July 15, 2015

Baker Seeks to Curb Solar Speculators. Administration Tinkers with Auction Rules for Subsidies in Massachusetts

The Baker administration, which favors keeping a cap in place on one solar subsidy program, is now tinkering with another solar price support.

State officials say they plan to change the way a key solar subsidy is auctioned to curb price speculation by hedge funds and Wall Street firms. Judith Judson, the commissioner of the state Department of Energy Resources, estimates the changes in auction rules will save electricity ratepayers at least $20 million a year.

“We think if there’s an opportunity to save $20 million and keep moving forward on our clean energy goals, we’re going to pursue it,” Judson said in a telephone interview.

But critics of the move say the change is being carried out with no public debate and may actually increase electricity rates rather than lower them. The critics also say the latest move is another sign that concern among utility executives about the high cost of solar power is driving policy within the Baker administration.

Elise Zoli, an attorney at Goodwin Procter who represents clean tech clients, urged Judson in a letter to withdraw the new auction rules. She said the changes will lead to auctions “dominated and controlled by retail electric suppliers, to the exclusion of financial, environmental, and solar sector participants.” She said restricting the number of bidders at the auction could lead to lower prices for solar credits and less income for solar developers.

Solar power in Massachusetts receives two major state subsidies. One subsidy, called a net metering credit, is provided for each megawatt hour of solar electricity fed into the power grid. The other is a solar renewable energy credit, or SREC, which is awarded to developers for each megawatt hour of solar electricity they produce. Both subsidies are paid for by the state’s electric utilities and passed along to their customers through their bills.

A state task force released a long-awaited report in May saying that the growth of solar power is dependent on subsidies and that the subsidies yield more economic benefits to ratepayers than they cost. But some members of the task force said the economic benefits of solar could be attained at far less cost. One utility executive said Massachusetts ratepayers are paying more than twice as much as Connecticut ratepayers for solar power.

The Baker administration is moving to reduce the ratepayer cost of solar power. For example, the administration sided with utility executives  on net metering credits. The availability of net metering credits is capped in each utility service area. The cap limit has already been reached in the National Grid service territory and is nearing the limit in the Eversource territory. A majority of the state task force backed raising the net metering cap, but the Baker administration came out in favor of keeping the existing cap in place until a more cost-effective solar energy program can be developed.

The Baker administration is now moving to change the way SRECs are auctioned.  Solar power generators are issued one SREC for each megawatt of solar power they generate. The credits are a source of funding for solar developers because companies selling electricity in Massachusetts are required to buy credits equal to a small percentage of their sales. Some SRECs are sold through contracts between solar developers and companies selling electricity to consumers. Each year, however, SRECs not sold through contracts are put up for auction.

Judson said half of all SRECs in 2013 were sold at auction, while in 2014 a quarter of the credits were auctioned off. She said a significant number of the credits sold at auction – more than two-thirds of them in 2014 – were purchased by hedge funds and Wall Street firms on the assumption that the market for SRECs will tighten this year and next and the SRECs can be sold at a profit. Judson declined to name the hedge funds and Wall Street firms.

State officials hope to curb future speculation in SRECs by establishing a two-tier bidding system starting with an auction scheduled later this month. The pot of SRECs up for auction will be split in two, with half available only to utilities and other entities selling electricity directly to customers who need the credits to comply with state law. The remaining half of the SRECs can be purchased by anyone, but no one party could buy more than 10 percent of the credits.

Zoli, in her letter to Judson, said the changes violate existing regulations and laws, but state officials say only the rules of the auction are being changed. “All auctions have rules,” Judson said. “This is simply designing rules for an effective market.”

Judson said the state’s utilities didn’t lobby directly for the changes, but she said the companies have been supportive of the changes.

Janet Gail Besser, vice president of policy and government relations at the clean energy group NECEC and a member of the solar task force,  said she wasn’t troubled by the new auction rules. “The changes proposed are intended to reduce the cost of the SREC program for electricity customers and do not appear to be unreasonable,” she said.

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