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November 21, 2017

Massachusetts Expands Community Solar Program for C&Is

By Richard DiMatteo, Blue Mountain Power, LLC

The opportunity for commercial, industrial, and institutional (C&I) energy users to source solar energy in Massachusetts is about to expand dramatically, thanks to a new community solar program.

To comply with both the state’s Renewable Portfolio Standard (RPS) and the requirements of Chapter 75 of the Acts of 2016, signed by Governor Charlie Baker in April 2016, the Massachusetts Department of Energy Resources (DOER), with significant input from the largest solar stakeholder collaboration process orchestrated at the state level, has developed its newest solar incentive program, the Solar MA (Massachusetts) Renewable Target (SMART). The solar incentive program will enable 1.6 gigawatts of new solar deployments, over $3 billion of investment.

Program Basics

SMART is a tariff-based program that aims to significantly expand the Commonwealth’s solar energy market through specific incentive structures aimed at key stakeholders.

For C&I energy users, SMART provides access to a much larger pool of solar off-take opportunities (community solar projects) than the previous incentive program, and allows project developers and owners to offer solar energy at a discount to market utility rates.

For utilities, SMART provides a framework that will supply a steady, long-term stream of Renewable Energy Certificates (RECs) that will help utilities meet their Renewable Portfolio Standards (RPS) obligations by sourcing from across a competitive development market.

For project developers and long-term owners, SMART provides financial certainty by locking in solar energy off-take and Renewable Energy Certificate (REC) incentive revenue for a 20-year term.

The Details (Off-Site Solar)

Project revenue will be delivered through an All-In Compensation Rate that values both energy and REC production, received by off-takers and the utility, respectively. Starting with a Base Compensation Rate that will be determined by a DOER-administered competitive procurement auction, projects will then receive a series of rate adders based on project location — e.g. brownfield, canopy, building mounted — and the specific energy off-taker category — e.g. public entity, low income, community shared solar (multiple recipients). In addition to these adders, there is also a subtractor for projects developed on greenfield / virgin land. Combining each of these individual components together will yield a project’s All-In Compensation Rate.

Location Based Adders:

Solar Generation Unit Location

Adder Value ($/kWh)

Building Mounted $0.02
Floating $0.03
Brownfield $0.03
Eligible Landfill $0.04
Canopy $0.06
Agricultural $0.06

Off-taker Based Adders:

Solar Generation Unit Off-taker

Adder Value ($/kWh)

Public Entity $0.02
Low Income Property $0.03
Community Shared $0.05
Low Income Community Shared $0.06

Unique to this new program is that project revenue is effectively fixed for 20 years, while pricing for the two individual components of this revenue (energy and RECs) will float. In other words, as energy prices go up and down over the 20-year term, the incentive (REC) value will also fluctuate to make a project whole to its All-In Compensation Rate. By fixing project revenue rather than the REC value, or the energy value, project developers can more efficiently secure lifetime financing for projects with the elimination of merchant risk.

Consider three example scenarios below:

SMART Project Revenue — Flat Retail Rate

Massachusetts SMART Project Revenue — Flat Energy Model

With a Flat Retail Rate, prices for both energy and RECs are fixed and unchanging for the full 20-year contract term.

SMART Project Revenue — Escalating Retail Rate

Massachusetts SMART Project Revenue — Escalating Energy Price Model

Under an Escalating Retail Rate structure, as energy prices increase over time — in this example via a two percent annual escalator — REC prices diminish by an offsetting amount.

SMART Project Revenue — Variable Retail Rate

Massachusetts SMART Project Revenue — Variable Energy Price Model

Finally, under a Variable Retail Rate, REC prices adjust dynamically in reaction to energy price fluctuations.

In each scenario, project revenue is unchanged, providing much-needed certainty to project developers, owners, and financiers, while allowing C&I energy users to select an energy rate structure that meets their needs.

Large Energy Users — What’s in It for You?

As a company, university, hospital, or any other large C&I energy user with operations in Massachusetts, there is an opportunity to buy energy from solar projects participating in this new incentive program.

In a significant shift from the Commonwealth’s previous Net Energy Metering framework, SMART will allow energy bill credits to transfer across ISO-NE load zones within the same service territory, significantly expanding the world of solar projects available for customers to buy energy from.

The program also incentivizes developers to pursue large off-takers capable of buying up to 50 percent of a single project’s energy generation. Contracting with Community Solar projects under the new MA Solar incentive program is not only a way to buy electricity produced by the sun but also capture significant cost savings, without even touching your own roof. In exchange for contracting with a Community Solar project under the MA SMART program, project developers are offering attractive energy discounts to customers who sign long-term Power Purchase Agreements (PPAs).

One important note for C&I energy customers: Under the new SMART program, all related RECs will be transferred to the utilities. Companies that execute PPAs under SMART will not be reducing their greenhouse gas (GHG) emissions. Edison Energy can help organizations structure procurements that include replacement RECs that will facilitate GHG claims.

Massachusetts SMART Project — How it Works

Massachusetts SMART Project — How it Works

Next Steps

Negotiating a long-term energy contract that is right for your company is a complex and challenging task. Issues of project and developer diligence, economic and risk analysis, project selection, and execution need to be addressed.

Edison Energy is interested in helping your organization understand, evaluate, and execute the MA Community Solar deal that addresses your strategic and energy needs. Our analytics database includes a comprehensive capture of current and pending MA solar projects.

We expect a rush of activity at the program’s launch as pent-up demand is released. Organizations may find early-mover advantages. Please contact us at communitysolar@edisonenergy.com for more information on MA Solar opportunities or any other Renewable Energy Advisory need.


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