MA DOER Issues Final Clean Peak Standard Distribution Circuit Multiplier – early present is a mixed bag for storage

It’s here! On December 5, 2023, the Massachusetts Department of Energy Resources (DOER) released its Clean Peak Standard’s long-awaited Distribution Circuit Multiplier (DCM) Guideline which went immediately into effect. This followed an initial proposal in 2021, a February 2022 straw proposal, and an October 2022 Draft DCM Guideline, which we discussed in a previous blog post.  The DCM, you may recall, is intended to provide extra incentive (more Clean Peak Energy Certificates) for Clean Peak Resources interconnected on specified parts on the state’s distribution systems.

We’ll be providing detailed modeling of the impacts of the final Guideline in our next Clean Peak Market Outlook (CPMO) briefings, on December 19 (Market Briefing) and 22 (CPR Briefing), 2023 (there’s still time to sign up!). In the meantime, here are our initial key takeaways:

1. Available MW way up. Perhaps the most impactful change relative to the October 2022 draft is an increase in the amount of capacity that could qualify for the DCM. While the October draft proposed a limit of 1 MW of DCM capacity per circuit, the Final Guideline allow up to 5 MW of DCM capacity per circuit for circuits of 15 kV class or larger, and up to 2 MW per circuit for smaller circuits (Demand Response resources do not count towards these caps). Based on the initial list of DCM eligible circuits, this results in potential added revenue for more than 1 GW of DCM capacity, 440 MW in National Grid territory, 615 MW in Eversource territory, and 25 MW in Unitil territory. For perspective, as outlined in October 2022 draft, total initially-eligible (read on for clarification) capacity would have been limited to approximately 320 MW.
2. DCM value down. The October draft considered a multiplier of 2X for ten years following a unit’s effective date and 1.5X for years 11 through 15. The Final Guideline retain the 2X multiplier for the first ten years, but drop the 1.5X for subsequent five years. This change could reflect DOER’s understanding of the financial needs of DCM-eligible projects, recognition of the likelihood that the needs of a given circuit will change over a 15 year period, or other considerations – they have not yet explained their rationale. While this reduced duration of additional CPEC creation will certainly impact project economics, the declining alternative compliance payment (ACP) for Clean Peak Energy Certificates (CPECs) and the falling price for these certificates implied by this falling ACP will somewhat minimize the actual financial impact of eliminating the multiplier in years 11 through 15.
3. Circuit eligibility largely unchanged. The methodology for establishing eligible circuits is largely unchanged from the draft. Eligibility will be based on a circuit’s three-year average Peak to Normal Percentage (effectively, peak demand on a circuit as a percent of its rated capacity). Ten percentage of each EDC’s circuits will be designated as DCM circuits, starting with the circuit with an 85% Peak to Normal Percentage, and descending from there. This approach excludes from DCM eligibility circuits with high saturations of solar, as outlined in DOER’s original straw proposal. Clean energy advocates had pushed for solar saturated circuits to be included in the final guideline; their exclusion will change the types of sites available for DCM resources, potentially slowing the pace with which DCM capacity is claimed. We note that the 1 GW of eligible capacity is based on the set of initially eligible circuits. As evaluated during our November 2022 Clean Peak Resource Module Briefing, because the circuit selection criteria will be applied annually, new circuits could become eligible, which over time, would increase the total volume of DCM-qualified projects. This turnover rate (quantified in the briefing noted above and updated in our upcoming December 2023 briefings) has critical implications for the availability of DCM capacity.
4. Higher threshold for reserving DCM. The overall process for applying for the DCM is largely consistent with the October draft. The Final Guideline, however, introduces new and higher threshold requirements for projects seeking to reserve DCM capacity, including executing an interconnection service agreement (ISA), providing right to construct documentation, and securing non-ministerial permits.
5. December 19^th deadline for initial applications. The Final Guideline states that “all DCM applications received within the first ten business days of the application being available [by our interpretation, through 12/19/23] will be sequenced by ISA date to determine allocation of reservations.” Thereafter, projects will be evaluated on a first come, first served basis. The introduction of new application requirements (discussed above) may frustrate the intentions of some developers hoping to quickly secure DCM capacity. Completed ISAs will likely serve as the rate limiting factor as developers seek DCM eligibility. The CPMO team will closely monitor the volume of applications submitted by within the initial open period.

Of course, the DCM Guideline comes on the heels of proposed wholesale distribution tariffs (outlined in DPU dockets 23-115, 23-126, and 23-117),  that would govern the charging costs of distribution-connected resources participating in wholesale markets. The CPMO team has been tracking both developments closely, and is quantifying the cumulative impacts of these critical changes projections of total CPEC supply, demand, and price. Taken together, for those who participate (or plan to) in the CPS marketplace, quantifying the specific impacts of the Final Guideline is critical. Luckily, the CPMO team has done this. To make sure you have the benefit of the latest and most accurate market intel, contact us to become a subscriber.