On the 14th of November, DOER released the RFP for the initial block of the much anticipated SMART program. The timing of the release was cause of many questions considering the shadows of the 201 petition which could affect the price of solar in Massachusetts. SolarWakeup covered many of these questions with Mike Judge, Director of Renewable Energy at DOER, during last month’s SolarWakeup Live! in Boston.
Full Transcript Below. (While we attempt to make it verbatim, it may miss a few words)
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Trancript:
YANN: [00:00:00] Want to thank Mike judge from DOER for coming today, I am sure if you are in the solar industry in Massachusetts you know Mike and you know Mike’s work. Your work kind of depends on him doing his job. He is a director of renewable & alternative energy at DOER, he’s been at DOER for seven years so he knows the SREC program and he knows how to administer it. Also at MASSCEC, you’ve managed the solar carve out of the RPS amongst other things but now most recently you have been the leader in developing the rules of the SMART program. You finalized those rules but because it’s a tariff as we know it, the DPU, which has released some draft language, can you talk about where the process stands and what you make of the process so far?
MIKE: [00:00:57] Absolutely so the DOER, the legislation was passed last April, requiring the DOER to create new solar programs. We started working on that last summer, we had some listening sessions, we put out the draft proposal in the fall, final proposal in the late winter or mid-winter and we issued our regulations, promulgated those in August. So now DOER’s part here is almost done with components are which I can talk about in a minute but now the model tariff has been filed by the distribution companies jointly filed at the DPU and they are kicking off that proceeding, we had a deadline to intervene, several interveners, several people intervening with their granted status today and then there was procedural conference and a public hearing last week and so right now we are waiting for them to advertise the procedural schedule for the remainder of the proceeding. Don’t know exactly what they are going to do next but we did ask at the conference where they try to aim for first order date and set up a schedule accordingly so that the transition to occur hopefully spring of next year.
YANN: [00:02:13] So speaking of the transition, what is the main goal in the transition going to SREC to SMART?
MIKE: [00:02:20] I think there is a few things, the biggest one I would say is trying to create certainty and bring cost savings to ratepayers. One of the benefits of SREC its different than other states is we did actually have a good job of mitigating some of the risks, our auction mechanisms and SREC values remain high but financiers still would take very, there’s a steep discount that you’d have to take when you are selling things over a long term contract. So in some cases we’ll have taking 50% of the SREC value and the problem with that from a rep air stand point is that you are still paying 100% and so when you have an SREC that’s worth 100 dollars and someone buys it a hundred and fifty and selling it back for three hundred dollars, the generator, the owner of the facility or the developer of the facility is only getting 150 but their financial backer is getting the 150 as you are paying that. So by moving to a tariff, we can create financial certainty and you can have transactions between the utility and owner of the facility which removes a lot of that soft costs and financial costs.
YANN: [00:03:37] So talk a little bit about the process and the involvement of the industry to get to the final rules.
MIKE: [00:03:46] Yeah so we tried to really be as inclusive as possible throughout the process and so we had these initial listening sessions at the same time we were conducting some analytical work on the necessary incentive values, that was last summer and then we put out the straw proposal, collected feedback on the industry, got over 600 pages of comments on the straw proposal, 250 sets of individual comments and lots of feedback from stakeholders and then we convened a number of working groups. So we reached out to the major associations in all sorts of different stake holder groups and ask them to appoint representatives to a working group by either there’s five working groups and so they’re established on different components of the program and they about 40 pounds over the course of the fall. All different types of people, land use advocates, small solar developers, large solar developers and low income advocates, you take utilities, the attorney general’s office and the product of that was our final proposal which we then took some additional informal comments on and then we had the formal rule making another 100 sets of comments and feedback from stake holders there and that’s when well get to the final rule. So I’d like to think its been an open and transparent process where we’ve tried to solicit as much input from the general public as possible but now there is still one final process left where we are focused more on the mechanics of the program then the policy.
[00:05:32] Some important questions of the policies as we enter into that mechanics discussion but the eligibility criteria, the process of establishing incentives, all that’s really been established by the regulators.
YANN: [00:05:43] So one of the major attributes of the SMART program verses pretty any other solar programs around the country, it looks like you are really working to encourage solar projects to include energy storage; why did you choose the two kind of matrix, two kind of Y axis of percentage of capacity to solar plus number of hours?
MIKE: [00:06:15] So earlier in the Baker administration we launched the energy storage and it’s a 10 million dollar initiative, the majority of that fund is going towards administration projects and those administration projects will actually be awarded soon but the first component of that was comprehensive study on the benefits and the used cases of energy storage in Massachusetts and we found that there is tremendous for all sorts of different used cases for energy storage and there was a series of recommendations that came out of that and one of them was averaging the solar program to include solar plus storage. As we develop more solar regs 1600 megawatts DC and this will be another 1600 megawatts AC. So collectively when SMART is done, we will have probably somewhere between 2200 and 3500 megawatts AC of solar capacity in Massachusetts, nearly 95% or more that’s going to be on the distribution system too and then so that all acts as load reducer and when you have that much solar on the system, you really starting to see it very reminiscent of California, you see it today there’s a little bit of one today in the spring of this year, it was really very dramatic.
[00:07:42] So we really need to have battery storage or some way to mitigate that and we saw this was really like a tremendous opportunity to incorporate storage from the get go because it makes more sense to have storage upfront when you are building these products rather than being retrofitting it, it’s more expensive to do it after the fact so just pair them upfront. As far as to why we structure the incentive that way with its looking at the ratio of storage capacity to solar capacity and the duration of the storage, that was done primarily because of the results of the energy storage which showed that the shorter term to medium term storage with the generally sized, approximate size to the facility is compared was going to provide the best benefits to repairs and actually if you look at that chart, as you move to longer duration or higher capacity, there is a diminishing increase in the amount of incentive that the facility has received and that reflects that same thing. It’s really a sweet spot in the 2 to 4 hour and sized to the 25-60% of the solar capacity and that’s reflected in the benefits that we identified in the storage study.
YANN: [00:09:08] So talking about the mechanics of the next step of the SMART program, how much more can you do under your guidance at this point before the DPU issues the final order things like, hosting the auction, the initial auction or participating in the DPU process kind of give some guidance on things that maybe you were silent on but have an opinion on now that’s there is language around us.
MIKE: [00:09:42] I think there’s still a fair amount that we can do. So the two big things that are left on our plate are the roll out of the program and being able to do the intake of application so we have solar program administrator, the distribution company’s choice who solicited for that summer. They’ve made their selection, they’ll be executing that contract possibly this week and so there’ll be an announcement on who that entity is and then the RFP for the initial competitive procurement, that’s drafted and we are first working on details with them so that should be going out soon and those are the two really kind of big items that DOER is doing, we also have to build the application platform, make sure it’s working, get the website up and running, do a lot of outreach and stakeholder communications and then plan for that transition but in addition to that we are full intervener and the DPU proceedings, we plan on providing comments and filing briefs, asking discovery questions we’ll be active with on that proceeding, not clear if we are going to issue sponsor testimony and put up a witness and that proceeding is resolved but we plan on being involved and there are certain things that are in the tariff that are not expressly called for in the reg.
[00:11:08] An example would be the utilities cost recovery mechanism. So I’ll state just very briefly there the proposal is a fixed charge cost recovery and there are some details and mechanics of that. DOER will likely pick a position from that, I don’t know what that position is going to be this time, I can’t really speak to that but we’ll be participating in that proceeding and taking a stand on what we think cost recovery mechanism looks like.
YANN: [00:11:41] Speaking about the auction right? because you could that’s obviously everyone wants to know what the clearing price is going to be from a development standpoint but we also have this pending federal issue with the 201 petitions happening, we’re module prices can be double what they are today.
MIKE: [00:11:54] Yeah.
YANN: [00:11:55] How do you, can you have an auction before the 201 is resolved?
MIKE: [00:12:00] So I’ve spent a fair amount of time, I’ve asked this question a lot of people and the consensus generally seems to be that yes, there’s no reason to delay, we should we should put something out there is obviously some uncertainty lingering out there and I think we’re watching it very closely. The timing of the release of the RFP is actually maybe fortunate that it’s coming out a week or two later than we originally envisioned because now people will have full visibility until at least what’s recommended by the ITC and that we will be making final announcements on the result of it potentially after the White House makes a decision on what they’re going to do and we can take that into account to some extent, I think as regulators, state regulators, we try to not design our policy around what may or may not happen at the federal level because it’s hard, it’s really hard to do that and when you have sort of optionality things that might go one way or the other that’s challenging. That being said, we do have the ability to make changes to the program if necessary. So there’s something really drastic happened, it’s our reg, we can open that reg, not saying we want to I don’t think that’s you know, that’s no one wants us to do that really you know, you we don’t open regulations without careful consideration but we can take appropriate action if necessary. So we’re watching it closely, I think we’re going to run the procurement, hopefully people will be able to understand at least what their what the potential outcomes are at the time they’re submitting bits but yeah we’re well aware.
YANN: [00:13:38] But do you see you know because this is a clearing price right? There’s there there’s both financial modeling as well as strategy.
MIKE: [00:13:49] Yeah.
YANN: [00:13:50] I mean people are going to be bidding what maybe gets them below the highest clearing price. So you know maybe they don’t want their number but they’re hoping to be under the clear, clearing price number you know, what if I assume a modest whatever you know, maybe I’ll take today’s ITC recommendation and model that into my number but someone says you know what I’m not modeling any of that and maybe there’s enough of those people that unrealistically bid into the system and then all of a sudden the White House comes out with double the ITC’s amount right? I mean do you see a scenario where maybe you’d say you know what there was too much uncertainty and we have to issue another RFP?
MIKE: [00:14:39] Well we do routine the flexibility in the Reg to do a couple things, the Reg allows us to determine whether or not there was a non-competitive result, we can issue of additional solicitations. We can also administratively set prices so I think we’re sort of in a wait-and-see, let’s see what we get, let’s see what happens, let’s see how it plays out and then we can, we have some ability and flexibility to make decisions and modifications to a certain degree but if things are that really kind of dramatic impacts, then we can take further action as well if necessary.
YANN: [00:15:16] So when do you see the RFP being issued?
MIKE: [00:15:20] I’m hesitant to give like a firm date but I’d say in the next two weeks (October 31st – November 13th) or so, like it’s very it’s well developed and we’re working, it’s high priority for us.
YANN: [00:15:32] So let’s speak about some of the dynamics you know, solar advocates are coming back and saying listen, the block one makes sense. Block one there’s a clearing price, everyone under the price gets that price and then the feedback is well after that, it moves to an average, it takes that it takes the mean of the initial bids and works down from there. Which from their standpoint can be skewed if there is a wide range of bits, what do you think about that feedback and do you think there’s a fix for a process?
MIKE: [00:16:08] Yeah, so part of the reason we went that way is that there was some concern that there would be a lack of participation in the initial procurement. If people could just wait for block one and get the same rate as they could have gotten in the procurement, then a lot of people would just opt-out and just wait and see what happens but by setting the block one rate at the clearing of the marginal clearing price, then you’re sort of guaranteeing anyone who participates in that initial procurement is going to get a higher base compensation rate than anyone who waits for block one. That being said, people in block one can also take advantage of adders and other, they can be alternative on bail credit, they can mean that metering facilities, they don’t have to be a qualifying facility. So there’s some advantages to waiting to but I think that you know, there are again opportunities for DOER to make modifications to the final procurement results. If you, I’m going to throw in an extreme example here, if we saw a bid come in at one penny kilowatt hour, obviously that’s probably not a very realistic bid and that’s not something that someone can actually achieve if that was the clearing price, DOER does have the flexibility to say this was not necessarily competitive or administrative least set the price you know, I don’t know that we would take this action, I think we want to wait and see and reserve our judgment but we could say, we’ll count, we’ll set the average but we’re not going to count that one set bit in setting the average. So I think, we are hoping then nothing like that happens, we’re hoping that people are responsible and bid in what they actually need but we’re watching it closely.
YANN: [00:17:51] How do you, how do you get you know, you’re going to have, I mean some would argue that any project in the SMART program is going to have energy storage associated with it you know, many people say that these days. Energy storage prices are dropping and this will be a way to increase the return of the project. So having energy storage is just going to make financial sense for investors to participate in, you’re going to have all of this dispatchable resource, not dispatchable but not just energy but also capacity, how do you get the distribution companies and utilities to take this energy and take this power and participate in the market? Because you know it does give them some flexibility to but they’re not required to.
MIKE: [00:18:47] Well this is this with respect to capacity rights and ownership or the energy?
YANN: [00:18:56] The value of that.
MIKE: [00:18:57] So there’s actually some long-standing precedent on the net metering side in Massachusetts for the utilities taking ownership of the energy. So any energy that’s exported back onto the grid they take title to and then they sell that back into the market. They actually install the interval meters on these systems and they register the assets in ISO England, most solar generators don’t even know that they’re doing this behind the scenes and offsetting the costs of the net metering program through that. So I’d expect that would work the same way and SMART for the energy side of things. Capacity is a bit more of an open-ended question right now and I’d be hesitant to kind of offer a position on it because I don’t think the or air has a formal position that we’ve worked out yet. What I will say is that it’s been raised as a top issue of the proceeding by a number of people with me and there are two dockets actually at the TP right now, there’s one on net metering and capacity rights and then there’s SMART, which is going to have to deal with this as well and in the net metering rules in 2009 order, where a lot of the net metering rules were established, the DP said that the utilities have, are allowed to take title to the capacity in order to avoid offsetting it.
[00:20:12] They didn’t direct them to enroll in the markets and actually do something with it, they didn’t require them to take title and I think that’s the question that’s at hand, should that be firmed up and I think the same question will apply in SMART and the DPU has aligned those proceedings, I haven’t talked to them about this or anything but it seems as though they’ve outline those proceedings so that they’re happening coincident with one another and that they can issue sort of a unified approach to how this is all going to be settled going forward.
YANN: [00:20:41] Do you see potentially this discussion including the rights to dispatch the assets?
MIKE: [00:20:48] It could, I don’t know exactly what the utilities position will be, I think this is all going to get fleshed out in in discovery, in the discovery phase of the proceeding when intervenors are asking questions of the utilities, there’s going to be a lot of questions asked about what is your intent regarding the capacity? How do you intend to participate in these markets? How do you intend to offset the costs and it’ll be interesting to see what their perspectives are because I think that will probably inform a lot of the intervenors positions when they actually file testimony and briefs later on? That’s why I’m a little hesitant to say what DRS position is because I’m not entirely sure.
YANN: [00:21:26] But it’s an interesting sort of thesis right? If one party has the rights to the capacity, especially on energy storage integrated systems but they don’t own title of the actual asset therefore can’t dispatch, they wouldn’t be able to bid the capacity and to market without knowing.
MIKE: [00:21:47] No, it’s a tough question, it’s not I’m glad I don’t have to grapple with it at the DPU you buy we can just offer an opinion and they but yeah it’s, I think it is to me from the feedback I’ve received on the tariff as filed, this seems to be the top issue for, top concern among the solar industry this and the cost recovery mechanism and there’s a lot of other smaller issues and a lot of other people in intervenors in the proceeding who have a specific thing a specific item they want to address but as far as kind of issues that affect everybody that all intervenors I expect will comment on, I think these are two of two of them.
YANN: [00:22:30] What’s the fairest criticism the solar industries offered about the rules this far?
MIKE: [00:22:36] I suppose that there’s some complexity to them, that I think you know DEOR ours never really shied away from complexity. I do think it is a big shift from where we have been historically and but I think the industries, I think it’s less complicated than people think it may be once we kind of dig into it and that what it does really does is it creates a lot more options for business models. It levels the playing field between qualifying facilities and net metering, it creates this alternative to net metering in the event that that metering caps, it gives sort of a fixed price rec contract for behind the meter facilities, it has all these different adders. So I think it at first glance there’s just a lot getting thrown at you and it takes a little while to sort it out but people seem to be finding their niche like this is what, this is the market I want to serve, this is the types of projects I want to build, this is how the business models going to work and I think once people kind of get their arms around it will start to make sense but if definite, I definitely recognize there’s a lot of moving parts and it is a lot of new things and it definitely challenges people to kind of rethink how they’ve been doing business.
YANN: [00:23:58] So another critique of the DPU rules, which I’m sure you probably because you mentioned finance ability is that some of the draft language kind of makes it seem easy to cancel a contract or cancel might be the wrong word, how important is the bank ability of a SMART project for DOER?
MIKE: [00:24:27] I think it’s very important, I mean that’s really what we’re trying to create here is certainty and price certainty, revenue certainty to the generators and cost certainty to ratepayers you know what you’re getting for a revenue stream ratepayers, know what they’re paying over the life of the project and that’s, that hasn’t been the case with net metering and extracts, both of those are volatile, uncapped well that’s right kind of the cap with the ACP rate but they’re volatile streams and prices and costs for those programs can shift dramatically from year to year. This program is pretty, when something, when a project gets locked in you know what they’re going to get paid and just to be clear, I would say that the it isn’t a DPU rule, it’s the utilities proposed tariff but the, in that tariff I know there’s some concerns about some of the language around, their ability to cancel things. I think some of that is intended to just be sort of pro forma from their part certainly I think wording matters and the details, those details will be fleshed out but there a lot of the eligibility criteria for participating in the program itself, that all sits with DEOR and those final decisions will be made by DEOR.
[00:25:43] These are I think those are more tariff enrollment terms, there’s some specific things that you’re required to do as participating the tariff that could result in a cancellation and I think all that it’s going to have to be washed out.
YANN: [00:25:55] Do you do you worry as you add you know, you mentioned you know 1,600 megawatts AC of solar in the state, naturally as you add more solar to the grid, more infrastructure will have to be built and many times solar developers will end up having to build new infrastructure substations etc. Things that cost millions of dollars, do you worry that over time the cost of having to build up the infrastructure goes counter to the fact that the revenue streams are going down over time?
MIKE: [00:26:31] Absolutely, I mean I’ve heard a lot of, that’s another concern I think of people is interconnection costs seem to be going the opposite direction in many cases and I think storage can help mitigate some of that but and you know there’s maybe work that needs to be done on the interconnection side of things at some point as well. The, but that is definitely a concern of ours and we did build into the program review, I can’t remember how many megawatts, after a certain amount of megawatts are reserved, we will conduct a review and potentially make changes if necessary. So if things are going slow, if one market segment isn’t really picking up, if one utilities service territory is lagging behind, we can step in and modify our rules to see if we can kind of adjust that accordingly and get things back on track. So we’ll definitely be watching intricate, we watch interconnection and monitor it very closely.
YANN: [00:27:31] What kind of advice can you give other states right because you know, as a lot of people have been in the weeds here and maybe they think it’s too complex. There’s no doubt that Massachusetts continues to make forward strides in growing its solar market whereas other states are not right? I mean the and it’s not like you have this supermajority from a political standpoint you know, it’s a diverse state politically and you know what kind of, what are you, are you speaking with other states about crafting language? What kind of advice are you giving them and why do you think other states that could be doing something like this, are falling short?
MIKE: [00:28:15] It’s hard for me to kind of speak as to why they might be I mean I think one thing that we’ve done is, we’ve haven’t let perfect be the enemy the good sometimes I mean, I so our programs are complex but we also just kind of really, we put something out there and the goal is to get projects in the ground, let’s get things built and then we’ll learn from our mistakes and then adjust accordingly in the future. If you spend too much time on the front end trying to craft the perfect policy and then you put something out and it doesn’t really work, I think that there’s been some states that have seen that happen, we do talk to other states and especially a lot of our neighboring states. There’s been a lot of interest in some of the land-use stuff that we’re doing among East Coast states, that is a part of our program that you know we sit under the Secretariat of Energy and Environmental Affairs. So when projects get cited on farmland or on a wetland or near a wetland, then that impacts some of our sister agencies and there were all answering to the same secretary so he hears it from those agencies and it was a very important thing for him that the, that our Paul is, our solar incentive policies were in alignment with our environmental and agricultural policies so we spent a lot of time and effort crafting that and a lot of states have taken notice, spend time on the phone with Connecticut, Maryland, Rhode Island, who similarly smaller East Coast states with not a lot of land and but the ambitious goals trying to build solar and they’re trying to grapple with how do we match our environmentally in our energy policy?
[00:29:53] So yeah, I mean, I guess advice other states, don’t let perfect be the enemy of the good, listen the stakeholders and try to be as inclusive as as many business models as possible because Solar is complicated. Every project is different and there’s all sorts of different types of solar projects and solar companies and you got to try to find a way to be as inclusive as possible.
YANN: [00:30:18] Speaking of stakeholders and advocates you know, maybe you’re not going to give criticism but give some feedback to solar advocates on how to improve the language you know, I asked us the same question to Senator bond Cory this morning you know, how do we get, why we in this net metering fight again and you know with no foresight on when that will get resolved but give some feedback to the other side of the table that are asking you for things and how can they improve their messaging, when they’re trying to get something from you?
MIKE: [00:31:00] Well I will say that I think the solar community of Massachusetts has done a great job over the last few years of getting a more cohesive message and being more on the same page. A few years back, I think a lot of fractures kind of emerged where you had different sectors of the industry sort of arguing against one another, there was a bill back in 2014.
YANN: [00:31:28] Or 41, 85 yeah.
MIKE: [00:31:29] And there was a lot of internal debates and it was, I think surprising to the administration at the time in the legislature to watch the solar industry have infighting amongst each other and I think there’s been a lot of good work done since then but it’s still not perfect, I mean you have a lot of different voices to the extent that people can speak with one voice, I think that’s very helpful. I know that’s not always know is easy to do and actually in the DPU proceedings SIA has intervened on behalf of a number of associations so there’s not different associations participating in that proceeding, there’s only one voice and I think that will be helpful for the industry to not have conflicting messages being sent to the DPU about what solar is looking for out of that. I know that could be very difficult though, I think that’s probably the biggest thing I would I would say and because I know legislators have said this to me too that, it seems like they don’t get the same message from solar stakeholders, like one group wants one thing one, wants another thing they’re all saying they want net metering cap increases but they all say something different, they say it in a different way or say something different and it’s just, they don’t live and breathe this every day.
[00:32:47] So they spend a lot less time thinking about this than I do or the people at DOER do and so when they hear conflicting things, I think it just confuses them and they say well, we’re not going to deal with that so do the extent you can unify that message that’s really helpful.
YANN: [00:33:06] How important is it to your success that the net metering caps are increased?
MIKE: [00:33:12] Well I think that we have tried in the SMART program to ensure that net metering caps being increased are not a barrier to the success of the program. That’s why we’ve created the alternative on bill credit, that’s why we’ve allowed for a mechanism that would level the playing field a bit between net metering facilities and qualifying facilities because in today’s environment, it being qualifying facility doesn’t make a lot of sense Massachusetts. If you have SRECs in the QF rate, you’re just making a lot less money than someone who has SRECs net metering but Nitor SMART it’s not as much of a difference between those two and I think we’ve tried to ensure that continued increase of net metering caps is not critical to the program success because that was a major barrier for SRECs net metering caps weren’t raised, then S trucks weren’t going to get built whereas traditionally wouldn’t get built and all right so I don’t think it is as critical to the success of the SMART program as it was to the success of the asteroid program but certainly we remain engaged in that.
YANN: [00:34:23] Discussion, do you have a handicap of your expectation for the net metering cap increase?
MIKE: [00:34:30] That’s on well we’re just between friends.
YANN: [00:34:32] Yeah. So with that I want to thank Mike for joining us today.
