In an acknowledgement of that argument, the new law allows utilities to file a request for a minimum monthly bill, but it remains unclear whether utilities will do so. 

National Grid did not address the minimum bill issue in a statement to Utility Dive, instead pointing to its most recent rate requestEversource, the state's other major investor-owned utility, didn’t return multiple requests for comment.

Pushing past the caps

While it's only the beginning of spring in the Northeast, Besser said the new net metering caps could well be hit before the year is out.

“I’m not going to bet real money here but would not be surprised if we saw caps being hit being hit across the state by the end of 2016,” she said. “Remember there are hundreds of MW in the queue and they are going to use up most of the new cap and leave little room for new development.”

The real issue, Besser said, "is what’s going to happen next when the 3% caps are being hit."

"The bill also authorizes the [DOER] to do another incentive program and can go beyond the SREC program and look at declining block adjustment program or procurement program," she noted.

In a declining block adjustment program, incentives would be mapped out over a period of time and adjusted as the price for solar declines. Lawmakers in Maine are currently debating a similar proposal. 

At least one of the major utilities in the state agrees that a more comprehensive valuation solution is needed.

“National Grid appreciates the effort of the conference committee members and the Legislature to reach a resolution so that we can all move forward with some certainty," a National Grid spokesperson wrote to Utility Dive in an email. "In order to truly address the challenges that have been debated over the last year, National Grid believes the solar community, utilities, business groups and state officials need to come together to develop a sustainable path forward that prevents uncertainty in the future and ends the need for lengthy debates that leave customers and the industry waiting.”

For National Grid, the solution is to reduce “the subsidies our customers in Massachusetts are paying for solar (much higher than in the other states where we operate).” And once that’s done, caps “can be lifted altogether to avoid the stops and starts we have experienced throughout these ongoing debates.”

But simply addressing net metering incentives won't be sufficient to enable sustainable, long-term growth for the solar sector, some stakeholders caution. Adam Wade, an energy lawyer at the Boston-based firm Foley Hoag LLP told Utility Dive some extra supports may be needed to support community solar after net metering incentives for larger-scale distributed installations step down to near the wholesale rate.

“This cap needed to be fixed right now," he said, "and I’d say that it’s unfortunate that time-wise, this notion that paying less is addressed in net metering.”

“I think this bill falls short compared to other states, particularly in on the community solar side,” Wade added. “This bill and the legislation really affects this business model, and I don’t think favoring community solar in an SREC successor will be a sufficient fix. Net metering and retail rate net metering is really enabling community-shared solar.”

His hope is that the DOER will consider “alternative” proposals from “all stakeholders,” when picking out the successor to the SREC program.

For Besser, the answer requires a slow adjustment to compensation for distributed solar owners.

“Even though the cost of solar has come down, it’s not at market level and this additional incentive is needed,” she said. “There are lots of reasons why you need the incentive, and the idea is the design the DOER would put in place for program is one that will step down in time so solar would get same credit that [traditional generation] is getting.”

But even if the current regulators adopt that approach, it’s unlikely Massachusetts will come to some kind of comprehensive net metering reform before the caps are hit again.

“I think that we’re closer [to to a solution] and redesigning the [solar incentive] is a good step,” Besser said. “I think [a] comprehensive net metering reform means we don’t have a cap, and we aren’t there yet.”

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Filed Under: Solar & Renewables Distributed Energy Regulation & Policy