A new bill credit mechanism gives Massachusetts community solar developers valuable certainty about how to structure savings in near-term contracts.
Many critical issues have been resolved on the way to revising Massachusetts’ community solar program, including solar bill credits, metering and incentive payouts.
The program, called the Solar Massachusetts Renewable Target, or SMART, was recently provided certainty through a new bill-crediting mechanism that allows developers to maximize customer savings.
The SMART tariff, the final piece of the successor incentive program spearheaded by the Massachusetts Department of Energy Resources, was approved by state regulators in late September. Quickly thereafter, the DOER announced November 26, 2018 as the official transition date to the new program.
In some ways, the change (Order 17-140-A) creates more questions than it answers — particularly for energy storage. But clarity on community solar bill credits remains an unqualified win stemming from the order.
The promise of the Alternative On-Bill Credit
A new bill-credit mechanism called the Alternative On-Bill Credit (AOBC), outlined and approved in the Mass. Department of Public Utilities’ order, gives community solar developers valuable certainty about how to structure savings in near-term contracts.
Bill-crediting mechanisms for community solar vary widely, by state and by utility. In Massachusetts, community solar has typically been enabled by net energy metering. However, NEM will soon be hobbled due to aggregate net metering limitations that cap solar development, despite advocacy on the part of Massachusetts’ solar industry to raise the cap.
The AOBC enables standalone generators (i.e., community solar) to allocate on-bill credit to multiple offsite customer accounts like net metering. Yet, unlike net metering, the AOBC will be valued at the customer’s basic service rate (i.e., the supply portion of the full retail rate value). Under the utilities’ earlier proposals, such rules would have only been able to offset 40 to 50 percent of a customer’s bill — significantly less than the discount community solar providers have been able to offer to date.
However, in a huge win for the community solar industry, the Department of Public Utilities has chosen not to impose a cap on the number of credits that can be transferred to a single community solar subscriber from a community solar project. In practice, this enables the developer to offer a similar value proposition as would otherwise be available under NEM by “maxing out” the credits to an individual subscriber.
Our recent overview of the order (available to subscribers of our U.S. Distributed Solar Service) notes that the AOBC will prevent what would have otherwise been a serious slowdown in Massachusetts community solar development in 2018 through 2020. Utilities had been pushing for limiting the transfer of credits to 100 percent of customer usage, which would have made it very difficult for developers to pitch attractive savings to customers.
Load zone leapfrog
The AOBC also goes beyond net metering by expanding the pool of available community solar subscribers that developers can serve. It does so by enabling the transfer of bill credits from host customer (i.e., a community solar project) to offtaker (i.e., a retail customer) across different ISO-NE load zones. (Under net metering, bill credits can only be transferred if both parties are in the same load zone.)
This makes it possible for community projects in one load zone — for example, a rural area where it is easier to site projects — to serve customers in a different load zone, such as a more densely populated urban area. This will potentially reduce the cost of subscriber acquisitions.
Little change on energy storage, but DPU pushing for revisions
While the order brings a lot of good news for community solar stakeholders, it may have created more questions than answers for energy storage.
In the order, the DPU is explicit about current SMART rules failing to encourage dispatch at hours of peak demand to meaningfully reduce systemwide transmission and distribution constraints. Further, as noted in the DOER’s State of Charge report, benefits only accrue to ratepayers if storage is deployed intelligently to curb peak demand. Consequently, the DPU has directed utilities to modify the operational requirements of energy storage to respond to market and systemwide price signals.
While current operational requirements remain the same under SMART, it remains an open question what additional parameters could be adopted. New rules that incentivize dispatch during system peak hours could be a benefit for storage developers. However, given DPU comments, it is a fair bet to say that more stringent rules around storage dispatch are likely. This is expected to create some uncertainty for storage developers on longer-term project timelines.
On balance, the results are largely positive for distributed energy in Massachusetts. The rules established for the alternative on-bill credit provide significant upside to our community solar forecasts, while energy storage rules remain mostly unchanged in the order.
As November 26 draws closer, there is still ongoing near-term discussion around potential reforms to operational requirements for energy storage systems and significant revenue streams in the form of capacity ownership rights.
For detailed analysis on the SMART program and more, join Wood Mackenzie Power & Renewables and GTM on October 23rd at our second annual New England Solar and Storage Forum.