United States: Massachusetts Department Of Energy Resources Submits Feasibility Study On Proposed Regulations Governing Renewable Energy Credit Imports

The Massachusetts Department of Energy Resources signals proposed changes to regulations governing Massachusetts Renewable Energy Credits.

On October 31, 2008, the Massachusetts Department of Energy Resources (DOER) issued a study examining proposed changes to regulations governing Massachusetts renewable energy credits (REC). RECs are tradable certificates that demonstrate that one megawatt-hour of electricity was generated from an eligible renewable energy resource. RECs are used by entities to demonstrate compliance with Massachusetts Renewable Portfolio Standards (RPS) and are sold separately from the electricity generated by the renewable resource. The DOER intends to revise its regulations to prohibit any resource that receives RECs to participate in any capacity markets other than New England's capacity market. Further, new "non-intermittent" generators with a capacity factor of 50 percent or greater will be required to participate in New England's capacity market. Finally, the DOER will require entities to self-attest that they will not engage in "greenwashing," a practice that results in parties receiving the economic subsidies designed to encourage the production of renewable energy even when those parties do not ultimately produce a net gain of such energy.

Under the Chapter 169 of the Acts of 2008 (Green Communities Act or GCA), which Governor Deval Patrick signed into law on July 2, 2008, the DOER possesses the authority to promulgate regulations to increase the number of installations of renewable and alternative energy generating sources. Section 105 of the GCA directed the DOER to assess whether implementing two of its subsections would prove viable. Subsection (c) would require an external renewable energy generator to be a "committed capacity resource" for the "applicable annual period" in order to receive RECs for the renewable energy delivered into the New England control area. Subsection (e) would require that the DOER "net" any RECs issued for that renewable power sold into Massachusetts. In other words, the DOER would have to take into account the degree to which the entity seeking RPS credit, its affiliates or its contracted parties have offset the gains to the state in clean power resources by exporting non-green energy from the state. The legislature intended this subsection to prevent the practice of "greenwashing" or "roundripping."

Although the DOER concluded in its study that implementing the current draft of Section 105 would not prove feasible, it nevertheless found that modest changes to the RPS regulations would allow for the regulations to meet the legislative intent behind the proposed subsections.

The DOER interpreted Subsection (c) to require external renewable energy generators to participate in the ISO-NE Forward Capacity Market (FCM). The FCM is a physical rather than financial market that employs auctions to incentivize investment in new capacity. ISO-NE creates three year models of anticipated regional energy needs and requires electrical generators to submit bids for how much electricity they will produce at different market rates. It also determines the ultimate market rate. In its study, the DOER determined that it was not feasible to require intermittent resources such as wind, solar, run of the river hydro and other renewable resources that lack a means for controlling their net energy output, to make capacity commitments in the FCM for several reasons. First, it found that the ISO-NE regulations would disqualify intermittent resources—but not internal intermittent resources—from participating in the FCM if they did not meet availability thresholds. Second, it found that physical limitations exist that preclude capacity commitments based on availability at transfer points known as tie lines. The DOER concluded that requiring external intermittent resources to commit capacity in the FCM would both increase problems on the ties and decrease the reliability of the electric power system. Subsection (c), DOER ultimately concluded, would lead to less predictable intermittent import resources reserving valuable space on the ties to the detriment of more consistent non-intermittent resources.

The DOER also found that the netting provision, Subsection (e), would prove impossible to implement. First, it noted that it lacked the data to net transactions across affiliates and contracted parties. Second, it observed that ISO-NE lacks the legal authority to demand from its participants information about their contractual relationships. Since the data that is available would allow the DOER only to track and net exports for the transactions performed by the person requesting the REC, the DOER concluded that participants could avoid the proposed policing mechanism merely by creating affiliate relationships that would make it impossible for the DOER to enforce the netting provision.

Consequently, the DOER intends to revise its regulations to accomplish three objectives. First, it intends to prohibit resources that receive Massachusetts RECs from participating in any other capacity markets outside of New England. Second, it intends to maintain the capacity and reliability of the electric system by creating a two-tier regulatory scheme for new non-intermittent generators. The DOER believes that the new regulations ought to require non-intermittent generators that have a capacity factor of more than 50 percent to commit their capacity through the FCM as a prerequisite for receiving RECs. The DOER will therefore require non-intermittent generators that meet the 50 percent capacity threshold to clear the next available FCA and will make renewable energy sold into ISO-NE during that capacity commitment eligible for RECs. The regulations will not require entities with a smaller capacity factor to commit capacity because the DOER deems these types of resources as primarily energy rather than capacity resources. Third, the DOER intends to prevent roundtripping and provide a means to punish market participants engaging in this behavior by requiring parties to self-attest that they will not participate in greenwashing themselves or through any affiliate or other contracted party.

The DOER has suggested that operators of non-intermittent resources should submit a "Show of Interest" form by July 14, 2009, for the next available FCA open to new resources. In its study, DOER has signaled that it intends to maintain the eligibility of those generators participating in the RPS program under the existing rules if they have submitted a Statement of Qualification prior to July 2, 2008. Furthermore, RPS participants should note that the DOER intends to apply its requirements to generators applying for Massachusetts RECs, irrespective of whether these generators are internal or external resources. Finally, participants should be aware that DOER will likely require them to make self-attestations that they will not engage in "greenwashing" or "roundripping," which may create new legal duties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.