Massachusetts Clean Energy Standard’s Impact to Your Supply Price
As part of an ongoing initiative to limit CO2 emissions from power generation in the region, the Massachusetts Executive Office of Energy and Environmental Affairs (EEA) through the Massachusetts Department of Environmental Protection (MassDEP) passed two regulations on August 11, 2017. These regulations may ultimately affect electricity users in the region.
Regulation 310 CMR 7.74: Reducing CO2 Emissions from Electricity Generating Facilities establishes an allowance trading program for CO2 emissions. This regulation affects 21 in-state fossil-fueled power plants, creating sector-wide, annually declining limits on aggregate CO2 emissions. This program’s goal is to decrease emissions from 8.96 million metric tons in 2018 to 1.8 million metric tons in 2050, an 80% decrease. Impacts to electric ratepayers in the state (and the New England region) may be felt in the energy wholesale market run by ISO New England (ISONE). Generators subject to these restrictions may feel additional financial burden when complying. These extra costs may be incorporated in potentially higher energy supply offers which could marginally push up wholesale power prices. Any increase to wholesale power prices could result in higher forward energy prices for retail electric supply contracts.
The second regulation, 310 CMR 7.75: Clean Energy Standard (CES), sets a minimum percentage of electricity load served in Massachusetts that utilities and competitive suppliers must procure from non-CO2 emitting generating resources. The mechanism to fulfill these requirements is in practice similar to the various Renewable Portfolio Standards in the deregulated New England states. Suppliers and utilities are allowed to use clean Energy Credits (CEC), alternative compliance payments (ACPs), or Class I Renewable Energy Certificates to fulfill the new Clean Energy Standard.
Class 1 Renewable Energy includes resources like wind and solar. CECs include resources like hydropower and nuclear generation. The CES begins at 16% in 2018 and increases 2% annually to 80% in 2050.
Similar to the first regulation for electric generating facilities, suppliers and utilities may feel additional financial burden when complying with the new CES. Costs incurred to manage their respective load portfolios to comply (or face financial penalties) will likely be passed along to retail end-users being served in Massachusetts. Constellation has addressed CES with a new cost component as part of its forward supply price. This provides customers the option to fix (restrictions apply) or pass-through CES costs on their monthly bill. Any electric supply contract signed on or before August 11, 2017 for power flow through Dec 2019 will not be subject to the new CES. For new electricity contracts priced after this date, CES costs will be included in the price if the customer has elected to fix this cost.
According to Constellation’s cost curves, additional per unit costs from this new regulation may initially range from $0.50 to $2.00/Mwh depending on the contract terms and account load shape. As with RPS costs, CES costs may be volatile and are contingent on any additional regulatory change in compliance percentages managed by the state. In turn, the price of the CECs in the secondary market (based on supply and demand) may also change based on these regulations.
Please contact your Business Development Manager or Account Manager for more details on how you may manage your energy strategy to address market volatility.