Last fall, Pennsylvania lawmakers set out to fix a problem
with the state’s 2004 Alternative Energy Portfolio Standards Act (AEPS).
No, the problem they took on with Act 40 of 2017 was not the weakness of the renewable
energy targets in the AEPS. (Those targets still have not been updated since 2004). Act 40 addressed the “oversupplied” state of Pennsylvania’s Solar Renewable
Energy Credits (SREC) market. Before Act 40, the AEPS gave solar projects
located throughout the PJM
region (which stretches as far west as Illinois and as far south as
North Carolina) the unqualified right to sell SRECs in Pennsylvania. The
resulting glut of SRECs led to depressed SREC prices, which has made solar
development less economical in the state. Act 40’s fix was to establish new,
more restrictive SREC eligibility criteria in order to spur more in-state solar
photovoltaic (PV) development, and thereby deliver more clean air benefits to
Pennsylvanians.
So far, so good. But in December 2017, the Pennsylvania
Public Utility Commission (PUC), which will administer Act 40, proposed an
interpretation of the law that would completely undermine its purpose. As a
legal matter, the PUC’s interpretation is mistaken. Practically speaking, the
controversy over Act 40’s construction underscores the need for Pennsylvania to
strengthen the solar (and other renewables) targets in the AEPS. If they were
stronger, Act 40 might not be needed at all.
The solar PV target in the AEPS is 0.5% of retail
electricity sales in 2020, a goal that Pennsylvania has been slowly inching
toward since 2006.
Electricity distribution companies (i.e., utilities) and
electricity generation suppliers (EGS) meet these targets by buying SRECs
generated by qualified solar projects. (Each SREC represents 1 MWh of
electricity). Between the smallness of the solar PV targets in the AEPS and the
large number of SRECs that have poured into Pennsylvania’s Alternative Energy
Credit market (in 2017, more than 60% of all the SRECs purchased for AEPS
compliance came from outside Pennsylvania), the market is “oversupplied” –
i.e., there are more SRECs for sale than utilities and EGS need to buy.
As a result, SREC prices have plunged from more than $300.00/MWh in 2010 to less
than $5.00/MWh today. These low prices make solar development in Pennsylvania
harder, because solar projects are financed partly through the revenue stream
their SRECs will generate.
Act 40’s Fix
Act 40’s solution to this problem was to establish more
restrictive criteria for solar PV projects to sell SRECs in the Pennsylvania
market. Under Act 40, a solar project must (1) deliver electricity to the
customer of a Pennsylvania electric utility, (2) be connected to an electricity
distribution system operated by a Pennsylvania utility, a Pennsylvania
municipal electric system, or a Pennsylvania electric cooperative, or (3) be
connected to a transmission system located within the service area of a
Pennsylvania utility.
According to State Sen. Mario Scavello, R-40, the author of
Act 40’s solar provisions, the intent of
the law is that “out-of-state systems will no longer qualify” to sell SRECs in
Pennsylvania’s market, so that “[e]lectric distributors will now have to
purchase their credits from within the commonwealth.” Similarly, Gov. Tom
Wolf, D-Pa., touted his signing of Act 40 as a way of “making sure that
the benefits of increased renewable jobs, a cleaner environment, and a growing
renewable economy will be felt in the commonwealth.” Expanding solar
energy, the governor added, “is incredibly important to
Pennsylvania’s carbon footprint and demonstrates our state’s commitment to
leadership on the most important environmental issue confronting the world.”
The PUC’s Misinterpretation of Act 40 (and an Alternative
Interpretation)
Although the clear intent of Act 40 is to exclude
out-of-state solar PV systems from Pennsylvania’s SREC market, the PUC’s
Tentative Implementation Order (TIO) for Act 40 proposed to “grandfather” such
systems into the market because of the following language:
Nothing under this section … shall affect … a certification
originating within the geographical boundaries of this Commonwealth … of a
solar photovoltaic energy generator as a qualifying alternative energy source
eligible to meet the solar photovoltaic share of [the AEPS].
According to the TIO, this section requires the
grandfathering of all solar PV systems previously “certified” for
Pennsylvania’s SREC market – regardless of location – on the grounds that the
administrative act of certifying them took place inside the state. But as comments
submitted by us at the Natural Resources Defense Council (NRDC)
and several other environmental organizations point out, the TIO’s
interpretation is untenable, among other reasons because it ignores legislative
intent and strips the phrase “within the geographical boundaries” or any
meaning.
Fortunately, PUC Chairwoman Gladys Brown and Vice Chair
Andrew Place have proposed an alternative
reading of this language. Recognizing that Act 40 does not define
“certification” and acknowledging the clear intent of the General Assembly,
Brown and Place would read a certification as originating in Pennsylvania only
when the solar system being certified is located in Pennsylvania. NRDC, as well
as Senator Scavello and other legislators, have urged the full PUC to embrace
this interpretation, which would grandfather only Pennsylvania solar systems.
What’s Next?
The PUC’s public comment period on the TIO and the
alternative interpretation offered by Chairwoman Brown and Vice Chair Place
ends on Feb. 5. After that, the PUC will issue a final Implementation Order. If
the PUC interprets Act 40 consistent with legislative intent, it will provide
Pennsylvania with an economic and environmental boost, especially if the
General Assembly and Governor Wolf go one step further and strengthen the
state’s clean energy standards.
Meanwhile, whatever the content of the final order, the
other factor driving low SREC prices in Pennsylvania – tepid demand, due to the
AEPS’ weak renewable goals – remains. Pennsylvania’s renewable energy industry
today supports nearly 10,000 jobs, and the state is home to more than 500 solar businesses. These businesses are
helping homes and businesses meet their electricity needs without harmful
greenhouse-gas emissions. With the AEPS set to plateau in 2021, the state needs
to set more aggressive, long-term targets to realize the economic and
environmental potential of solar energy in Pennsylvania.
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