Massachusetts Gov. Charlie Baker’s administration has finalized a major rule for promoting clean energy during the most expensive hours of electricity production.
On Friday, the state’s Department of Energy Resources filed its Clean Peak Standard regulations with the appropriate committees at the state legislature, kicking off a 30-day review period. It is expected to take effect in June.
The Clean Peak Standard, called for in legislation passed in 2018, creates credits for clean energy delivered during time windows identified as peak hours for a given season. Utilities in the state must obtain clean peak credits equal to a percentage of total electricity delivered in the year, starting at 1.5 percent in 2020 and growing annually.
Other states have discussed such measures — the concept first emerged in a proposal for Arizona’s clean energy transformation — but Massachusetts will be the first one to put it into effect. The goal is to create a price signal to shift clean power to the hours it’s most valuable for the grid. Since renewables do not produce on demand, this creates an opportunity for energy storage technologies such as batteries, which store electricity for use when desired.
After incurring short-term costs to get the program up and running, the state expects the Clean Peak policy will save $400 million over the coming decade.
“This is a core centerpiece of our efforts to incorporate storage into our clean energy policies,” said DOER Commissioner Patrick Woodcock. “It provides that signal to chase that real-time peak and chase the seasonal peaks that really contribute to high costs for ratepayers.”
Clean energy when it’s needed most
Massachusetts, like many other states, has used a renewable portfolio standard to encourage the growth of local wind and solar resources. These programs, which require a share of annual generation to come from renewables, have been successful at getting renewables on the grid, but they lack temporal sophistication.
“The kilowatt-hour you produce in May on a sunny day when demand is low is the same value you create during a winter cold snap,” Woodcock said of the RPS market.
Power markets operate in real time, however. Clean energy policies that ignore that end up with situations like California’s “duck curve,” in which solar depresses power demand during sunny hours, then forces a steep ramp of gas generation when the sun goes down.
This dynamic has led to the continued need for fossil generation or other dispatchable resources to maintain a balance between energy supply and demand, even as renewables expand. It also drives cost, by forcing capacity build-out, raising wholesale prices and enlarging transmission needs. In Massachusetts, Woodcock said, the most expensive 10 percent of hours drives 80 percent of the system costs for customers.
Specifically targeting those hours can maximize benefits for ratepayers, he added.
At the same time, the Clean Peak clears a runway for the gigawatts of new renewables the state anticipates in the coming decade, Woodcock said. When large amounts of solar show up at the same time, it deflates value and leads to curtailment, as seen in California and Hawaii. Incentivizing clean peak capacity gives developers a reason to build the tools to shift renewables from times of surplus to times of scarcity.
Designing such a policy requires tradeoffs between ease of use and complexity. DOER picked four-hour windows to designate as peaks for the purpose of awarding credits. But real peaks hit at different times from day to day, bringing price spikes for the system. To reward nimble operators, any facility that delivers clean power during the actual system peak hour of a given month will earn 25 times the number of credits.
That requires advanced software to predict when a peak may arrive, but numerous storage providers already offer that.
The price signal applies to batteries large and small. Vermont utility Green Mountain Power showed the efficacy of calling up hundreds of small residential batteries in anticipation of system peaks; it saved nearly a million dollars for its customers by discharging during the right hour last summer.
“You want to have policies that become dynamic and reflect real-time system needs,” Woodcock said.
Speaking of dynamism, the state plans to monitor and adjust the workings of the Clean Peak as the grid evolves.
“The last thing you want to do is have a Clean Peak Standard that is not reflective of the actual peak,” Woodcock said. “We’ll continue to revise this as our demand for electricity evolves with further electrification.”
The policy generally inspires excitement among storage policy wonks, though it did provoke an academic study critiquing its efficacy earlier this year.
Researchers who conducted that study modeled how the policy would guide energy storage operations in the New England grid during 2018 and 2019. They found it did little to reduce emissions from operations compared to storage that simply followed wholesale market signals. Displacing high-emission power production with low-emission production requires a clearer differential between peak-hour emissions and off-peak emissions than existed during that study period. (For a more detailed account of the study, see this analysis on GTM Squared.)
But Massachusetts designed the policy to serve more policy objectives than lowering carbon emissions from storage operations; besides incentivizing flexible clean capacity, it tackles system costs and even includes a boost for systems that provide resilience.
To earn the “Clean” in its title, though, the rule will need to prove it can nudge the grid in a cleaner direction. That will happen if new renewables arrive as expected and storage facilities, spurred on by the Clean Peak, gradually push out older and dirtier fossil generation, including the oil-burning plants New England uses during extreme demand spikes. The rule was designed in anticipation of a future grid with incrementally cleaner resources, not for a grid mix that’s already in the past.