Clean Peak Energy Standard (CPS) 101
This is the second blog in our “2024 Clean Peak Standard” blog series. Read the first blog here.
Maybe you’ve heard about the CPS, but never really got around to cracking open the regulations to understand how it really works. We get it – there’s a lot to keep up in the clean energy sector! In this post, we’ll give a quick intro to the CPS, including what it is, how it works, and what kinds of resources can participate. To go a bit deeper, fill out the form at the bottom of this post to receive a free copy of our CPS 101 slide deck.
Origins of the CPS
In 2018, Massachusetts passed legislation requiring the establishment of the Clean Peak Energy Standard (CPS). The primary goals of the policy are to reduce peak electricity demand, cut emissions, and lower ratepayer cost, by incentivizing generation/discharge/load curtailment during periods of high demand. The CPS is intended to be a key component of Massachusetts’ broader energy strategy, promoting storage, dispatchable clean resources, and flexible loads to more effectively integrate increasing quantities of energy from renewable resources with variable outputs.
Understanding the CPS Policy
The CPS introduces a novel approach, incentivizing the generation of clean energy precisely when it’s needed the most. The overall design is akin to a Renewable Portfolio Standard (RPS), but with a focus on periods of peak demand. Eligible resources that operate during specified periods produce Clean Peak Energy Certificates (CPECs), a tradeable commodity. Load serving entities (LSEs also known as power suppliers) are subject to a minimum standard, a percent of their total load that must be met with CPECs, creating demand for these certificates. LSEs that fail to procure the required number of certificates must pay an Alternative Compliance Payment (ACP), which sets an effective ceiling on the price of a CPEC. This yields a market-driven approach to boosting clean energy use when the grid is under the most stress.
CPS Windows
At the core of the policy is the establishment of Seasonal Peak Periods (or windows), defined hours of the day (that changes by season) during which eligible resources can produce CPECs. These windows, which are four hours long, are defined in the CPS regulations, enabling market participants to design the operations of their resources based on these windows. We would expect that, over time, as increasing electrification and deployment of distributed generation shift periods of highest net demand (and emissions), the Seasonal Peak Periods in the regulations will be updated.
Eligible Projects
Eligibility for producing CPECs extends to a range of technologies, including new renewables, existing renewables paired with storage, standalone storage, and demand response resources (which can include traditional load curtailment, electric vehicles, and other types of projects). This broad set of eligible resources aims to tap into a variety of clean energy sources and technologies to meet the policy’s goals at the lowest possible cost. While the policy is intended to be largely technology agnostic, it uses multipliers (see below) to adjust the volume of CPECs produced by different project types, primarily to reflect the availability of other sources of revenue for projects (e.g., SMART solar plus storage or contracted offshore wind projects). It also makes analyzing the market complex and challenging.
CPEC Multipliers
As a starting point, one MWh of discharge/generation/curtailment during a CPS window yields one CPEC. To keep things interesting, the CPS also includes multipliers that impact the volume of CPECs produced, sometimes increasing production (multipliers above 1), other times reducing production (multipliers below 1). Some multipliers are time-based, increasing production during certain seasons or peak hours. Other multipliers are resource-specific, such as those that apply to “contracted” resources or that provide an incentive for resources that can provide resilience. Most recently, DOER finalized Guidelines for the Distribution Circuit Multiplier, designed to drive deployment of CPS resources on load-constrained portions of the distribution system.
ACP and Minimum Standard Over Time
Like most Renewable Portfolio Standards, the percent of load that LSEs must meet with CPECs increases over time, increasing total market demand. Unlike most RPS policies, however, the ACP decreases over time, reducing the price ceiling for CPECs. Another twist: the pace with which the ACP and minimum standard change depends on supply and demand for CPECs. We know from experience – it’s a lot to wrap your head around and to analyze.
2024 Program Review
Change for the CPS is baked into the regulations themselves. Starting in 2024, and every four years thereafter, DOER will conduct a program review, considering, at a minimum, the ACP, the minimum standard, and the multipliers. To kick off the review, DOER issued a series of questions, seeking feedback from stakeholders by May 9. As discussed in the first post in this 2024 series, there are a lot of reasons to believe that we may see significant changes to the CPS in 2024, presenting a unique opportunity to influence and strategically engage in the market.
Learn More and Stay in the Loop
For additional information about the policy, fill out the form below to receive our CPS 101 slide deck. You’ll also receive future posts in this series, including any updates on changes that occur through the 2024 Program Review. For those who plan to participate in the CPS market, learn more about how a becoming a Clean Peak Market Outlook subscriber will give you unparalleled market insights and a competitive edge.
