What Massachusetts can learn from New York’s solar experience

Utility profit incentive in MA not fully aligned with public interest

Over the past several years, Massachusetts has been able to deploy more than 1000 megawatts of solar capacity. This remarkable success is due to an interrelated set of policies that made solar an attractive investment for customers and a viable business opportunity for developers to invest and hire in the Commonwealth. These policies are now under the microscope on Beacon Hill as lawmakers seek to develop a balanced approach that promotes continuing solar development while accounting for declining technology costs and reduced need for bonus incentives. In this context, it is instructive to revisit the logic of existing Massachusetts policies and to look to approaches taken by other states.

By implementing “decoupling” in the late 2000s, regulators replaced the incentive of Massachusetts utilities to maximize energy sales with the ability to earn an appropriate return independent of how much energy customers consume. As National Grid notes in its March 24 piece Utilities aren’t afraid of solar, decoupling helped enable Massachusetts’ utilities to become national leaders on energy efficiency. Acadia Center has long supported utilities in helping consumers wring waste out of the energy system, as improving efficiency in the use of power is the lowest cost and most effective means of meeting our energy needs while reducing climate pollution. Removing the direct incentive to increase sales was an important step toward an energy system focused on customer-side solutions, but decoupling alone does not align the profit incentive of utilities with the public interest. At present, utilities earn money on distribution and transmission infrastructure that they build and maintain (and they could potentially earn more on gas pipelines). With a fiduciary responsibility to shareholders to maximize profits, this incentive structure creates a bias against resources like solar that can be used to meet peak energy demands and avoid the need for more infrastructure.

In order to counter remaining disincentives to invest in energy efficiency, Acadia Center supported a complement to decoupling that provides shareholder incentives when utilities hit energy efficiency targets.  Similar incentives do not yet exist to reward utilities for integrating solar, or for strategically utilizing solar to offset peak power demands that utilities use to justify building, and earning profits on, additional infrastructure. This is where precedent from New York – which National Grid cites as a more balanced solar market – is instructive. In sweeping reforms underway in New York, the financial incentives of utilities will be tied to performance metrics, including reducing peak demand and integrating solar and other distributed resources.

On solar-specific policy, New York, like Massachusetts, provides two primary mechanisms to compensate solar generators for the energy they produce.  The first is net metering, which spins the meter backwards for each unit of electricity fed into the grid, effectively crediting surplus power at the full retail rate. In Massachusetts the statutory cap on net metering eligibility is holding back development, while in New York caps on net metering have been eliminated. New York has also adopted full retail rate net metering for community solar projects serving customers who cannot install solar on their own roofs.

New York and Massachusetts both offer additional incentives to jump-start solar development. In New York the incentive is lower, and this is the principal reason for lower solar costs there.  In Massachusetts incentive started much higher but have been declining. With the industry’s maturation, Massachusetts incentives can and should continue to decline.  This is one of the core tenants of the Next Generation Solar Framework, a policy proposal endorsed by 67 organizations spanning business, labor, low income, environmental, and clean energy organizations, and which Acadia Center proposed to National Grid and Eversource last summer.

In addition, New York is developing an approach to value solar and other distributed resources based on their location and other attributes. This would allow projects developed in constrained regions of the grid to be credited for avoiding more expensive system upgrades, and solar panels oriented toward the west would receive greater value for generating power when needed to meet peak demand during hot summer afternoons.  Overall, the approach would guide the market to develop projects that provide the greatest value to the grid and society as a whole.

Acadia Center would welcome a valuation-based solar compensation, but thus far policymakers in Massachusetts have shown little appetite for this type of policy.  With action needed in the near-term to address the impasse on solar, legislators should take the next-best approach of lifting the net metering caps, preserving retail-rate net metering for key project types – residential rooftop, community, low-income, and municipal projects – and enabling the Baker Administration to implement a more cost-effective incentive program already under development.

Peter Shattuck is Massachusetts director and Mark LeBel is staff attorney at Acadia Center, a nonprofit research and advocacy organization committed to advancing the clean energy future.