The Connecticut Department of Energy and Environmental Protection (DEEP) released its long-awaited 2018 Comprehensive Energy Strategy (CES) last Friday, February 9. Representing the culmination of a process that began with stakeholder meetings in 2016 and a draft CES issued in July 2017, the latest CES includes recommendations that could have a significant impact on energy development in the state, particularly in the areas of renewables and distributed generation.
The 2018 CES outlines eight strategies for the state, the majority of which are designed in part to reduce greenhouse gas (GHG) emissions in the state. The CES references the requirements of Connecticut's Global Warming Solutions Act to reduce GHG by 10 percent from 1990 levels by 2020 and 80 percent from 2001 levels by 2050. To accomplish these goals, the CES proposes Renewable Portfolio Standard (RPS) modifications and carbon-free procurements to decrease emissions in the generation sector, additional support for energy efficiency measures to reduce energy consumption and electric vehicle (EV) initiatives to reduce emissions in the transportation sector.
Perhaps the most notable recommendation in the CES is the proposal to restructure how distributed, or behind-the-meter, generating facilities are compensated. Currently, much of the distributed generation in Connecticut participates in the state's net metering program, where the utilities essentially must credit any generation produced but not consumed behind the meter at the same bundled rate (generation and transmission and distribution) retail customers pay for their electricity. Following the lead of other states, the CES recommends existing laws be modified to provide a tariff structure under which utilities would pay for energy and renewable energy credits (RECs) produced by the facilities at administratively established cents/kWh rates. The CES proposes rates be established for services from three types of facilities: Low Emission Renewable Energy, Zero Emission Renewable Energy, and Residential Renewable Energy. The rates would be set to target total purchases of $35 million annually. Facilities qualifying for these rates will be sized based on the load at a single meter (up to 2 MW for commercial systems and 25 kW for residential), except in the case of state, municipal and agricultural customers, who will be allowed to aggregate beneficial account meters. If during a year "the actual cumulative generation exceeds the expected annual load" at a site, the CES suggests that, "for any excess production for the remainder of the year," the tariff rate no longer apply and the customer be paid at the Wholesale Locational Marginal price. Existing distributed generation systems would be grandfathered into current net metering programs for up to 20 years from their in-service date. These recommendations, if implemented, will significantly alter the state's distributed energy market.
Consistent with its focus on reducing GHG emissions, the CES proposes measures to increase the carbon-free power used in the state. It proposes modifications to the RPS to increase the Class I RPS to 40 percent by 2030, to gradually reduce the use of biomass and landfill gas as Class I renewables, and to limit the use of fuel cells and other GHG-emitting technologies as Class I renewables through the use of a carve-out or separate class tier. Recognizing the potential effect of these measures on electricity costs, the CES also recommends lowering the alternative compliance payment (ACP) for Class I renewables as a way to alleviate cost increases. Of these proposals, the increase in Class I RPS, the fuel cell carve-out and the ACP decrease are described as recommendations. In contrast, the CES reports that the decrease in the ability of biomass and landfill gas facilities to produce Class I RECs will begin in 2019 such that the amount of output from such facilities eligible to create RECs that can be used for Connecticut Class I compliance will be reduced gradually to 50 percent. Note that such facilities will still be able to produce RECs beyond that amount for other purposes, such as for compliance with the RPS programs of other states or use in voluntary products. This reduction will begin after 20 years for new facilities and after 15 years (from the time of approval as a Class I resource) for existing facilities. Further CES recommendations regarding the production of zero-carbon generation for the state's consumers include procurement of nuclear, hydropower and grid-scale renewable generation by utilities.
In addition to reducing GHG emissions through changes to the RPS, the CES proposes a continued focus on energy efficiency to reduce energy usage overall. The CES recommends continued funding for current successful programs, combined with additional innovations designed to increase efficiency. In fashioning the CES, DEEP was dealing with the decision by the Connecticut Legislature to divert to the general fund $175 million of the payments by Connecticut electricity and gas ratepayers into the Energy Conservation and Load Management Fund. Also, DEEP noted that oil and propane users who contributed to total GHG emissions should be contributing to reduce those emissions. To address these issues, the CES proposes that utilities procure energy efficiency to promote continued investment in a manner that is less likely to be diverted and that a charge, perhaps in the form of carbon pricing, be imposed on all heating fuels to incentivize investment in energy-efficiency measures and conversion to lower-carbon thermal alternatives. The CES also suggests ways to address the energy burden on low-income households through energy-efficiency upgrades and to address health and safety barriers to such upgrades through collaboration with other stakeholders such as the insurance and healthcare industries. Finally, the CES proposes measures to increase transparency of building energy efficiency through education and standardization.
To reduce GHG emissions from the transportation sector, the CES proposes strategies to accelerate deployment of zero- and low-carbon vehicles. These include targeting specific vehicle categories for conversion, supporting deployment of alternative fueling infrastructure, educating consumers and developing an EV road map with additional, specific recommendations to increase deployment of EVs.
Notably, the CES backed away from recommendations in the 2013 CES regarding natural gas infrastructure, acknowledging that fuel security is a regional issue that cannot be addressed by Connecticut alone. Instead, this CES includes recommendations to expand deployment of microgrids and enhance resilience of the coastal substations and critical grid infrastructure.
We will continue to monitor developments in this area and inform our clients and friends as appropriate, as the Connecticut Legislature, DEEP, Connecticut Public Utilities Regulatory Authority, and other state agencies and stakeholders work to determine whether and how to carry out these proposals. If you have questions, please call any of us.
Partner Sebastian Lombardi will serve as the moderator at the 2019 Annual Legislative Preview, presented by the Connecticut Power and Energy Society (CPES) and the Connecticut Bar Association's (CBA) Energy Section, and held at the University of Connecticut School of Law.
Day Pitney Alert
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