Understanding and Navigating Uncertainty in CPS

The Clean Peak Market Outlook (CPMO) team (Sustainable Energy Advantage and Customized Energy Solutions) delivered our most recent Massachusetts Clean Peak Standard (CPS) Market Fundamentals analysis briefing in early September, providing our most recent take on the impacts of the Department of Energy Resource’s (DOER’s) July 19 emergency regulations on the future of the CPS market. While DOER’s announcement reduced some uncertainties, it opened up new ones, such as if and how DOER might react to future market surpluses in the absence of a demand ratchet. (As our subscribers have seen demonstrated in our modeling, the elimination of the demand ratchet makes the market much more susceptible to sustained price crashes that might disincentivize investment). We also considered key inflection points such as whether the Massachusetts legislature might push through an energy bill that includes required storage solicitations, and what those solicitations might look like.

The result is a wide range of possible future prices, illustrated below, associated with different assumptions, related to policy choices, market changes, project economics, and other relevant factors.

We observed substantial changes in our projections relative to our first briefings in 2024. While some of the results were expected, others were slightly counterintuitive, revealed by our rigorous modeling. For those not conducting this type of modeling, it begs the question: are you making decisions based on an outdated view of the market or unreliable heuristics?  

So, how does someone trying to make decisions affected by CPEC prices make decisions in the face of uncertainty? First, the CPMO Team always provides a scenario that represents our best guess. Unfortunately, that’s where competitor’s or in-house analysis may end: a single price future without helpful context on what led to that set of projections and indications of what may lead to meaningful deviations from those projections.

We better arm you to establish an actionable and a well-founded market view. In each of our briefings, the CPMO Team considers, models, and presents the results of numerous scenarios and sensitivities. We include a sample of those from our most recent round of briefings below.

We believe that presenting scenarios and key underlying assumptions and key sensitivities is critical. Each of our scenarios represents a plausible future, consisting of a coherent set of internally consistent assumptions. Much of this is based on considering policy changes that make sense within the context of other chosen assumptions (e.g., high storage CapEx costs). This enables our subscribers to get a sense of potential future outcomes around our best guess.

We also include sensitivities in which we alter a single input. This enables subscribers to better understand the import of individual assumptions (e.g., policy changes) so that they can anticipate or influence key inflection points, and ignore policy elements or other drivers with minimal impact on the CPEC market overall.

We’re coming up on three months after the emergency regulations were filed, the time at which the emergency regulations will become permanent. It could be that DOER resumes its focus on the 2024 Program Review at that milestone, possibly leading to more changes to the policy, while also providing a unique opportunity to try to influence the policy. Our September briefings were recorded and are available now to help you effectively advocate for and anticipate CPS changes.

To purchase the most recent briefings or learn more about CPMO, please contact the CPMO team.