Tariff system in the works as tensions build again over solar subsidies

The proposal would replace the expiring solar renewable energy credits program

BOSTON (STATE HOUSE NEWS SERVICE) – Only months after Gov. Charlie Baker signed a solar energy bill into law giving the industry breathing room to continue to grow, major decisions loom over the short-term and long-term strategy for solar growth in Massachusetts, promising to reignite a contentious debate over the future of solar incentives.

Baker’s energy team over the past six months has been putting together a new solar incentive proposal that would replace the expiring solar renewable energy credits (SRECs) program with a declining tariff system that officials believe will be a cheaper and more stable path to foster continued expansion.

The tariff program’s goal would be to double the amount of installed solar power across Massachusetts over the next five to six years by 1,600 megawatts with slowly declining incentives for project of all types, including residential, commercial, low-income and community solar.

Solar advocates believe the system, which has been deployed with success in other states such as California and New York, could work, but stress that the details, including the value of the tariffs, have to be calibrated just right.

The administration is also working under an ambitious timeline, according to industry officials, that would have the new system in place by next summer, and have yet to answer the question of what happens between now and then when the current SREC program expires.

“This kind of step down incentive program has proven successful in a number of other places, principally California. Everyone agrees that the current SREC program has been too expensive for the state and its customers and the plan has always been to reduce incentive levels, but there’s a lot of work to do between now and the sort of contemplated hand-off in January to the DPU, so that’s one concern. Can we close all the open loops that need to be closed?” said Sean Gallagher, vice president of state affairs for the Solar Energy Industries Association.

The Department of Energy Resources published a “straw proposal” in late September, outlining the basic framework of the tariff system, and has been working with stakeholders to fine tune the proposal. The public comment period ended on Friday, and DOER hopes to promulgate emergency regulations over the winter before handing off the tariff approval process to the Department of Public Utilities.

“I think the chances of getting it in place next summer are significantly enhanced if there’s a high amount of consensus of what the department hands off to DPU. If there’s a lot of conflict that’s harder,” Gallagher said.

Under the current system, solar projects qualify for SRECs and customers partner with a broker who sells those credits on an open market to utilities and suppliers. Because the credits are traded as a commodity, they are subject to price fluctuations, creating some uncertainty for developers depending on the credits to finance their solar projects.

The proposed tariffs to be paid by utilities to solar-producing customers would have a set value for the duration of the program, creating a more predictable revenue stream for solar power generators. Those tariffs, which would be structured into eight, 200-megawatt blocks that decline in value by 5 percent for each block, would work in tandem with the net metering program that allows solar producers to sell energy back to the grid.

While regulators are still analyzing the appropriate levels at which to set the tariffs, DOER has proposed add-ons that would increase their value based on location (such as a brownfield) or for low-income and community solar projects.

One senior DOER officials said the reason for moving toward a tariff-based system is to remove the risk associated with market-based credits and provide incentives that are cheaper to the state and more predictable.

Sen. Benjamin Downing, the Pittsfield Democrat and point-man for the Senate on energy issues who will leave the Legislature in January, said the declining tariff model can work, but it will not eliminate the need for another cap lift on net metering at the start of the next session.

“If you have a new incentive and long drawn out fight on the cap, then you’ve got a world that quite frankly doesn’t look all that dissimilar from where we were before,” Downing told the News Service recently.

With the new net metering cap already being hit in some service territories and the SREC program essentially closed to all projects bigger than 25 megawatts and formally ending on Jan. 8, Downing said there is a concern about what happens between January and the start of the tariff program next summer.

“Given that the solar community feels burned by the last go-around there needs to be some trust restored. It’s realistic if they built in a bridge, but if they think they can get away without a cap raise, they’re absolutely wrong,” Downing said, predicting that “the political pressure on the Legislature at the start of next session to revisit that (cap) raise is going to be immense.”

Ben Hellerstein, state director for Environment Massachusetts, said that in addition to the value of the tariffs he has concern about the impact on low-income and community solar development given how tariffs would be considered taxable, while other incentives are considered bill credits not subject to tax.

“We think on the whole it’s pretty good, or at least a decent framework to start from,” Hellerstein said.

Environment Massachusetts was also hoping to see a more aggressive growth strategy. With solar currently representing about 3.5 percent of the state’s energy mix, Hellerstein said his group has proposed a goal of 20 percent by 2025. The tariff program would only get the state to about 7 percent.

One official involved in the development of the solar tariff programs said a goal is to “level the playing field” with the net-metering credit. By making it more feasible for some developers finance projects without net metering credits, industry officials said it could decrease some reliance on net-metering and release some pressure from the seemingly constant legislative battle over caps.

“What’s important is that the economics work altogether to provide satisfactory economics so projects can get financed and built,” Gallagher said.

Downing said that crafting a solar incentive that doesn’t require constant tweaking from Beacon Hill may be an admirable goal, but will require diplomacy.

“From a pure policy point of view, it make sense, yeah. But the solar community will be concerned that DPU is playing on the utilities’ turf and they have a stronger set of cards to play in the Legislature so why should they give that up? So to get them to that place will be tricky,” he said.

Amie O’Hearn, a National Grid spokeswoman, said it supports the path the administration has taken to reduce the cost of subsidies for solar.

“The DOER’s proposal is an important step toward supporting solar growth while reducing what are currently among the highest developer subsidies in the nation. National Grid has long been working toward a long-term, sustainable solar program that unleashes the benefits of solar through more affordable policies that will also provide the solar community with stability,” O’Hearn said in a statement.

The more immediate concern will be what to do come January. SEIA has suggested that the administration either extend the SREC program through the summer or change eligibility to allow more projects to qualify under the expiring SREC program.

“The market is coming to another halt here, or another hitch, and that gap will slow the expansion of solar and the number of jobs created,” Gallagher said.