This article was originally published in Energy Spectrum Issue 691 on 18 November 2019.
The energy policy narrative in Great Britain has treated incentivisation of renewables and flexible resources as separate activities, with inevitable lags and imperfect scaling of system flexibility to meet the new system demands created by variable, low carbon generation. As a result, we have witnessed parallel procurement and system design streams, moving at different speeds, with the lag in flexibility growth diminishing the bang we get for our low carbon buck. But international lessons show there are other ways to approach achieving a low carbon, flexible system as Cornwall Insight CEO Gareth Miller discusses.
In Massachusetts in the US they are currently implementing a new policy incentive programme designed to engineer in at source solutions that meet the holy grail objective of ensuring a high percentage of peak demand is met by low carbon sources. This is called the “Clean Peak Standard” (CPS).
Currently in its final stages of regulatory approval, the CPS is a certificate based, market system which has echoes of our very own Renewable Obligation (RO) regime, but with some important additional incentives and controls. Under the CPS eligible sources will be able to receive Clean Peak Certificates (CPCs) for export at clearly designated times of seasonal peak demand. There are defined windows for spring, summer, fall and winter based on robust analysis.
Eligible sources include existing renewables, and new renewables co-located or contractually paired with storage. The scheme aims to incentivise the “right” king of storage, specifying 4-hour duration at 25% or more of the nameplate capacity of the renewable assets, and (whether co-located or contractually paired or standalone) that charges during periods of high renewable output. Demand response is also eligible.
Multipliers have been introduced to recognise the current and potential future system value of different resources, the value of other subsidies existing resources may receive, as well as the distinction in the value of green flexibility between different seasons.
For example, qualifying CPC generation during the designated winter and summer peak periods are subject to a 3x multiple. Whereas, the same generation during spring and fall is subject to 1x multipliers. System resilience contribution is rewarded by a 1.5x multiplier. To qualify for this multiplier, resources must be able to demonstrate that they will provide a system benefit by enabling provision of electric service to a load during external outage conditions.
In terms of resource differentiation, existing renewables are granted a multiplier of 0.1x to prevent saturation of the CPC market by already built assets. New renewables with subsidy will face the same multiplier as existing renewables. However, if it is co-located or contractually paired with 4-hour energy storage of at least 25% of the nameplate capacity of the renewable project, that charges at times of high renewables output, the energy storage element will have a multiplier of 1x.
And finally, in a parallel to our Triad system, there is a 15x multiplier for qualifying CPCs generated during the monthly hour of peak demand.
In the future, these multipliers will be reviewed, and other multipliers will be introduced. The regulatory authorities have already said they will look at multipliers to reflect the locational value in different circuits on the distribution network. These multipliers won’t be included at CPS launch and will follow on later.
To create a marketplace for the sale CPCs, all suppliers will be obligated to procure a certain percentage of their peak demand each year from these sources or face a penalty cost ($30). The regulations set out that the level of obligation will increase by at least 0.25% per year, with the intention of creating a short market. The actual pathway for the level of the obligation has already been set, rising from 1.5% of peak demand in 2020 to 16.5% by 2030, increasing by 1.5% in linear fashion each year. In practical terms, this will create an 8.6TWh, 2.75GW CPC market by 2030.
The analysis of the regulatory authorities in Massachusetts suggests that even with the $30 CPC price the net cost benefit to the consumer is positive to the tune of $710mn over the first 10 years of the scheme. Much of this benefit accumulates once the standard increases above a minimum level of 7.5% of peak demand. There is a big benefit too in terms of saved emissions as it is anticipated that batteries and demand response will be utilised instead of fossil fuelled engines to meet peak demand.
The CPS is in its relative infancy. But this hasn’t stopped it being lauded by industry analysts in the US for its common-sense approach to addressing the need to drive flexible, low carbon solutions in a market-based incentive scheme. The expectation is that the CPS will drive the deployment of battery storage in a big way. This is creating real interest from storage development companies in the Massachusetts market, making it one of the leading drivers of what is widely anticipated to be a nationwide 5GW battery market in the US. It is hoped that the CPC could create a replicable model for adoption in other markets state-side too.
Perhaps replicability should not be confined just to the US. As we emerge into a net zero world after the election, policy makers here would do well to consider this model - and other initiatives - as “in-scope” in their thinking of how we deliver the smart, low carbon future that all parties agree must be our ultimate destination.
If you have enjoyed reading Gareth's views and want to read about the latest developments in the energy market, please contact us for a month’s trial of Energy Spectrum.
Energy Spectrum is a weekly publication covering all of the key policy, regulatory, market and transactional developments across the energy sector. It offers a timely, insight-driven overview of the need-to-know news and changes in the energy sector. Contact the Editor, Nick Palmer to request a trial on 01603 604400 or click the link below.