CPS: A New(ish) Market Means Unique Opportunities
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While it still feels like a new policy, the Massachusetts Clean Peak Energy Standard (CPS) dates back to 2018 enabling legislation. Following an extensive regulation development and stakeholder process, the Department of Energy Resources (DOER) filed Final Regulations in July 2020, leading to obligations that applied to compliance year 2020.
Still, in some ways, the market seems new to many participants. Even after the promulgation of the Final Regulations, DOER has worked with stakeholders to clarify and introduce additional elements of CPS, issuing and updating various CPS guidelines governing resource participation, multipliers, and applicability of CPS to retail sales, drafting and releasing a Final Straw Proposal for long-term procurement of Clean Peak Energy Certificates (CPECs) by the electric distribution companies (EDCs), and working with stakeholders as DOER developed the design of the Distribution Circuit Multiplier, among other things. Some entities seeking to qualify resources have had to work through critical details with DOER, such as exactly how CPEC volumes will be calculated for demand response resources. More generally, many market actors on both the supply and demand side have struggled to internalize and master the nuanced and complex policy that is CPS.
Certain critical components of the policy have yet to be implemented. DOER’s Final Straw Proposal for long-term CPEC procurements anticipated that the EDCs would file the relevant tariff with the Department of Public Utilities (DPU) in 2021. As of the date of this post, this has not occurred. Furthermore, recent experience shows that the DPU has struggled with its caseload, delaying action on dockets that don’t have legislatively-mandated timeframes. This creates uncertainty when the first procurement might be issued, potentially delaying the development of resources that will rely on CPEC price certainty in order to be deployed. The Distribution Circuit Multiplier, which could play a critical role for some resources, has also not yet been implemented.
CPEC Supply – Opportunities Not Yet Realized
The qualification of supply also reflects a market that is slow to ramp up, even among eligible resources that are already operating. For example, the 12/3/2021 SMART Solar Tariff Generation Units report indicates a total of approximately 145 MW of storage capacity that has reached commercial operation and has an Approved or Qualified status. However, only 32.7 MW of storage was included in the 1/8/2022 update to the CPS Qualified Resource report, which could include some storage that is not SMART storage. The same report shows a total of 90 MW of qualified CPS resources.
For resources that have not yet qualified, this represents a real opportunity. A 1.6 MW, 4-hour SMART energy storage system could expect to produce approximately 1,300 CPECs per year. At the current ACP of $45, this represents lost revenue of almost $60,000 per year. Based on the numbers cited above, many market actors are not capturing these revenues.
Uncertainty = Potential for Competitive Edge
While some might consider the current (im)maturity of the market and the speed with which it’s developing reasons to delay serious study of it, the reality is that the CPS’s current status provides unique benefits to those with the insights provided by CPMO. Understanding when the market is likely to mature and supply will catch up with demand, and how supply-demand dynamics might drive the dynamic targets, ACP and CPEC price, is particularly important for those on both the supply and demand sides of the market to understand.
CPMO’s next briefing, anticipated in late February 2022, will explore these CPMO’s next briefing, anticipated in late February 2022, will explore these questions and how they translate into future price scenarios. If you’re interested in gaining access to CPMO’s market intelligence to guide your decision-making during a critical phase of the CPS market, email us at [email protected], or call Stephan Wollenburg at 508-834-3050 or Vinayak Walimbe at 781-338-5505.