RPS Goals Challenge Massachusetts Green Power Development

Massachusetts Legislators passed the Electric Industry Restructuring Act in 1997 in part to help spur the development of renewable energy sources in the state. Power utilities were required to show compliance with a renewable portfolio standard (RPS) by 2003, but the State’s Department of Energy Resources (DOER) recently released a report showing that compliance with the RPS isn’t moving as quickly as they hoped it would.

Utilities are working to meet the RPS standards either through renewable energy certificate (REC) contracts or by purchasing power from suppliers that use renewable energy power sources. But renewable energy project growth isn’t equal to the demand yet, so the utilities are having a difficult time meeting the goals set by the state. “We only anticipate this being a problem for the first couple of years,” said David O’Connor, the commissioner of Energy Resources for Massachusetts. The RPS is one of two programs organized under the 1997 Act to keep renewable energy development moving forward. A systems benefit charge (SBC) was also instituted as a per kWH fee, based on a fraction of a cent, on consumers’ utility bills so the funds raised through the charge could go into a Renewable Energy Trust. Funds in the Trust are managed by the Massachusetts Technology Collaborative (MTC), and then go into renewable energy development projects. Depending on the technology used, those projects can often be used by a power utility to meet their RPS goals. Goals set out in the RPS require utilities to meet standards for a renewable energy mix in their energy portfolio. In 2003, utilities were supposed to have a 1 percent mix of renewable energy, 1.5 percent in 2004, 2 percent in 2005, and so on until 2009 when the RPS goals should reach a 4 percent mix. If the goals increase at all after 2009 is at the discretion of the DOER. The DOER 2005 report analyzes the project growth rate from the past two years and predicts “that there will not be enough renewable energy to meet the entire requirement of 1.5 percent of total sales for the calendar year 2004.” And the situation could extend into 2005 as well. That raises an interesting question, according to O’Connor. Will there be enough renewable energy development so that not only Massachusetts can reach its RPS goals, but so Connecticut and Rhode Island can too? Connecticut has an RPS goal of 10 percent by 2010, and Rhode Island is aiming for 16 percent by 2019. Utilities in Massachusetts aren’t restricted to purchasing power produced in state, though it should come from a regional plant. Renewable energy projects for the New England area are going to need to go online in the next few years if there’s going to be enough to go around. Funds for project development in Massachusetts don’t just come from the SBC or the Trust. When utilities don’t meet the RPS requirements they make alternative compliance payments to make up the difference. O’Connor said utilities have to pay compliance payments by July of this year, and he anticipates that $15 million will come in this year to account for non-compliance in 2004. Massachusetts compliance payments are given to the MTC, which then works with the DOER to find renewable energy projects to develop. Unlike the Renewable Energy Trust, funds from compliance payments should go toward projects that will help the State meet its RPS goals. Some states use compliance payments as a way to encourage utilities to build their own renewable energy generation projects. Under the Massachusetts Restructuring Act utilities aren’t in the business of power generation anymore, according to Alan Nogee. They purchase power from suppliers and deliver it to customers, so building plants isn’t an option for them. Nogee is the Energy Program Director at the Boston branch of the Union of Concerned Scientists, which helped to draft the RPS regulations for the state. Utilities pay the compliance payments out of their own budget, and can only recover the costs through a rate increase if the Massachusetts Department of Telecommunications and Energy (DTE) approves a rate adjustment. To get approval, utilities have to show they’ve purchased RECs at the lowest possible cost, which usually means a long-term power purchase contract. Nogee said he doesn’t believe the utilities in the state have gone for long-term contracts, and that’s not helping the development problem. Regulations in the Restructuring Act were meant to protect the consumer from things such as rate increases that could happen as a part of the renewable energy development plan, said Frank Gorke, who is an energy advocate for the Massachusetts Public Interest Research Group (MASSPIRG). The regulations also had the intention of developing actual projects, he said, but too much of the renewable energy growth is accomplished through REC contracts. “The real problem in Massachusetts right now … is that renewable energy projects are not being built fast enough,” Gorke said. One way to solve that is to invest in long-term projects. MASSPIRG believes that developing power plants built to use renewable energy sources will do more to spur growth for renewable energy, and more to keep the established cycle of charges, funding and development moving ahead. So far, the MTC has funded approximately 270 projects through the Trust, according to information on their Web site. Some meet the RPS goals, but it is important to remember that the Trust wasn’t instituted specifically to feed projects into the RPS, said Karlynn Cory, who is a Strategy and Business Development manager at the MTC. Alternative compliance payments from the utilities should help the State meet its RPS goals, according to Fran Cummings, who is the director of Policy for the Trust. The Trust would like to see the funds from the payments go toward REC contracts with projects that are financed through the State’s Green Power Partnership. “I don’t want to suggest that it’s going to be easy (to reach the RPS goals),” O’Connor said. And the DOER expects the renewable energy supply to catch-up with the State’s need by 2007. At this first stage of review for the program there seems to be some scrambling about what the best way to proceed is. But O’Connor said questioning how effective the RPS is before 2007 is premature, and the program needs time to level out before a real progress review can take place.
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