April 18, 2018
Last week Governor Baker submitted a significant bond bill to the legislature calling for a $1.4B authorization for climate adaptation, mitigation and infrastructure investment. While the dollar amounts grab the headlines, there is also an important and innovative piece of policy buried within the bill, establishing a “clean peak energy standard” (CPS). A clean peak standard is an innovative market-based approach to address one of our biggest energy challenges: the expensive process of meeting peak energy demand. The concept is similar to the State’s Renewable Portfolio Standard (RPS), an established and successful program that uses market pricing signals to create demand for renewable energy by requiring utilities to purchase a certain percentage of their load from clean power sources.
Reducing the peak load of the grid can have a big impact on energy prices. According to a 2016 Massachusetts DOER energy storage study, the top 1% of peak electricity demand hours account for 8% of electric energy costs, while the top 10% of hours account for 40% of overall electric energy costs.
The Governor’s idea is to meet that demand with clean energy resources. This has the obvious benefit of lowering the emission impacts from dirty “peaker plants” and reducing the need to “overbuild” our energy system; it could also be an efficient way to establish a long-term market for energy storage. Clean resources like Solar and Wind will likely need to be paired with energy storage so that they can be called upon during times of peak usage. The idea is that the CPS, which would be implemented in 2020, should provide a framework that will send the appropriate price signals to facilitate investment into energy storage.
To date, the State has focused their effort on building the energy storage market mostly by supporting demonstration programs. This is useful for proving out new technologies and exploring different applications, but it doesn’t establish the market pricing signals provided by the CPS. What’s missing is a strategy to move from the demonstration projects to the new CPS.
It is expected that the CPS will have an “out” similar to the RPS in that utilities will have the option to pay an “alternative compliance payment” (APC) if the cost of procuring clean peak energy is too high. Our concern is that when the CPS is initiated, the market will not be ready for it. To solve this problem the administration needs to think about a medium term solution that would be a bridge between demonstration projects and the end market of the CPS. One possible approach could be a rebate program for energy storage systems, which could fit the bill perfectly. Rebate programs have been successfully used to jump-start solar energy and electric vehicles, and would be a perfect solution to prime the market and drive down costs in anticipation of the CPS. Indeed, the Governor’s bill hints that this may be a solution by specifically authorizing the use of energy efficiency funds for energy storage.
Of course, the CPS is not the only tool available to the state for developing a long-term market. They should continue to advance equally important and complementary policies such as establishing long-term storage goals, including storage in the Alternative Portfolio Standard, clarifying ISO rules about participation in capacity markets and increasing the RPS. Both the Administration and the legislature deserve credit for their foresight in addressing our longer-term energy challenges, but in this case we think a little more focus on the short-to-medium term would serve us well, and we encourage a sense of urgency.