When most of us visualize clean energy the first things to come to mind are solar panels and wind turbines. Unfortunately, these forces of nature—the sun and wind—do not line up neatly with customer demand for electricity. Unlike traditional power plants that can be dispatched when needed, solar and wind generation are intermittent; they only have the ability to create electricity when the sun shines or the wind blows.
To solve the intermittency challenge of solar and wind, electric system operators have typically relied on flexible power plants, such as fast ramping natural gas-fired generation which can quickly fill the gaps between renewable output and customer demand. However, if an electricity grid seeks to meet net zero carbon targets, natural gas power plants, which emit carbon dioxide, are an imperfect solution to balancing the grid.
Thankfully, other forms of clean power—hydroelectric, geothermal, and nuclear—can help fill the gap. Moreover, battery storage technologies are making it possible to shift the availability of renewable energy from times it is produced to times when it’s needed. However, these alternative clean energy resources are typically more expensive than solar and wind.
So, the question many policy makers are now grappling with is how to incentive the construction of clean energy power plants, including battery storage, that can deliver power when needed? After approving the Act to Advance Clean Energy two years ago, Massachusetts has just begun implementing a policy innovation called a Clean Peak Energy Standard, to try to create ways to compensate clean energy producers that can deliver power during periods of high electricity usage.
The Clean Peak Standard first gained traction in an Arizona regulatory proceeding that sought to expand the state’s Renewable Portfolio Standard. Renewable Portfolio Standards are a traditional clean energy policy mandating utilities sell a certain amount of clean energy to retail customers. Arizona’s Residential Utility Consumer Office, which proposed the idea, sought to add a new dimension to the renewables standard, “whereby a certain percent of energy delivered to customers during peak load hours must be derived from clean energy sources.” The concern was traditional renewable standards only mandated the amount of overall renewable energy that must be sold but were agnostic to when that energy was actually delivered. The Clean Peak Standard was developed to “help to encourage clean energy resources that generate energy during peak hours, when it is needed most.”
Massachusetts, a state with strong clean energy aspirations, ran with the idea and become the first and currently only U.S. state to implement a Clean Peak Standard. The Commonwealth’s vision is to “increase clean energy during the periods when Net Demand of electricity is the highest” in order to contribute to “environmental protection goals concerning air emissions.” The program allows eligible clean energy resources that generate electricity during defined periods of high electricity demand to earn Clean Peak Energy Certificates. Electricity retailers are then required to buy these certificates to certify that a minimum percentage of their sales come from qualified sources such as renewable power plants or energy storage resources that generate, discharge, or otherwise reduce the use of electricity during periods of peak usage.
There are high hopes for this program. Over its first ten years, the Massachusetts Department of Energy Resources, estimates the program will save customers $710 million in electricity costs and reduce carbon pollution by 560,000 metric tons of CO2. Without such a policy, the Department warns, “Massachusetts will remain dependent on gas and oil generation to meet our peak demand, resulting in high costs and emissions, despite our substantial investment in clean energy resources.”
Will It Work?
The idea sounds great on the surface: incentivize the delivery of clean energy when demand is highest. However, a recent study co-authored by researchers from Columbia University, New York University, and the clean energy non-profit WattTime challenges the effectiveness of such programs. The study found that “[t]he Clean Peak Standard provides weak incentives for pollution abatement” and that the policy in Massachusetts “is roughly as effective as a $1 carbon tax.” Well, Massachusetts already participates in a carbon cap-and-trade program, the northeast’s Regional Greenhouse Gas Initiative, with the most recent pricing clearing at over six times that amount.
While not the case in Massachusetts, due to New England being a low-emission power grid, the broader concern in the study is that a Clean Peak Standard generically applied may inadvertently incentivize storage operators to increase demand for coal power when demand is limited and power prices are low, and then use the stored coal energy to offset flexible, cleaner burning natural gas plants during periods of strong electric demand. Since coal generation emits more carbon pollution than natural gas generation, the net result would actually increase emissions versus the policy’s stated purpose of reducing emissions.
A carbon tax is more effective, according the study, because it increases power prices during periods of high fossil fuel usage (providing an incentive similar to a Clean Peak Standard), but it also disincentivizes carbon producing generation during periods of low customer demand, which the Clean Peak Standard does not.
There is a growing recognition that if we as a nation choose to radically shift towards a cleaner energy future, we must provide the appropriate incentives to lower overall carbon intensity. In designing such incentives, we need to make sure our policies do what we intend them to do. Now implemented, we must closely watch Massachusetts’ Clean Peak Energy Standard to see if it will actually reduce emissions, as hoped by the Commonwealth, or if alternative polices should be pursued.
David Cherney is a US energy policy expert at PA Consulting