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Massachusetts Proposes Regional Clean Energy Market

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Last week, on the final day of the outgoing Baker Administration, the Massachusetts Department of Energy Resources (DOER) released a new proposal for a regional clean energy market. If implemented, this market would be a new way for states, utilities, and other energy customers to meet their clean energy goals, encourage clean energy development, and create competition and transparency in clean energy procurement. 

The proposal incorporates several aspects of existing wholesale electricity markets as well as existing state clean energy certificate programs. Here are the key elements:

Governance—The market would be run by a newly-created non-profit entity, to be overseen by a board of directors representing the six New England states. There would be substantial coordination with the regional wholesale electricity market (the Independent System Operator of New England, or ISO-NE) and it would likely be subject to Federal Energy Regulatory Commission (FERC) jurisdiction.

Products—States will be able to list their own state-defined products and clean/renewable energy certificates. For example, Massachusetts has existing energy certificates (Class I, Class II, and Solar) that could be listed.

The proposal also would create several new regional products:

  • New England Regional Energy Certificates (NE-REC)—Available for energy generated by a renewable energy resource, including wind, solar, and run-of-river hydroelectricity less than 30 megawatts.
  • New England Clean Energy Attribute Certificate (NE-CEAC)—Available for energy generated by any non-emitting energy resource. In addition to renewable energy such as wind and solar, nuclear and all hydroelectric resources are eligible.
  • New England Greenhouse Gas Marginal Abatement Certificate (NE-GHG)—Represents the amount of carbon-dioxide reduction achieved by a non-emitting resource. In addition to renewable energy such as wind and solar, energy storage and entities that participate in demand response (using less energy from the grid when called upon) are eligible by operating when the highest-emitting fossil fuels would otherwise be needed.
  • New England Clean Capacity Certificate (NE-CCC)—Non-emitting resources can earn certificates by providing capacity, meaning that they are available to provide electricity (or use less energy in the case of demand response) when called upon by ISO-NE. Wind, solar, nuclear, all hydroelectric, storage, and demand response are eligible, as are clean capacity imports from other regions.

Forward Auction—The new market design will include a three-year forward auction (meaning an auction to secure energy needs three years in the future based on projected demand) in which buyers can procure the desired clean energy certificates. Like many wholesale electricity markets (including ISO-NE), the goal of the forward market is for buyers to plan for future clean energy needs and provide incentives for new clean energy suppliers by providing guaranteed returns when the sellers provide the required certificates and underlying clean energy. Other incentives for new generation include price lock-in guarantees that will decrease over time and the option for buyers to specify that their energy purchases must be fulfilled by new resources.

Certificate Delivery—Three years after the forward auction, the sellers (generators) will produce the underlying clean energy and transfer the committed certificates, and the buyers (states and utilities) will pay the amounts owed and use the certificates to meet state requirements and other clean energy goals. If a seller cannot meet its commitment through the specified resource, it can fulfill the commitment through another resource it owns or by purchasing certificates directly through another resource (called a bilateral procurement).

Spot Auction—If a seller cannot find a replacement for credits it was unable to provide, the proposal also includes a spot (true-up) market, whereby underperforming sellers can buy any available unsold certificates in the system. Buyers can also buy additional certificates to comply with renewable portfolio requirements. If underperforming sellers cannot procure enough certificates in the spot auction, those sellers will be subject to certain financial penalties.

What’s Not Included—Notably, the proposal does not include special pricing for greenhouse gas or carbon dioxide that may be emitted from certain eligible facilities, also known as “carbon taxes.” (Certain existing state certificate programs, such as Massachusetts’ Class II certificates, do allow certain limited emission-generating resources). 

The proposal also limits sellers to only physical power producers (primarily power plant generators). Financial or virtual sellers, who offer potential benefits to improve efficiency in wholesale electricity markets, may not sell in the new market. 

Next Steps

Because the proposal was issued on the last day of the outgoing Baker Administration, it will be up to the new Healey Administration to decide whether to pursue it. If so, expect a lengthy stakeholder process that will require the agreement of the other New England states and cooperation from the NE-ISO.  DOERS states that the proposal “builds on the work of state agencies and stakeholders over the past several years,” but currently Massachusetts is the only public proponent.  The new market in its currently proposed form will also need FERC approval.

This advisory was prepared by Matthew Connolly and Matthew Snell in Nutter’s Real Estate Department. If you would like additional information, please contact any member of our Real Estate Department or your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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