Congress is reviewing a bill that proposes an expansion of the District of Columbia’s (DC) Renewable Portfolio Standards (RPS) and an increase in the Alternative Compliance Payment (ACP). Both efforts are part of the RPS Expansion Amendment Act of 2016.
What are RPS and ACP?
RPS is the electricity supplier’s obligation to procure a certain percentage of renewable certificates from qualified renewable resources. Customers are obligated to pay for the cost of the Renewable Energy Credits (RECs) that the supplier must purchase to comply with the RPS law. The ACP is a structure that ensures suppliers fulfill their obligation if they fail to procure their targeted percentage of renewable energy for any reason.
What does this mean for DC?
To put some perspective around the costs linked to these obligations over the past few years, the Public Service Commission of DC (PSC) presented a brief assessment in a recent publication. The PSC found that in 2014, energy suppliers paid over $21M to purchase RECs and over $6M for ACPs. According to the PSC, in 2015 those same energy suppliers paid only $18M for RECs but almost $20M for the additional costs associated with the ACP. Under the current law, the PSC estimates customers will pay upwards of $330M in both RECs and ACPs between now and 2032. If the proposed legislation is passed into law, that number could be as high as $1.5B, according to the PSC.
One of the key components of the bill is an increase in the required percentage of renewables. DC recently reevaluated their standards to align with other jurisdictions, such as New York and California. The bill proposes the renewable requirement to increase to 50% and the solar requirement to 5% by 2032.
Another key component of the proposed bill is to raise the Solar Alternative Compliance Payment (SACP). SACP is the cost incurred by the energy supplier if there is a shortfall of Solar Renewable Energy Credits (SRECs) available in the market to use for RPS compliance. The current SACP requirement is set at $500/MWh and decreases to $50/MWh by 2023. The proposed SACP in this amended bill holds the current rate of $500/MWh out to 2023. The below table shows a comparison of the rate schedules between the current and proposed legislation of SRECs under Congressional review.
The challenge for the DC solar market is that the amount of physical space needed to meet all solar requirements is limited given the geography of the District. Currently, the projected requirements of the amended bill far exceed what is expected to be built over the time period of this proposed legislation.
According to the PSC, about 70 MWs of DC-based solar capacity would be needed to meet the proposed solar requirements. Only a fraction of that (about 20 MWs) is certified. As a result of this expected shortfall, SRECs offered in the market are limited. DC SRECs are priced among the highest in the country. This shortfall, caused by the proposed increased targets set by the District, has put upward pressure on prices in the market.
The proposed legislation allows for up to a five-year period for customers to be “grandfathered-in” at the current rates if a contract is finalized prior to the effective date of the legislation. The term of the contract won’t be allowed to exceed five years from the date the bill goes into effect (that effective date is yet to be determined) at the current rates. Following that period, PEPCO DC load would be subject to the higher RPS targets and SACPs stated in the proposed amendment.
If you have questions about the cost and budget implications of your future usage, please contact your Constellation sales representative today.