MA ConnectedSolutions Changes: What They Mean for Project Revenue

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Developing energy storage can be complicated. For behind-the-meter (BTM) storage in Massachusetts, a successful project has a lot of potential benefit streams to consider, including:

• SMART storage adder
• Clean Peak Standard
• Demand charge management reduction
• ICAP tag management
• Retail rate arbitrage
• ConnectedSolutions

Optimizing the configuration and operation of BTM storage to take advantage of the above has always been challenging. For those looking to take advantage of (or maybe even already participating in) the ConnectedSolutions program in Massachusetts, things are likely to get a little bit more complicated.

ConnectedSolutions Background

ConnectedSolutions is the branded name for demand response (DR) programs offered by energy efficiency/demand response (EE/DR) program administrators (PAs) in Massachusetts, Connecticut, Rhode Island, and New Hampshire. While it was originally designed for load curtailment, in 2019, the Massachusetts electric PAs (the Cape Light Compact, Eversource, National Grid, and Until), began allowing storage to participate in the program. Part of the appeal of the program is its relative simplicity: PAs call events, usually 2-3 hours long, the night before, approximately 30-60 times per summer season (for the Daily Dispatch option, which is designed primarily for storage). Participants are compensated by averaging their kW delivered across all event hours for the season, multiplied by a specified $/kW incentive (currently $200/kW). This incentive rate is locked in for a minimum of five years. So, a commercial & industrial (C&I) battery that averages 1 MW (i.e., 1000 kW) during all ConnectedSolutions hours of a given summer season (June-September), would receive 1000 kW*$200/kW-season = $200,000. To be eligible, the battery must be sited behind a retail meter with some non-parasitic load (more on this later).

Status and Proposed Changes

C&I storage participation in ConnectedSolutions has been modest. Results from the 2022 Massachusetts ConnectedSolutions season are included below. Statewide, the PAs planned for 14.5 MW of C&I storage, including Daily Dispatch and Targeted Dispatch (Targeted Dispatch provides a lower incentive and includes fewer events per season). Just over 11 MW enrolled, of which approximately 7 MW performed. The enrolled numbers suggest an average C&I storage commitment of 370 kW per participant (again – some mild foreshadowing happening here).

On December 5, 2022, the PAs presented a ConnectedSolutions 2022 Year End Update. In the update, the PAs discussed two critical items for storage participating in ConnectedSolutions. First, the PAs stated that “sites that are net exporters of power during ConnectedSolutions events will have their performance capped at 150% of the site’s annual peak load less the nameplate capacity of the battery.” Second, the PAs highlighted an evaluation of the ConnectedSolutions program performed by DNV that recommended applying a baseline to C&I storage participating in Connected Solutions.

Unsurprisingly, industry stakeholders were not enthused about either announcement. On December 20 2022, CPower, EnelX, and Convergent Energy and Power (the “industry group”) submitted a letter to the Massachusetts Energy Efficiency Advisory Council (EEAC) expressing their concerns and proposing alternatives to the PAs’ plans.

We delve into more detail on the two changes below.

Size-to-load Restriction

The June 2022 (which appear to be current) ConnectedSolution program materials state that, in order for a customer to be eligible, they must “pay into the energy efficiency fund on their electric bill where the demand response savings will be implemented” and that the storage system “must be considered behind-the-meter,” meaning that the facility “serves an on-site load other than parasitic load or station load.” The program materials do not include any other language limiting the size of the battery.

Industry rumblings had suggested that numerous developers had identified that the program materials would allow for very large batteries to be sited behind small existing loads, and still be paid the full ConnectedSolutions incentive. This strategy, while limiting demand charge management potential given the relatively small load, would allow a larger battery to take advantage of economies of scale without needing to identify a customer with a large load and without compromising ConnectedSolutions, Clean Peak Standard, or most wholesale market revenues.

In the December 5 presentation, the PAs stated that they had received ConnectedSolutions applications “for battery projects in excess of 100x site peak load.” There are a number of reasons that the PAs may have objected to this trend, including providing an incentive for potentially more challenging interconnections, not maximizing reductions to onsite load, and creating challenges to the PAs’ ConnectedSolutions budget. In response, the PAs stated their intent to cap ConnectedSolutions performance to 150% of the site’s annual peak load, less the nameplate capacity of the battery. This would, in theory, allow large batteries to be installed and pursue CPS and other revenues, but ConnnectedSolutions compensation would be limited based on the customer’s peak demand.

Available interconnection data doesn’t provide enough information to identify how many projects that are already in the interconnection queue may be affected by this change (for some distribution companies, standalone storage cannot be distinguished from SMART storage projects and there’s no information on the magnitude of onsite load). That said, as of the writing of this post, more than 60 projects with a nameplate capacity of greater than 2 MW were included in the interconnection queue data, which may provide a rough sense of scale.

Industry Response

In its December 20 letter, the industry group acknowledged that projects sized at or “anything close” to 100 times a customer’s load may not be “necessary or appropriate.” Still, they argued that the proposed 150% cap would challenge project economics and limit the ability of customers to use their batteries to enhance resilience. The group suggested that the PAs adopt a kW cap equal to customer average load multiplied by 18 hours divided by battery duration. They argued that this formulation would allow customers to install and receive ConnectedSolutions incentives for batteries that provide approximately 18 hours of backup power. Alternatively, the industry group argued that the PAs could adopt a cap based on 8 times the customer’s gross peak load (that is, excluding reductions in peak load attributable to BTM distributed energy resources).  Further, the group argued that the cap should only apply to projects that have not submitted an interconnection application by May 31, 2023.

Energy Storage Performance Baseline

Currently, ConnectedSolutions performance payments are based on metered battery discharge during event hours, without the application of a baseline.  By “baseline,” we mean a comparison of activity during the Connected Solutions event hours to the same hours in similar, preceding days, which allows the PAs to estimate the load reduction attributable to ConnectedSolutions. For context, load curtailment resources in ConnectedSolutions do have a baseline applied to calculate their performance. When the PAs originally rolled out plans to add storage resources to ConnectedSolutions, they initially planned to use a baseline, but backtracked in the face of considerable pushback.

The October 26, 2022 Active Demand Reduction Initiative evaluation resurfaced this issue. The evaluation stated that “based on a survey of battery participants, it was concluded that [ConnectedSolutions] is not the sole motivator for the purchase and operation of the battery.” Based on this, the evaluation recommends that a baseline be applied to storage projects, so that participants would only “get credit for the marginal discharge above typical operation.” The evaluation includes additional recommendations about the specific implementation of the baseline, including how to design it to preclude “gaming” by charging the battery during peak hours of non-event days.

Industry Response

The industry group was similarly concerned about the possibility of a baseline, arguing that it would “almost certainly dampen, if not completely extinguish, interest in installing [presumably BTM] batteries.” The group’s letter called out that Connecticut’s Energy Storage Solutions program does not include a baseline. Citing impacts on the market, the group argued that, should the PAs introduce a baseline, they must first review the program in its entirety, apparently suggesting that the incentive design would need to be revisited if a baseline were to be applied. Finally, mirroring their arguments on sizing restrictions, the group argued that, if the PAs do decide to implement a baseline, it again should only apply to projects that have not submitted an interconnection application by May 31, 2023.

Impact on Connected Solutions and/or Clean Peak Standard revenue

A review of ConnectedSolutions event data shows a nearly perfect overlap between Clean Peak Standard (CPS) hours and ConnectedSolutions events. Given the similar objectives of the two programs, this makes sense.  The image below shows a representative set of days from the summer of 2021, illustrating program overlap.

If a baseline is implemented as recommended, this significant overlap means that ConnectedSolutions revenue would be significantly degraded if a project is dispatched during every CPS window. We will analyze and share in future Clean Peak Market Outlook (CPMO) briefings on how a ConnectedSolutions baseline would impact battery dispatch and revenue.

Discussion

While the specifics have not yet been finalized, it’s safe to say significant changes are ahead for projects hoping to benefit (or maybe already benefiting from) ConnectedSolutions revenue. We will continue to follow updates and incorporate the latest into modeling conducted for our CPMO service. This will include showing impacts to individual resources, as well as modeling impacts to the CPS market as a whole.