The CPS Excitement Continues: Legislature Makes Progress on Storage Solicitations

This is the ninth blog in our “2024 Clean Peak Standard” blog series. Read the first eight blogs here.

On October 21, 2024, the Massachusetts General Court Conference Committee negotiating the energy omnibus legislation released a compromise bill, S. 2967 – An Act Promoting A Clean Energy Grid, Advancing Equity And Protecting Ratepayers. The Senate passed the legislation days later; the bill then moved to the House and was raised for adoption in an informal session, though a quorum was not present. Among other provisions, the legislation would, if enacted, modify energy storage system (ESS) siting and permitting regulations and require the Commonwealth’s electric distribution companies (EDCs) and the Massachusetts Department of Energy Resources (DOER) to procure 5,000 MW of storage by 2030. The legislation would also define “environmental attributes”, however, uncertainty lingers regarding the treatment of storage resources that are ineligible for CPS. While we’ve been tracking legislation on storage solicitations for a long time (see, for example, H. 4503 from April 2024) the S. 2967 language appears likely to pass, giving us more specific language to evaluate.

Permitting

The statute may also ease some permitting barriers. Of note, the legislation would allow the EFSB to grant Certificates of Environmental Impact and Public Interest to 100+ MWh storage resources to which DPU has granted comprehensive exemptions from local zoning by-laws, should the EFSB determine that a state or local body has “imposed a burdensome condition.” Furthermore, approvals (e.g., permits) for proposed storage projects that were in effect from October 22, 2020 – August 1, 2024 would be extended through August 1, 2029. 

Energy Storage Solicitation

The legislation directs the Commonwealth’s EDCs, in coordination with DOER, to conduct one or more competitive solicitations for 5,000 MW of energy storage by July 31, 2030; with the exception of a 1,500 MW carve-out, contracts can be for any combination of environmental attributes and energy service. Of this capacity, 3,500 MW must be mid-duration (i.e., 4-10 hours), 750 MW long-duration (i.e., 10-24 hours), and 750 MW multi-day (i.e., 24+ hours). The legislation also sets interim targets for mid-duration storage, specifically, the EDCs must procure 1,500 MW by July 31, 2025 (for environmental attributes only), an additional 1,000 MW by July 31, 2026, an additional 1,000 MW by July 31, 2027, and the remaining 1,500 MW by July 31, 2030.

The “environmental attributes” procured from storage through these solicitations will almost certainly be Clean Peak Energy Certificates (CPECs). The enabling statute for the Clean Peak Standard gave DOER the authority to design and implement, through the EDCs, solicitations of CPECs. However, apart from a provision in the October 11, 2024 emergency regulations providing more flexibility for the target volume for these solicitations, there has been effectively no public progress towards implementing these solicitations since a straw proposal DOER issued in January 2021. In effect, the S. 2967 language would require DOER to use its authority to implement solicitations for CPECs included in the original CPS statute, while adding a number of specific volume and process requirements. DOER retains the authority granted in the original CPS statute to promulgate regulations implementing CPEC solicitations, but, in practice, this authority is only likely to become relevant again after DOER has overseen solicitations in compliance with S. 2967, as DOER could continue to solicit CPECs under its original authority. While “environmental attributes” are broadly defined in the legislation, the1,500 MW environmental attribute-only solicitation appears aimed at CPS.

While the statue specifies that “existing energy storage systems shall be eligible to participate in any procurement issued under this section,” which would include existing pumped hydro resources Bear Swamp and Northfield Mountain, it stops short of changing CPS resource eligibility criteria to make the full output of these resources eligible for CPS. As a result, these resources would likely not be able to contract for their environmental attributes through the storage solicitations. It is possible, however, that Bear Swamp and Northfield Mountain could participate in solicitations by only offering energy services. For other potentially eligible resources, the explicit inclusion of existing resources ensures that resources do not delay development out of fear that surpassing certain development milestones could render them ineligible to participate in the solicitations.

Key Questions on Solicitations

While the S. 2967 language provides significantly more specificity on storage solicitations than the current CPS statute, a number of critical questions remain. We discuss a few (not a comprehensive list – we save that for our subscribers in our next briefing) below:

• Eligibility.  DOER’s original straw proposal limited eligibility to distribution-connected resources, likely for a mix of policy and practical reasons. Given the need to procure 5 GW of resources and the lack of language in the bill that limits eligibility to distribution-connected resources, DOER will almost certainly have to make transmission-connected resources eligible. Another key question would be whether resources would need to be located in MA. While the proposed language does not specify this directly, if “environmental attributes” are interpreted to be CPECs, the CPS requirement for systems to be connected to the MA electric power system could apply.
• Contract duration. DOER’s original solicitations proposed a 6 year tariff term. The proposed Section 83E specifies that contracts can be up to 30 years.
• Structure of solicitations. Assuming that both transmission and distribution-connected resources are ultimately eligible, DOER could choose to hold a single solicitation for all resources, or to hold different solicitations with different target volumes and clearing prices for different types of resources.
• Bid price cap. SEA models a price cap based on approaches used in other MA solicitations. While it seems likely that DOER would adopt a similar approach for these solicitations, it’s also possible DOER could use other approaches to setting bid caps. If DOER holds different solicitations for different project types, the price cap could vary for each project type.
• Uniform clearing-price vs. pay-as-bid. In its straw proposal, DOER proposed using a uniform clearing-price (UCP) auction design, where all resources are paid the marginal (clearing) price. This approach is most common in wholesale electricity markets. Other renewable procurements, however, such as various Section 83 solicitations use a pay-as-bid approach. This choice will have implications for bidding strategies and resulting policy costs.
• Evaluation methodology. In addition to determining whether solicitations will be on a UCP or pay-as-bid basis, DOER will need to decide how to compare resources bidding only energy services, only environmental attributes, or both. This methodology will influence whether Bear Swamp and Northfield Mountain, which could not bid CPECs, could participate competitively.

The legislation specifies that the timetable and solicitation method would be subject to approval by the Department of Public Utilities, so the DPU would rule on DOER’s solicitation proposal.

Discussion

You don’t need to hire us, the CPS experts, to tell you that this is a big deal (or, will be if, as we expect, the language is ultimately passed). It is likely to flip the CPEC market from one in which the minority of supply flowed through DOER-orchestrated solicitations into one where a majority of supply flows through these solicitations. For those developing or operating projects, the specific design of the solicitations will determine if and how your project can benefit from a long-term contract. For others more generally interested in spot-market prices, having such a large portion of market supply tied up in contracts (which will likely include requirements for delivered volumes of CPECs), the market could become more volatile, as fewer resources may be responsive to changes in spot market CPEC prices.

But, as ever, the devil is in the details. The specific implementation of solicitations for storage (either through the pending legislation or DOER’s existing CPEC procurement authority) will have critical implications both for those trying to participate in the auctions and those entities trying to understand where market prices are headed. Language in DOER’s October emergency CPS regulations suggests that we’ll learn more about their intended procurement schedule in the coming months. And, given the legislation’s July 2025 target (which, frankly, is all but impossible for DOER to achieve), progress towards finalizing the design of the solicitations will need to proceed rapidly.

We’re Here to Help

All of the announced and potential changes to CPS create new opportunities for CPS-eligible resources, and a new set of questions for load-serving entities. Through CPMO, we consolidate the information, layer our informed expectations of potential future changes, and conduct robust modeling and analysis to provide our subscribers with the information they need to navigate the new opportunities that have arisen from the recent changes, and, critically, to effectively advocate for portions of the policy yet to be implemented (especially storage solicitations!).

CPMO’s next briefing, anticipated in December 2024, will explore recent and pending changes in detail. 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 or in learning more about our service please contact the CPMO team.