Rising Costs, Renewed Focus: SEA’s Impact on Clean Energy Programs Under Pressure

Rising Costs, Rising Pressures. With the rising cost of building renewable energy creating new challenges for states, SEA is at the forefront of helping states across the Northeast adapt their distributed generation (DG) programs to these cost pressures. Across four states, SEA has recently conducted detailed Benefit-Cost Analyses (BCAs) and evaluations of state program alternatives that are revealing key insights regarding the tradeoffs of incenting DG under current cost pressures and the options to maximize value.

A SMART-er MA. As inflationary pressures and supply chain constraints drive the installed cost of DG higher, the Massachusetts SMART program has faced a significant slowdown. The SMART program’s declining block incentive (DBI) structure (in which incentives are set according to a declining schedule based on blocks of program capacity) resulted in incentives disconnected from the current market’s costs. SEA was engaged by the Massachusetts Department of Energy Resources (DOER) to assist in recalibrating incentives via an in-depth revenue requirement analysis and re-considering broader program design options. SEA’s work revealed significant cost increases impacting projects of all sizes. In July, DOER published a Straw Proposal of program revisions informed by SEA’s analysis which proposed increases in incentives as much as 60% for the program’s largest resource class (1-5 MW). SEA’s analysis informed the shift from a DBI structure to an adjustable block program (in which incentives are administratively set based on annual cost analyses), demonstrating the need for flexible incentives that can keep up with market shifts to ensure ongoing program success. See reports on cost analysis and program design.

RE-balancing Act. For other states facing high costs, the key question was if the benefits of DG justified the price tag in today’s market. In Maine’s NEB and Rhode Island’s REG program, SEA’s BCAs over the past year have highlighted critical benefits and trade-offs (for example, see Analysis of 2023 Net Benefits of Net Energy Billing Program for the Maine PUC). Overall, while renewable programs show positive net benefits from a societal perspective (e.g., including the benefits of greenhouse gas abatement), increasing scrutiny on how these benefits are distributed is inevitable, as the ratepayers of the state in question often face net costs given many state’s BCA methodologies include non-monetizable benefits (such as environmental benefits). In addition, many monetized benefits are realized out of state (for example, the price suppression effect of new renewables on wholesale energy prices). BCA methodologies pose an interesting question: should benefits realized by ratepayers in Massachusetts be included in an assessment of Maine’s program? This is ultimately a question for policymakers, and as such, SEA’s analyses include multiple perspectives showing the range of net benefits under different scopes of analysis to present a comprehensive picture. These analyses are also highly sensitive to key assumptions such as the assumed social cost of carbon or how economic development benefits are accounted for. In addition, DG has the potential to introduce benefits or costs to the distribution and transmission system, but the quantification of these benefits is difficult given the location-specific nature of such impacts.

Optimizing future policies & programs. SEA’s work goes beyond the evaluation of current programs, exploring an array of policy alternatives in states like Vermont (modeling implications of potential RES expansion options), Rhode Island (modeling alternative DG program designs), and Maine. For example, Maine, faced with a growing NEB program in which costs are tied to growing retail rates, engaged SEA to evaluate methods to maximize the value of generator assets participating in the program (see Ratepayer Value Analysis of Maine’s Net Energy Billing (NEB) Resources: Load Reducers vs. Generator Asset for the Maine PUC).  Our analyses revealed that treating assets as load-reducers may deliver greater benefits, but that some of these benefits accrue to Load Serving Entities (LSEs), raising questions about how much value ultimately reaches ratepayers.

As costs rise and scrutiny intensifies, SEA’s insights are helping states maximize the value of their clean energy programs. We maintain robust policy analytics and market analytics practice areas, and feature Public Policy Design and Implementation Support, BCA, and expert witness capabilities.

If you are a:

• policymaker, regulator or legislative committee needing deep, objective, credible expert analysis to help guide tough choices…
• market participant, association or NGO offering input to policy or program design needing independent analysis to support optimal outcomes…
• developer or investor needing strategic or analytic input to understand and tune your approach to evolving incentive landscapes…

Reach out for a consultation.