Third Round of CPS Emergency Regulations Increases and Fixes ACP Rate
This is the eighth blog in our “2024 Clean Peak Standard” blog series. Read the first seven blogs here.
On October 11, 2024, the Massachusetts Department of Energy Resources (DOER) announced several important updates to the Clean Peak Energy Standard (CPS). These changes build on the emergency rules issued back in July; most importantly, the new regulations increase the ACP to $65 for Compliance Years 2026-2032, after which the ACP will remain fixed at $45 for the remainder of the policy period. While stakeholder comments and changes made through previous emergency regulations suggested DOER may have been contemplating a change to the ACP, eliminating a central feature of CPS, the declining ACP, is remarkable. Here’s a quick rundown of the changes.
July 19 Emergency Rulemaking is Now Permanent
DOER announced that the emergency rulemaking that DOER filed on July 19, 2024 has officially been made permanent, with no further adjustments. Central to the changes made in July was an adjustment to the Minimum Standard, lowering it relative to the original regulations in the near-term and increasing it relative to the original regs starting in the late 2020s. The changes to the Minimum Standard also eliminated the demand ratchet, which would have led to an increase in the rate of change to the Minimum Standard following periods of market surplus. As briefly mentioned in our last blog post and discussed in detail in our September briefings, the elimination of the demand ratchet without also addressing the ACP ratchet (which would have decreased the ACP faster following periods of surplus) would have yielded significant market volatility.
New Emergency Rulemaking (Effective Immediately)
DOER also introduced a new set of emergency regulations that are effective right away; together, these changes represent a marked shift from the original regulations.
Changes to the ACP Rate
The most significant update is to the ACP rate. The rate will stay at $45/MWh through Compliance Year 2025, but starting in Compliance Year 2026, it will jump to $65/MWh and stay there until 2032. After 2032, the ACP will drop back down to $45/MWh where it will remain through 2050.
This is a major shift from the original regulations, which had the ACP decreasing from $45 starting in 2025, falling to $4.96 by the end of the policy period. The declining ACP was a unique element of CPS that also gave rise to unique concerns from those looking to build CPS-eligible resources. While, all else being equal, the increase in the ACP would increase market prices, potential future surpluses that near or exceed the banking limits of load-serving entities will still lead prices to drop steeply.
CPEC Procurement Adjustments
The potential for prices dropping substantially below the ACP is a natural segue to the next set of changes, namely, those related to Clean Peak Energy Credit (CPEC) procurements. The original regulations contemplated the electric distribution companies (EDCs) procuring 30% (adjusted over time) of the market’s demand for CPECs. That target and related verbiage laying out how DOER would adjust the target in subsequent solicitations have been removed from the regulations. Given stakeholder feedback and other changes DOER has made to date, our expectation is that DOER is considering a CPEC procurement target volume of above 30%. DOER also announced that it will release a staggered procurement schedule “at a later date.”
CPEC Banking Period Shortened
The CPEC banking period has also been shortened from three years to two years. This change brings CPS in line with other clean energy policies in Massachusetts that have a two year banking limit.
Summer Peak Period Shifted
DOER shifted the Summer Seasonal Peak Period to later in the day. It now runs from 4:00 to 8:00 PM, instead of the previous 3:00 to 7:00 PM window. This change reflects how the highest demand and prices have been shifting to later in the afternoon and evening during the summer months. It also confirms DOER’s intent to adjust CPS windows to align with periods of high demand and price, which has the additional benefit of reducing the potential for conflict between CPEC production and maximizing energy arbitrage earnings.
Final Near-Term Resource Multiplier Guideline Coming Soon
Lastly, DOER has reviewed stakeholder feedback on the Draft Near-Term Resource Multiplier Guideline and has announced that a final version will be posted soon. We expect clarifications, if not significant changes.
Discussion
DOER’s changes to the ACP represent a significant shift in the design of CPS, especially when considered in conjunction with its July changes to the Minimum Standard. While changes to the Minimum Standard appeared to balance a concern with ratepayer cost (thus, reducing Minimum Standard in the near term) with a desire to have sufficient market demand to support robust CPS-eligible resource buildout (thus, the increase in Minimum Standard in the long term), the increases to the ACP are clearly intended as a signal to boost development efforts.
Of course, there is no guarantee that market prices will remain at the ACP. Robust interconnection pipelines for both the distribution and transmission systems indicate significant interest and development activity. If higher ACP prices drive a larger share of these projects to achieve commercial operation, the CPS market could easily become oversupplied, depressing prices. Subscribers to CPMO receive our view on the probability of this happening, across a range of possible future scenarios.
DOER’s changes to the target volume for CPEC procurements, of course, could provide a pathway for more resources to achieve CPEC price certainty. Project eligibility criteria will also be critical. DOER’s 2021 straw proposal for CPEC procurements limited eligibility to distribution-connected resources. A lot has changed since then, and one might expect that an increase in the target volume could be accompanied by making more resource types eligible.
Don’t Just React – Respond and Anticipate with CPMO
All of the 2024 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 expectation 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.
CPMO’s next briefing, anticipated in December 2024, will explore the recent 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.
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