WSGR ALERT

Massachusetts Announces New Solar Energy Incentive Program Proposal and Deadline Extension Procedures for Existing Program

February 6, 2017

The Massachusetts Department of Energy Resources (DOER) has announced its final proposal for the successor incentive program—named the Solar Massachusetts Renewable Target (SMART)—to the successful Renewable Portfolio Standard Solar Carve-Out II (SREC II) program.

SREC II and its predecessor have played a major role in driving solar energy development in Massachusetts, with annual solar energy installations rising from 23 megawatts (MW AC) in 2010 at the outset of the predecessor program's implementation to 340 MW AC in 2016. The deadline for project eligibility extensions under SREC II, however, passed in January 2017. To maintain the Commonwealth's progress towards its solar energy installation goals, DOER announced not only its SMART proposal (as required by legislation enacted in 2016) but also the availability of deadline extensions under SREC II until SMART is implemented (currently anticipated to occur in January 2018).

SREC II Successor Incentive Proposal: SMART

After publishing a straw proposal in September 2016 and receiving considerable stakeholder comments thereafter, DOER announced its proposed final program design for SMART on January 31, 2017. It is a complex yet thoughtful incentive program proposal aimed at achieving increased solar energy development in specific targeted market segments (e.g., brownfield sites, low-income community solar, and solar-plus-storage facilities).

As currently outlined, SMART will be a 1,600 MW AC declining block incentive program with a gradient of incentive rates depending on system size, varying mechanics for calculating the incentive depending on whether the facility is standalone or behind-the-meter, and a number of adders and subtractors based on project characteristics. The program will be applicable to all electric distribution companies (i.e., public utilities) in Massachusetts. Each distribution company's capacity allotment within a given SMART block will be determined according to the distribution companies' relative distribution load.

Proposed Program Overview

Under the DOER SMART proposal, standalone facilities (i.e., facilities with only parasitic or station load) that are not net metered will receive an all-in compensation rate that is considered to be part incentive and part energy payment. A standalone facility that is net metered will receive only an incentive amount, as determined by subtracting the value of energy from the all-in compensation rate for non-net metered systems. Similarly, behind-the-meter facilities will receive only an incentive amount, as determined by subtracting the three-year average of electricity rates in the applicable rate class from the all-in compensation rate.

For systems with a capacity of greater than 1 MW AC (subject to a maximum project size of 5 MW AC per parcel), the initial all-in compensation rate will be determined via a competitive procurement process for 100 MW AC of capacity, with the rate being set by the auction clearing price. The all-in compensation rate for systems with a capacity of 1 MW AC or less will be equal to a factor of the all-in compensation rate for larger systems, ranging from 110 percent for systems with a capacity greater than 500 kW AC but less than 1 MW to 200 and 230 percent, respectively, for non-low-income customer systems and low-income customer systems with a capacity of less than or equal to 25 kW AC. Whereas systems with a capacity of greater than 25 kW AC will receive the incentive amount for a period of 20 years, systems with a capacity of 25 kW AC or less will receive the incentive amount for only 10 years.

Following the establishment of the all-in compensation rate via competitive procurement for the first SMART block, the all-in compensation rate will be reduced by four percent for each subsequent approximately 200 MW AC block in the 1,600 MW AC program as the capacity available under the preceding block is exhausted. In each block, 20 percent of available capacity will be reserved for systems with a capacity of 25 kW AC or less. Regardless of system size, location, and compensation mechanics, the renewable energy credits (RECs) associated with a facility receiving a SMART incentive must be transferred to the local distribution company during the period of incentive eligibility.

Characteristic Adders and Subtractors

Facilities will also be eligible for certain incentive adders based on project location, offtaker class, and the integration of energy storage. Specifically, projects will be incentivized by location/structure in the following order (from highest incentive to lowest): solar canopy (e.g., parking lot solar canopy), landfill, brownfield, and building-mounted. Offtaker classes will be incentivized in the following order (from highest incentive to lowest): low-income community shared solar, low-income property owner, community shared solar, and public entities. Energy storage integration will be incentivized by a base adder combined with a formula that values higher capacity and longer duration storage.

In terms of project location and land use, SMART provides the following sticks in addition to the carrots above. Greenfield sites will have their base incentive amount reduced by a subtractor unless they are in a commercial and industrial zone and are located on previously developed land. Additionally, projects that are located on permanently protected open space, a wetland resource area, or a historical/archaeological site may not receive any incentive. Last, all ground-mounted systems must comply with certain land-use performance standards in order to qualify for an incentive.

On-Bill Crediting Option: An Alternative to Net Metering

DOER simultaneously announced a proposal for an alternative to—and not replacement of—net metering. The proposed "on-bill crediting option" will involve a set compensation rate for solar facilities that may be allocated to customers as a utility bill credit. The compensation rate will be consistent across facilities and customers, in contrast to net metering arrangements. The proposed mechanism will not have a cap like net metering in Massachusetts and will not be subject to the "single parcel of land" requirement that applies to net metering projects (including virtual/remote net metering projects). The amount of credits allocable to a customer will be limited based on the customer's energy consumption.

Process and Timeline

DOER plans to file emergency regulations establishing the SMART program rules in March 2017. The final program design announced by DOER remains subject to any changes that arise from the internal DOER review process, but DOER will not be accepting public comments prior to filing the proposed emergency regulations. Once the emergency regulations are filed by DOER, they will be subject to public hearing and comment. DOER expects to issue the final SMART regulations in May 2017. The program is not expected to go into effect, however, until January 2018 because of the required distribution company filings and regulatory process with the Massachusetts Department of Public Utilities.

Deadline Extensions Under SREC II

Given that SMART is unlikely to be implemented prior to 2018 (yet the deadline for securing an extension for SREC II eligibility passed in January 2017), DOER additionally announced the availability of further deadline extensions under SREC II that will enable SREC II eligibility at a reduced rate until SMART is implemented. Specifically, DOER will issue SREC II interconnection deadline extensions on a "good cause" basis upon the resubmission by a project owner of an SREC II statement of qualification application. SREC II incentives received under such an extension will be subject to SREC Factors that will be further reduced by 0.1 points from the reductions instituted in 2016, resulting in SREC Factors for Market Sectors A, B, and C of 0.7, 0.6, and 0.55, respectively. DOER has issued draft updates to the SREC II Extension Guideline and SREC Factor Guideline to formalize the SMART transition mechanics. The draft guidelines are subject to public comment through February 17, 2017 at DOER.SREC@state.ma.us. Once the guidelines are finalized, developers may resubmit SREC II statement of qualification applications and submit deadline extension requests to DOER.

If you have any questions about the SMART proposal or securing an extension of SREC II eligibility, please contact Todd Glass (415-947-2071), Sheridan Pauker (415-947-2136), or any member of the energy and infrastructure practice at Wilson Sonsini Goodrich & Rosati.

Tim Cronin contributed to the preparation of this WSGR Alert.