Increasing the Massachusetts RPS: It Makes Economic Sense

In 2016, a small group of energy wonks and climate activists attempted to reconcile Massachusetts legislative energy proposals with the state’s mandated Global Warming Solutions Act (GWSA) targets and the larger, national emission reductions needed to keep warming to 1.5°C or 2°C. This group quickly came to the conclusion that Massachusetts policy proposals were inadequate.

We knew the Renewable Portfolio Standard (RPS) proposals at the time—a 2% increase was considered aggressive—were lacking, but wanted to model the impacts of a large annual RPS increase (i.e. 3% or more) before advocating for it. We wanted to be able to answer the following questions:

  1. Is it feasible within the existing power market structure?
  2. How will it impact utility ratepayers?
  3. What effect will it have on jobs?

We now have our answers. Thanks to modeling performed by Synapse Energy & Sustainable Energy Advantage, we know that aggressively increasing the Massachusetts RPS is not only feasible, but will have a minimal impact on utility bills and a large positive impact on jobs. These organizations modeled the energy, climate and economic effects of various RPS and natural gas price scenarios, ranging from status quo (1% annual Massachusetts increase) to increasing the MA RPS by 3% each year along with a 1.5% increase to Connecticut’s RPS (roughly equivalent to increasing the MA RPS by 3.75% alone).

The analysis revealed that there are no economic barriers to increasing the RPS. Any barriers remaining are purely political.

Utility bill impacts
Modeling of different RPS scenarios revealed only modest electricity bill increases for residential customers. The most aggressive scenario modeled (3% MA RPS with 1.5% for CT) resulted in an average monthly bill increase of only $2.17 between 2018 and 2030. Although the modeling focused on residential costs, the authors of the study expect that industrial and commercial customers “would see similarly small bill impacts to those described for residential customers.”

How does a Massachusetts RPS increase affect prices specifically?

As the RPS increases, we see a lowering of wholesale market prices. Renewable energy systems displace higher-cost generators when renewable systems are able to produce electricity. This leads to greater utilization of low-cost resources and lower average wholesale prices.

Modeling revealed no significant impact on capacity prices (the price paid to generators to maintain future dispatchable electricity capacity) through 2030 even with an annual MA RPS increase of 3%.

The modest utility bill increases we see in the 3% MA RPS scenario come from the cost of purchasing RECs (which will increase in price with increased demand) along with additional transmission and distribution costs associated with higher levels of renewable generation. These costs are partially offset by the reduction in wholesale prices, but the net result is a small increase in average monthly electricity bills.

Protection from rising natural gas prices
Increasing the RPS can protect Massachusetts residents from future volatility in natural gas prices. Massachusetts has become overreliant on natural gas, which is the primary driver of the price we pay for electricity. According to the Energy Information Administration (EIA), 66% of our electricity was generated by natural gas in 2016. Modeling shows that if gas prices rise significantly as some expect, increasing the RPS substantially could save New England consumers up to $2.1 billion in wholesale costs between 2018 and 2030.

Per the EIA, natural gas prices are likely to rise due to production expansion into more expensive areas combined with increases in liquefied natural gas (LNG) and petrochemical exports. These exports will decrease the domestic supply of natural gas, forcing prices upward. Trump administration actions may also increase demand. These include withdrawal from the Paris Climate Accord, promoting pipeline expansion efforts that increase exports, and removing regulatory barriers to LNG exports.

Natural gas prices will almost certainly rise in the future, but an aggressive shift to renewable energy can minimize the effect on electricity prices.

Impact on jobs
Modeling of a 3% MA RPS reveals a net positive impact on jobs, with higher RPS increases resulting in more jobs in the region. In the years between 2018 and 2030, we find a net increase (accounting for job losses in the fossil fuel industry) of 18,000 jobs from a 2% MA RPS increase combined with a 1.5% increase in CT, and 33,400 jobs with a 3% MA increase combined with a 1.5% CT increase. A more aggressive RPS means more jobs.

RPS_jobsNet job gains from various RPS increase and natural gas price scenarios

We also find from the analysis that maintaining the current 1% annual MA RPS increase or even moving to a 2% increase without a change to the Connecticut RPS will not boost jobs. The required procurement of 1,600 megawatts of offshore wind in the 2016 Energy Diversity Act will shift the market, resulting in the supply of renewable energy (as measured in RECs) outpacing demand. The RPS is meant to drive renewable energy development, but the Massachusetts RPS will simply perform backfill duties unless it’s strengthened.

Massachusetts has done an admirable job of promoting renewable energy growth, yet we are still behind in meeting our climate climate goals. Wind procurement mandates in the Energy Diversity Act will help, but a significant RPS increase is needed to further promote renewable energy growth in the state and region. All of our electricity must be generated from carbon-free sources in the not-too-distant future if we have any hope of limiting warming to 1.5C or 2C.

Fortunately, we have evidence that significantly increasing the RPS will provide two critical economic benefits with minimal cost to ratepayers:

Risk reduction/price stabilization: a large RPS can protect electricity ratepayers from rising natural gas prices and help stabilize volatile electricity rates associated with our dependence on natural gas. The wind and sun are free, while natural gas prices fluctuate with supply, demand, politics and policy.

Jobs: increasing the RPS will result in a net increase in regional jobs, with more jobs associated with greater rates of RPS growth.

Massachusetts can hedge against the risk of rising natural gas prices, reduce emissions and create jobs by aggressively increasing the RPS—all with little cost to ratepayers. This is a policy decision that’s good for business, good for citizens and good for the state.

Strange Days

These are strange days in Massachusetts. A state known for its environmental leadership, we now argue over solar caps and net-metering rates while solar projects are shuttered or put on hold. We debate the merits of forcing electricity ratepayers (you and me) to pay $8 billion to construct natural gas pipelines, while new research from Harvard suggests the U.S. is responsible for a huge spike in global Methane emissions—with fracking the likely culprit. We consider the environmental and economic impacts of importing hydro electricity from Canada, while our own offshore wind resources —labeled the “Saudi Arabia of wind”—remain unutilized.

It appears some state policy proposals are based on economics that ignore or don’t properly weigh social or environmental costs, benefits and limits. There’s a continued focus on near-term concerns, while the long-term consequences of policy action (or inaction) are overlooked or discounted. We need to move beyond the short-term, beyond narrowly focused financial considerations.

There is hope. Many political leaders in the state want energy legislation that will benefit the commonwealth and fight climate change. We see this in the letter signed by 100 State Representatives advocating for a balanced, sensible approach to solar legislation: fair net-metering compensation, subsidy reform via the SREC program and grandfathering of existing systems.

This is good news. Let’s hope more Massachusetts political leaders act on their own beliefs, and not those of the utilities and fossil fuel industry.

Author’s note: This post is based on a letter I wrote for the Massachusetts Sierra Club as chair of the Greater Boston Group.

Running From the Sun in Massachusetts?

We’re at a critical juncture in the development of solar as a source of clean energy for the commonwealth. 2015 saw the introduction of four different solar bills to the Massachusetts legislature, each intended to expand the existing net-metering cap (of approximately 1,000 MW) and/or restructure the method by which distributed solar generators are reimbursed for the energy they send to the grid.

Each of these bills has a different emphasis, ranging from simply expanding the cap and keeping net-metering compensation the same (basically at retail rates—the rates we pay on our utility bills), to expanding the cap while imposing minimum bills and slashing net-metering reimbursement to average wholesale rates (the rates utilities pay for the energy generated by power plants). According to National Grid, moving to wholesale rates would drop net-metering compensation from about 19 cents per kWh to 4 cents, a 79% reduction in compensation.

What’s the problem?

This depends on your perspective—which itself is part of the problem. The one concrete issue that all parties (appear) to agree on is the need to expand the current net-metering cap. The cap has already been reached in National Grid territory and there’s no clear consensus on what to do about it. This is limiting new investment in solar projects, which in turn has a negative impact on jobs, carbon emissions and energy production. Although the issue is extremely complex, there is one dynamic underlying all the consternation: Solar installations in Massachusetts are growing exponentially.

The incentives intended to spur growth of the solar industry have worked—solar capacity in Massachusetts has grown over 89% per year (on average) over the last 5 years. This is alarming utilities, which see this growth as a threat to their stable and profitable business model. The state had 841 MW of installed solar capacity as of May of 2015, growing rapidly from a paltry 41 MW in 2010. If we assume 20% annual growth going forward, the state will reach its goal of 1,600 MW of installed solar capacity by the end of 2018—well ahead of the current 2020 target.

Mass_Solar_20percent_growth_v2Massachusetts Solar capacity projections assuming 20% annual growth from 2016 to 2020.

Of course if the cap is not lifted, growth will stop completely. That’s unacceptable from a climate perspective—we need just this type of growth in renewable energy generation to have any hope of avoiding catastrophic climate change.

And the real problem isn’t growth, it’s the uncertainty that comes with rapid growth or change. Can the grid handle significant distributed generation? Who will pay for necessary grid enhancements? Will storage allow us to use solar energy more effectively in the future? What will happen to electricity rates for non-solar ratepayers?

These uncertainties point to the need for a better understanding of the value of solar and the costs of using the grid over time. Solar generators do not currently pay distribution charges for grid use, which is an understandable concern for utility companies given the rates of growth we are seeing. A comprehensive and public study should be conducted in order to determine the true value of solar, which is dynamic and will change over time as solar capacity increases.

The uncertainties associated with rapid solar growth have generated a knee-jerk reaction from utilities: kill the growth. Utility companies in Massachusetts see solar as a threat rather than an opportunity (apparently they fear change as much as the rest of us), and have decided that the way to address the threat is to smother its growth. And it’s not just Massachusetts; we’re seeing similar activity to slow or stop solar growth in many different states. This national attack on solar net-metering has been initiated by utility companies and fossil fuel interests that see renewable energy as a threat to their profits and business.

Solar growth is good for the citizens of Massachusetts, the climate, and ultimately the utility companies (although they may not see this yet). Several studies show that solar provides benefits to both the electric grid and society that far exceed the retail net-metering rates received today. However, utility companies will need to be compensated for the grid services they provide to distributed solar generators if this growth continues. And the growth should continue, just not forever. It’s not physically possible or economically practical to maintain these growth rates indefinitely, and eventually the value of adding solar to the grid will decline as solar penetration increases. Fortunately we’re a long way from having to worry about an overabundance of solar on the grid.

Any legislation enacted must expand (or better yet remove) the net-metering cap and continue to compensate and incentivize solar adequately. Let’s hope that solar advocates and the utility companies can come to an agreement that will prevent the collapse of the solar industry in the state. Moving to a wholesale rate without grandfathering existing systems is killing solar in Nevada, where solar companies are leaving the state in droves after a change to wholesale net-metering compensation.

Mass_Solar_5percent_growth_v2The “Nevada” Scenario: Massachusetts solar capacity projections assuming 5% annual growth from 2016.

We should thank Nevada regulators for showing us what will happen if we drastically reduce net-metering compensation in Massachusetts, and it’s clear we don’t want to follow Nevada’s lead if we hope to meet the greenhouse gas reduction requirements of the Global Warming Solutions Act. We’re at a key decision point for the state: do we want carbon-free solar to become a central component of our future electricity system, or do we want to extend our reliance on the fossil fuels that scientists tell us we must stop consuming?

Author’s note: The graphs in this post were updated on January 29th 2016 to reflect better estimates of 2015 solar installation data and a 20% growth rate.