New solar plan cuts subsidies in half

New solar plan cuts subsidies in half

Tradeoff for developers is more certainty on revenues

THE BAKER ADMINISTRATION UNVEILED a next-generation solar incentive plan on Tuesday that is expected to cut in half the subsidies paid by the state’s electric ratepayers while giving developers more certainty about how much money they will receive under the program.

The state’s previous solar incentive programs, developed during the administration of former governor Deval Patrick, helped spur the development of 1,600 megawatts of solar capacity in Massachusetts. The state currently ranks fourth in the nation in terms of solar installations and the solar industry employs more than 18,000 people, according to a report issued by the Massachusetts Clean Energy Center.

But as the Baker administration set out to create an incentive program for the next 1,600 megawatts of solar capacity, officials said a top priority was lowering the cost burden for electric ratepayers. The overall cost of solar incentives paid by ratepayers through their electric bills had been running at $400 to $500 million a year (or 40 to 50 cents a kilowatt hour), and the new plan is expected to cut that in half, Baker administration officials said.

“Massachusetts is known to have the most lucrative incentive program in the nation,” said Matthew Beaton, the secretary of energy and environmental affairs. “We needed to address that.”

The cost of solar subsidies has been the focus of intense battles on Beacon Hill between utilities and solar advocates. On Tuesday, after state officials briefed stakeholders on their proposal, reaction was generally positive on both sides. Solar advocates, including Vote Solar, the Solar Energy Industries Association, and the Solar Energy Business Association of New England, issued statements praising the Baker administration’s decision to extend the existing incentive program until the new initiative is in place early next year.

Utilities hailed the effort to rein in the cost of solar subsidies. “We recognize the need for the solar industry and the solar incentives paid for by customers to both be sustainable, and today’s meeting to discuss redesigning the incentives is a step in the right direction toward bringing them more in-line with neighboring states such as Connecticut,” said Michael Durand, a spokesman for Eversource.

Under the current solar program, developers typically tap two types of incentives. One is called a net metering credit, which allows solar power generators to sell electricity into the grid and receive as compensation the retail price of electricity, which for homeowners with solar installations on their roof is roughly 18 cents a kilowatt hour. The other incentive is a solar renewable energy credit, or SREC. Solar developers receive SRECs for the power they generate and then sell them through an auction process. Bidders include companies selling electricity in Massachusetts, who are required to purchase SRECs equal to a percentage of the power they sell. Speculators also buy SRECs in the hope of buying low and selling high.

The problem with the old incentive program was that it didn’t reflect the downward trend in the cost of solar technology. The SREC was also a commodity whose price could rise and fall. That created uncertainty for solar developers, who couldn’t count on a steady flow of income over 10 to 20 years to finance their projects.

Judith Judson, the head of the state’s Division of Energy Resources, said many developers would often sell their rights to future SRECs at a steep discount in order to secure the funds needed to finance their projects.

The Baker administration solar plan cuts the size of the overall subsidy in half, but makes the payout predictable. Under the proposal, developers would receive a flat, fixed-price subsidy for their project that would last 10 or 20 years, with the longer duration reserved for larger projects. The theory is that developers will be able to arrange financing for their projects more easily if they know how much they will receive in subsidies over the life of the project.

The base price of the subsidy for the first 200 megawatts of projects would be set initially through a competitive solicitation run either by the state’s utilities or by a third party company. The base price could be augmented in three ways. Smaller projects that are more expensive to build would receive a premium over the base price. Projects located in preferred spots, such as atop buildings or canopies or spread across brownfields and landfills, would also receive a premium. And projects providing electricity to government entities and low income people would receive a higher subsidy.

A handout provided by the Baker administration showed how the program would work hypothetically with a base price of 15 cents a kilowatt hour. A smaller 250 kilowatt project installed on a canopy and serving low-income customers would receive a total of 34.5 cents a kilowatt hour with the premiums included.

The base price for each subsequent 200 megawatts of projects would be cut 4 percent until the 1,600 megawatt goal is reached.

Under the current solar incentive program, the SREC and the net metering credit are two separate revenue streams. By contrast, the Baker administration proposal sets one fixed-price subsidy; net metering remains, but becomes less important. If the developer receives an overall subsidy of 34.5 cents a kilowatt hour and is paid 18 cents a kilowatt for the energy generated by the project, the net payment under the Baker administration proposal would be 16.5 cents a kilowatt hour.

Beaton said the new program reduces the outlay of electric ratepayers for solar subsidies while providing more funding certainty for developers, which should allow them to more easily arrange financing for their projects. “It kills two birds with one stone,” he said.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Judson plans to issue emergency regulations to speed the implementation of the new solar subsidy plan. She said the state’s utilities will also have to win approval from the Department of Public Utilities for their role. She predicted the new system should be in place by the beginning of next year. In the meantime, Judson said, the administration will extend the existing SREC program but with subsidy levels pared back.

  • Mhmjjj2012

    If the Baker administration’s top priority is lowering the cost burden for electric ratepayers, then how about looking into why in 2015 the most expensive 1% of electricity hours accounted for 8% of electricity costs? And previously, CommonWealth reported New England’s wholesale electric generating market is the “most lucrative” in this country according to Moody’s which means there’ s a lot more to our high electricity costs than solar subsidies.

  • NortheasternEE

    If New England’s wholesale market is the most lucrative, then why are coal and nuclear power plants going out of business? The state and regional mandates for renewable energy is destroying the wholesale market with side deals for subsidized wind and solar. That is why rates are climbing to the sky.

    ISO-NE was set up to provide the most reliable power at the lowest price. It was doing fine until the enactment of the Green Communities Act (2008) and similar legislation in the region since. Now we are faced with the prospect of high rates and unreliable power.

    It’s time for Beacon Hill to stop messing with the grid and let ISO-NE do its job!

    • Mhmjjj2012

      Actually, it’s time to investigate what’s going on with ISO-NE…find out which electricity generators are making the big bucks and why that’s happening….1% of electricity ends up as 8% of the costs. Also, it wouldn’t hurt to look into ISO-NE salaries starting with their $2,000,000 President/Chief Executive Officer. And while whoever seriously examines what’s going on with our electricity…they should start with the state law that made it all possible “AN ACT RELATIVE TO RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY IN THE COMMONWEALTH, REGULATING THE PROVISION OF ELECTRICITY AND OTHER SERVICES, AND PROMOTING ENHANCED CONSUMER PROTECTIONS THEREIN” which was “declared to be an emergency law.” The most recent example of an “emergency” is the legislative pay raises. Yes, the legislative pay raises is an “emergency” so that makes me wonder what went on behind closed doors to come up with the “restructuring” we’re paying for now.

      • NortheasternEE

        Peaking power plants designed to react quickly to changes in the unpredictable variability of load demand, are paid the highest. Each wind turbine and each solar panel generates unpredictable power that increases the need for expensive peaking power.

        Beacon Hill is forcing ISO-NE to increase renewables towards 50% or more. That means the grid will need to retire baseload (coal, nuclear, and efficient natural gas) to be replaced by expensive and inefficient peaking power plants.

        This scenario also calls for very talented grid operators to keep the lights on. One reason why salaries may be on the increase.