Commonwealth Edison, the power provider for Chicago, has long talked about becoming the utility of the future. How it and Illinois power players implement last year’s sweeping energy reform could go a long way to realizing that goal.
ComEd helped design the Future Energy Jobs Act (FEJA), which includes supports for in-state nuclear plants and renewable energy. The law’s backers say it could boost Illinois solar capacity from 74 MW to 3,000 MW by 2030 and add 1,350 MW of wind to the state's 2016 total of 4,026 MW.
“The three pillars for ComEd were renewables, energy efficiency, and zero emissions credits for nuclear plants because we know customers want something different from their utilities,” said Scott Vogt, ComEd vice president for energy acquisition.
Resource supports aside, ComEd and other stakeholders say the most significant changes in the law involve utility revenues — particularly how they can make money from solar and energy efficiency investments.
“With this bill, we can invest in community solar or energy efficiency or poles and wires and have the same value stream,” Vogt said. “That changes our business model to a poles and wires company that offers services and facilitates solar and energy efficiency.”
The FEJA allocates $140 million per year for the purchase of renewable energy credits (RECs) to support new solar and wind projects, according to to a recent report from the Smart Electric Power Alliance (SEPA) and ScottMadden, “DERs Are Coming and Illinois Is Ready for Them.”
More importantly, the law allows utilities to treat rebates to rooftop and community solar owners and for energy efficiency expenditures as “virtual regulatory assets,” SEPA reported. The expenditures can be rate-based and earn guaranteed return, potentially allowing them to displace traditional utility investments in grid and generation infrastructure.
The act’s comprehensive community solar framework also provides front-loaded REC contracts for subscribers that, along with the rate based rebates, could drive a community solar boom in Illinois.
Bradley Klein, a senior attorney at the Environmental Law and Policy Center (ELPC), participated in the FEJA proceedings and negotiations. After stakeholders negotiated a net energy metering (NEM) successor tariff, ComEd “worked closely with the community solar industry to prepare the law for implementation.”
Vogt said the Illinois law will make community solar “different than it has been in other places,” but “there is nothing that will prevent our program from being a success.”
Just how successful the programs will be, stakeholders say, will depend on decisions coming in the next few weeks from the Illinois Power Agency (IPA).
FEJA solar provisions
The FEJA was the product of two hotly-contested policy discussions in Illinois — fixes to the 25%-by-2025 renewable portfolio standard and subsidies for in-state nuclear plants.
Clean Energy Coalition (CEC) Policy Director Tom Hunt said ComEd executives reached out to community solar developers as early as 2015 to begin discussions on shared renewables.
“In 2016, a broad and frank dialogue between developers and ComEd led to the legislation’s community solar policy.” The utility saw community solar as “the right way to do solar,” Hunt added.
After negotiations eliminated a ComEd proposal for residential demand charges, stakeholders agreed on the renewables incentives, an extension of the state’s performance-based incentives for energy efficiency, and on a roadmap to a net metering successor tariff.
Under the successor tariff, remuneration to distributed generation owners and community solar subscribers will be at an IPA-set tariff rate, rather than the retail rate of electricity. The tariff will apply only to the energy portion of customer rates.
The law orders the IPA to create an adjustable block program for distributed generation similar to those in New York and California, according to an ELPC fact sheet. Through it, a tariff price will be set for an initial quantity of installed capacity and then adjusted downward as installed volume increases. The tariff adjustments will be transparent and predictable, coming at predetermined levels of installed capacity.
The block program must provide at least 50% of the 3,000 MW of new solar RECs and half of those must come from community solar, ELPC reported. The front-loaded 15-year REC contract will pay one-fifth of the full 15-year production value yearly over the first five years of the contract.
Rebates will continue to go to customers who install energy efficiency measures. A new $250/kW rebate will go to developers of community solar and installers of distributed generation. When renewables reach 3% penetration in the state, the Illinois Commerce Commission (ICC) is required to initiate a proceeding to set a new rebate value to be imposed when penetration reaches 5%.
The new rebate is to be based on the value of distributed generation to the grid and include geographic, time-based, and performance-based benefits.
ComEd’s Vogt sees the law and its rate-based rebates as the beginning of a new utility business model and a big opportunity for community solar. The previous Illinois statute offered “optional virtual NEM but the mechanics weren’t there to support community solar,” he said.
The new law “changes the dynamic so we can support community solar,” Vogt said. “That was a focal point for us in the legislation.” Under the FEJA, “any community solar project that is approved can access customers.”
Other Illinois utilities, Ameren and MidAmerican Energy, did not respond to requests to discuss the FEJA. ELPC’s Klein said they did not play significant roles in the negotiations.
ComEd initially opposed FEJA, Klein recalled, but its stance shifted after “really tough” negotiations replaced the utility’s demand charge proposal with the rate-based rebates for distributed energy.
"Then, ComEd worked well with clean energy advocates and the solar industry,” Klein said.
Kevin Borgia, Midwest Policy Director for leading community solar developer Cypress Creek, said ComEd "seems dedicated to putting together an effective program.”
ComEd “might have resisted community solar in policy debates but they were also putting a lot of time in learning about it,” said CEC’s Hunt. He suggested the utility’s position in the FEJA negotiations might have shifted as its leadership came to understand community solar’s benefits.
ComEd’s biggest contribution was after the law passed, in work on how to manage bill credits and streamline interconnections, Hunt said. In one meeting, “utility executives and developers spent half a day on bill credit mechanics too detailed to write into a law but really important for growth.”
The utility accepted developer recommendations to use monthly bill credits and a transparent electronic portal for usage data, Hunt said. Developers accepted a complicated ComEd method for calculating bill credits necessitated by its customers’ use of retail electricity suppliers.
ComEd’s interest in altering its traditional business model dates back to 2014, Vogt said.
“We wanted to serve our customers in a way that did not hurt our business,” he said. “That was a core tenant of our approach to the legislation and to the community solar piece.”
During 2016, ComEd was caught between two legislative proposals. Exelon, its corporate parent and operator of nuclear plants in the state, “was looking at the economic stress renewables put on nuclear plants and pushing for ZECs,” Vogt said. The company has long argued production subsidies for wind energy unfairly disadvantage its inflexible nuclear generation in wholesale markets.
Meanwhile, renewables advocates aligned with the Illinois Clean Jobs Coalition “wanted revisions to the RPS that would better serve renewables and energy efficiency,” Vogt said.
ComEd backed a "bridge" proposal that became FEJA. The rate-based rebates and net metering successor tariff initiates a utility business model transformation, Vogt said. “Now we can spend a dollar on efficiency or distributed generation or a dollar on a pole or a transformer and see the same return.
The new incentives were the direct result of First Solar Sr. Director for Utilities Eran Maher and CEC’s Hunt pointing out to Vogt that ComEd had not recognized the value of solar to the grid.
The new incentives were the product of clean energy advocates convincing ComEd that it had not recognized the value of solar to the grid.
“The ah-ha moment was when we realized we could give up-front rebates to solar customers for the value they provide instead of kWh credits,” Vogt said. “That makes solar's value to the grid a commodity.”
ComEd then realized that value varies by when and where the kWh are provided to the grid. Locational and temporal values will be determined in ICC-led tariff and rebate calculation methodology proceedings as Illinois renewables grow from a 3% penetration to a 5% penetration.
But the current tariff and $250/kW interim rebate already offer ComEd system planners a new perspective on utility investments, Vogt said. “With values set by the new calculation methodologies, we will be able to compare, with an indifferent point of view, the value of a solar owner’s asset at a specific location with a utility infrastructure investment.”
ELPC’s Klein said New York and California efforts show how it will be "a big lift" to set locational and temporal values for distributed generation. With the FEJA incentives expected to drive rapid renewables growth, regulators, advocates, utilities, and the solar industry need to make developing a workable methodology a priority, he said.
The IPA’s draft Long-Term Renewable Resources Procurement Plan (LTRRPP) is due September 29. It will guide wind and solar procurements for 2018 and beyond and include the block tariff program for small-scale solar. Initial filings are in, and ComEd, Ameren Illinois, and MidAmerican have also filed administrative documents on proposed tariffs.
Cypress Creek’s Borgia said the structure of the FEJA’s community solar value proposition “looks workable” and the primary drivers set by the legislation “look solid.” The law codifies the basics of the program and the details will be worked out through the IPA proceeding, Klein said, with the LTRRPP going to regulators for final approval in spring 2018.
In its filing, Ameren Illinois urged the IPA to focus on consumer protections for tax disclosures, dispute resolution, and developer abuses. It also raised questions about co-locating projects at interconnection sites.
The Illinois Attorney General’s filing listed concerns about contract specificity that “will require additional disclosures.”
ComEd’s filing argued against trying “to ensure that every type, size, facility location, and customer is allocated a portion of the available LTRRPP funding.” That “would undoubtedly add complexity and administrative costs” and reduce “funds that can be used to procure clean energy.”
Both Klein and Hunt said a key remaining issue is how to guarantee subscriber diversity. “The law requires ‘robust participation’ but is not more specific,” Klein said.
“We think it means homeowners, renters, small businesses, and low-income subscribers as well as large business and institutional anchor subscribers,” he added. It also means “different kinds of business models and different sized projects.”
CEC’s Hunt said developers disagree about whether projects should be required to include residential subscribers. To CEC, not having smaller customers “is not the definition of community and against the legislation's stated intent,” he said. “There should be opportunity for anchor subscribers but they can’t be the whole project.”
ComEd’s Vogt said a proposed solution is to value RECs for residential customers differently that those for other customers. But ComEd’s concern, he said, is "to not advantage either rooftop or community solar. Community solar already has a cost advantage.”
Laurel Passera, policy lead with the Coalition for Community Solar Access (CCSA), agreed with Hunt and Klein that diversity is vital. She also described three key concerns in CCSA comments to the IPA about the LTRRPP.
First, developers “need to know how every step of the process works and what is coming down the road,” Passera emailed. Second, program design must avoid complexities that “hinder the market,” she wrote. A program with “carveouts for every possible type of project” makes scaling a business too difficult.
Finally, developers need certainty because ambiguities impose risk and “make it difficult to secure project financing,” Passera said.
Vogt acknowledged the new law faces challenges because its provisions “convey the community solar value proposition very differently than in other programs.” But the upfront rebate and the front-loaded REC contract should drive significant growth “even though we have supply-only netting,” he said.
It will make for a program, he added, that allows for “many flavors of community solar.”