Massachusetts Extends SREC 2 Solar Incentive Program For Now

The Massachusetts Department of Energy Resources (DOER) announced plans to extend its SREC 2 program until a long-term replacement is in place. Massachusetts has been leading the way in solar adoption with a consistent spot among the top ten solar states for the past four years. To support that growth, lawmakers have had to raise the state’s net metering caps several times in the past few years, the last time being almost a year ago in April. In addition, the state has provided incentives to encourage small- and medium-scale solar development. The current solar program, SREC 2, has supported more than 1.6 gigawatts (GW) of solar development, employment for thousands of people, energy savings for solar adopters and a source of revenue for property owners that host solar arrays.

Last September the DOER released an initial proposal for a new solar program to replace the current program and support the adoption of an additional 1.6 GW of solar. Then in January 2017, the department issued what it refers to as its “final” proposal for the successor program, which presents a solar incentive based on a novel tariff that would be designed by the DOER and approved by the Department of Public Utilities (DPU) instead of using SRECs.

The revised proposal largely follows the previous versions except for the addition of an auction mechanism to determine the incentive levels under the program. Check out the DOER’s released PowerPoint presentation for more details on the key features.

While regulators and stakeholders work on finalizing an SREC 2 successor program, extending the current program will ensure that solar development keeps progressing in the state. However, the solar industry is calling for lawmakers to raise net metering caps this session given that the caps have been reached in two utility service territories.

Proposed SREC 2 Successor Program Structure

The new tariff would apply to investor-owned electric distribution companies and be structured in a declining block incentive (DBI). Eligible solar generators would receive guaranteed compensation per kilowatt-hour (kWh) produced. The program would be structured in eight 200 MW blocks, although it appears these blocks will be broken up by utility, meaning that some utilities could have very small blocks. Block 1 compensation levels would be determined by the auction (see below). All large projects qualifying for Block 1 would receive the Block 1 incentive level for 20 years (small projects would receive the tariff for 10 years). Projects qualifying for subsequent blocks will receive a DBI incentive equal to 96% of the previous block (a 4% reduction per step down).

Setting the Incentive Levels

The basic incentive levels will now be set based on an auction administered by the utilities at the start of the new program. While details of the auction are still being worked out, DOER indicates it will be a 100 MW auction in which projects above 1 MW will be eligible to bid for base incentive levels. Based on this auction — which will take place at the earliest in August 2017— DOER will identify two clearing prices: a clearing price for projects between 1 and 2 MW, and a clearing price for projects between 2 and 5 MW.

Any projects not clearing the auction will be placed into the next “block” of the DBI, which will compensate projects at 4% less than the clearing price for the auction. DBI payments for projects qualifying for subsequent blocks will also be reduced by 4% from the previous block.

After the first auction has set a “base incentive rate,” future projects will not be required to bid into an auction. Rather, the program will function as a set-rate DBI, with prices known in advance and with predictable declines in value as additional MW are added. (The next section discusses the block structure.) In addition to setting compensation rates for all > 1 MW projects, the auction will also be used to establish rates for smaller projects. DOER will multiply the 1-2 MW auction clearing incentive level by various percentages to determine the DBI levels for smaller projects, which will be higher than for large projects.

Adder Values

In addition to the base incentive, projects will also be eligible for “adders” for policy-favored projects. These adders are meant to be additive to each other—in other words, a project could receive more than one type of adder. DOER proposes that these adders would also decline over time at 4% per block.

Land Use “Subtractor”

DOER is also proposing to impose a “subtractor” for larger projects constructed on greenfield. Specifically, projects larger than 500 kW constructed on land that is not zoned commercial/industrial or specifically for solar power generation would have compensation reduced by a “subtractor” of $0.001/kWh for every acre impacted. These greenfield projects would still be eligible for adders.

Although Borrego Solar has a number of suggestions for improving the current proposal, we are optimistic that the new program will continue to promote sustainable growth in all segments of the Massachusetts solar market. Borrego Solar is actively participating in the stakeholder process, and looks forward to working with the DOER, the DPU, and stakeholders over the coming months to improve and implement the new program.

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