The Beacon Hill InstituteIntroduction{00211078-1The High Cost of Green EnergyPrograms in MassachusettsPaul Bachman, M.A.Benjamin Powell, Ph.D.David Tuerck, Ph.D.Rick Weber, B.S.THE BEACON HILL INSTITUTE AT SUFFOLK UNIVERSITY8 Ashburton Place Boston, MA 02108Tel: 617 573 8750, Fax: 617 994 4279Email: bhi@beaconhill.org, Web: www.beaconhill.orgOCTOBER 2010BHI Massachusetts “Green” Energy CostsExecutive SummaryMassachusetts has attempted to lead the push for renewable energy and energy efficiency programs.The state currently offers over 25 unique mandates, programs and incentives to promote renewableenergy and energy efficiency.1 Since all of these mandates, programs and incentives attempt toinfluence the behavior of utilities, consumers and businesses they incur costs.Massachusettsratepayers will continue to pay for these programs through higher electricity bills.The Beacon Hill Institute at Suffolk University (BHI) has quantified the cost of 11 of the state greenenergy mandates, programs and incentives. We start with the major green energy costs today. Fromthat baseline we use legislative mandates, third party estimates and our own estimates to forecasthow these individual costs will change over time. All dollar figures are in 2010 Net Present Values(NPV). Table 1 displays the cost to the state’s ratepayers and the total costs of the policies.Table 1: Cost of Selected Massachusetts Green Energy Mandates, Programs and Incentives (2010 NPV $)Cost to Individual Rate Payer201020202010 2020Residential ratepayer ($)781591,582Commercial ratepayer ($)7401,50315,5597,01714,255141,2554909859,815Industrial ratepayer ($)Total Aggregate Cost ($ millions)We find that that the major green energy mandates, programs and incentives will cost $490 millionthis year, more than $985 million in 2020 and more than $9.8 billion cumulatively over the next elevenyears. By 2020, the total cost of these mandates, programs and incentives will amount to over 2.6cents per kilowatt hour (kWh) of electricity. In 2020, that amounts to $159 per year for familiesconsuming the state average for residential electricity, $1,503 per year for an average commercialbusiness and $14,255 per year for an average industrial company. Over the eleven years, the averagehousehold ratepayers will incur $1,582 in higher electricity prices to fund these 11 mandates,programs and incentives, the average commercial ratepayer will spend $15,559 and the averageindustrial ratepayer $141,255. These figures do not include the cost incurred from the state’s other 14green energy mandates, programs and incentives.2Database of State Incentives for Renewables & Energy Efficiency, Massachusetts: Incentives/Polices for Renewables & Efficiency,Internet, available at http://www.dsireusa.org/incentives/index.cfm?re=1&ee=1&spv=0&st=0&srp=1&state=MA (accessed September 20,2010).2U.S. Energy Information Administration, “Average electricity consumption per residence in MA in 2008,” (January 2010)http://www.eia.doe.gov/cneaf/electricity/esr/table5.html, The 2008 consumption figures were inflated to 2010 using the increase inelectricity demand from the ISO figure of 1.1% compound annual growth rate.1October 20102BHI Massachusetts “Green” Energy CostsWe choose these 11 mandates, programs and incentives because current data are readily availableand quantifiable. Data is unavailable for the other 14 mandates, programs, and incentives, such asproperty and sales tax incentives, precluding the calculation of any reliable estimates. It is likely thatthe total cost of all the green energy mandates, programs and incentives in Massachusetts issignificantly higher than we have found here and will continue to grow over the next decade.In addition, we compare the number of mandates, programs and incentives and their costs, wherepossible, in Massachusetts with other states we identify as economic competitors.3 The competitorstates are highly ranked in both the BHI 2009 Competitiveness Index and Massachusetts TechnologyCollaborative The Index of Innovation Economy, 2009.Massachusetts imposes more green energymandates, programs and incentives than its competitors.As noted above, our cost estimates are only a fraction of the total costs of all 25 mandates, programsand incentives. As a result, Massachusetts electricity ratepayers will face skyrocketing electricityrates in this decade due to the state’s green energy mandates, programs and incentives, unlesspolicymakers reverse course and provide relief. Businesses that are large consumers of electricitywill bear the greatest burden of the higher electricity rates, which will force some to close and othersto seek locations with lower electricity costs. The burden threatens the long term competitiveness ofMassachusetts.3Compiled by authors based on Beacon Hill Institute State Competitiveness Reports 2001 2009 and Massachusetts Technology Collaborativeas enumerated in its The Index of Innovation Economy, 2007.October 20103BHI Massachusetts “Green” Energy CostsIntroductionThe push for green energy in Massachusetts, like elsewhere, has opened a debate on green energy’seconomics. Green energy encompasses both renewable energy sources such as wind, solar andbiomass, and technologies such as energy efficiency and information technology driven productsdesigned to save energy.Many environmentalists believe the transition from carbon based togreener energy sources is not only earth friendly but also economical. They promote a smoothtransition to a “green economy” supporting “green jobs.” Skeptics of the green economy contendthat the individual projects fail any reliable cost benefit analysis. The ongoing battle surrounding theCape Wind project in Nantucket Sound is a prime illustration of the difficulties of trying to determinethe real costs and benefits to both ratepayers and taxpayers.Seeking to simplify the issue, Governor Deval Patrick claims that residential ratepayers will payslightly less than the equivalent of a cup of coffee ($1.25) per month more for Cape Wind’s electricitythan conventional sources. At the other end, National Grid, the electric utility, estimates thatcustomers will face substantially higher rates. Cape Wind is just one of many green energy initiativesMassachusetts is promoting in its effort to curb carbon emissions. But it is proving to be a costlyinvestment, a fact that has emerged during the laborious state and federal regulatory processesimposed upon Cape Wind. However, most state green energy mandates, programs and incentiveshave not received the same level of review. If Massachusetts citizens intend to rationally debate thefuture of green energy programs they need viable and accurate cost projections.According to the Database of State Incentives for Renewables & Efficiency (DSIRE), funded by theU.S. Department of Energy, Massachusetts offers over 25 unique mandates, programs and incentivesto promote renewable energy and energy efficiency.4 These programs incur costs by influencing thebehavior of utilities, consumers and businesses. Massachusetts ratepayers will continue to pay forthese programs through higher electricity bills.The following sections provide a more detailed breakdown of our estimates and an explanation of themethodology and assumptions that went into constructing them.Database of State Incentives for Renewables & Energy Efficiency, Massachusetts: Incentives/Polices for Renewables & Efficiency,Internet, available at http://www.dsireusa.org/incentives/index.cfm?re=1&ee=1&spv=0&st=0&srp=1&state=MA (accessed September 20,2010).4October 20104BHI Massachusetts “Green” Energy CostsGrowth of Existing Mandates, Programs and IncentivesMassachusetts ratepayers fund a number of mandates, programs and incentives to support greenenergy. The major sources of funds for green energy that we have identified are:Renewable Energy: A surcharge of $0.0005 per kWh is levied on all electricity sold by privateutilities. This money is used to finance the Massachusetts Clean Energy Center, a state authority thatsubsidizes various programs and incentives related to green energy.Energy Conservation: A surcharge of $0.0025 per kWh is levied on all electricity sold by privateutilities. This money is used by utilities to pay for energy efficiency measures, such as installing extrainsulation in customers homes.RGGI: The Regional Greenhouse Gas Initiative, signed by 10 states including Massachusetts, calls fora permit system that captures the cost of carbon emissions. Permits must be purchased by electricitygenerators, while in Massachusetts 80 percent of the money raised from permit auctions is used tofinance energy efficiency.EERF: The Energy Efficiency Reconciliation Factor makes up for shortfalls in running energyefficiency programs. This fee is part of the distribution charge on electricity bills.5“Outside”: This is a speculative number included in the three year plan of the MassachusettsDepartment of Public Utilities (DPU) representing an assumption that outside funds will materialize.6If outside funding is not found, the costs in this category will be added to the EERF. At this point wehave no reason to expect outside funds to materialize.Class I RECs: Currently, the 2010 RPS Class I requirement is five percent, and is set to increase byone percent each year. It is met through electricity production from qualified New RenewableGeneration Units. New Renewable Generation Units are facilities that began commercial operationafter 1997 and generate electricity using any of the following technologies: solar photovoltaic, solarthermal electric, wind energy, small hydropower, landfill methane and anaerobic digester gas,marine or hydrokinetic energy, geothermal energy and biomass fuel.NStar, “Definition of EERF charges,” (June 30, 2010) http://www.nstaronline.com/docs3/tariffs/107.pdf, (accessed September 22, 2010).Massachusetts Department of Public Utilities, under “DPU Order on Electric Three Year Energy Efficiency Plans,” (January 2010)http://www.env.state.ma.us/dpu/docs/electric/09 116/12810dpuord.pdf, (accessed September 15, 2010).56October 20105BHI Massachusetts “Green” Energy CostsClass II RECs: RPS Class II mandates that a minimum percentage of electricity sales come from eachof two sources, renewable energy and waste energy. The current RPS Class II Renewable Generationobligation is 3.6 percent, and the Waste Energy Generation obligation is 3.5 percent. The obligationdoes not increase annually.A supplier must comply with both the minimum percentage ofRenewable and Waste Energy obligations.Alternative Energy Certificates: Massachusetts requires utilities to purchase a percentage ofelectricity from providers of alternative energies, such as gasification and combined heat and powercogeneration facilities.Solar Carve out: On January 1st, 2010, new regulations were filed so that a specified and growingportion of the RPS Class I renewable energy requirement comes from solar photovoltaic (PV) energy.This carve out supports distributed solar PV energy facilities including residential, commercial,public and non profit projects, and is designed to help the Commonwealth achieve the installation of400 MW of solar PV across the state.7Smart Grid: Each utility is required to initiate a Smart Grid pilot program. A Smart Grid is anenhanced electricity delivery grid that allows electricity use to be monitored between meter readings.These pilot programs are financed through higher electricity rates to customers.Net Metering: Net metering allows customers of an electric distribution company to generate theirown electricity in order to offset their electricity usage. Net metering can lower a customer’selectricity bill by reducing the amount of electricity the customer must buy from the distributioncompany. Net metering also allows customers to be compensated for any electricity they generatebut do not use.Long term Contracts: The Green Community Act, which requires Massachusetts electric distributioncompanies to enter into 10 to 15 year contracts with renewable energy projects located within stateboundaries, including state and adjacent federal waters.7 Evolution Markets Inc., REC Markets – February 2010: Monthly Market Update, Class I REC prices (February 2010)http://new.evomarkets.com/scripts/getmmu.php?uid=web&mmu_id=509SRECTrade.com, “Market price of Solar RECs,” (August 2010), http://www.srectrade.com/blog/srec markets/massachusetts/firstmassachusetts srec auction closes q1 srecs sell for 500 (accessed October 2, 2010).October 20106BHI Massachusetts “Green” Energy CostsWhile the costs of these mandates, programs and incentives are already substantial, we expect themto rise dramatically in the coming years as an ever greater percentage of our electricity must begenerated from renewable sources.As Table 2 illustrates, the added cost of these mandates,programs and incentives will more than double to over 2.6 cents per kWh, and nearly $1 billionannually by 2020. The cumulative cost over the period will be more than $9.8 billion.Table 2: Cost of Green Energy Mandates, programs and incentives (2010 NPV $)Year Total Cost ($ millions)Cost per KWh ($)20104900.0103520116300.0138220127770.0172620138910.0200620149430.0215020159980.0230420169980.0233420171,0170.0240620181,0350.0247820191,0510.0254620209850.026229,815TotalOur complete methodology is described in the Appendix to this report, but one important point isworth noting. As Figure 1 illustrates, we forecast a more rapid increase in costs through 2012 and thena more moderate increase thereafter. This is driven by lack of data availability on the increase in theRGGI, EERF and “Outside” costs. The Massachusetts DPU estimated the increase in these coststhrough 2012.8 Thereafter, we assume that the costs will grow at the rate of inflation. There is reasonto believe that the costs of meeting the RPS will increase more rapidly due to EERF.Massachusetts Department of Public Utilities, under “DPU Order on Electric Three Year Energy Efficiency Plans,” (January 2010)http://www.env.state.ma.us/dpu/docs/electric/09 116/12810dpuord.pdf, (accessed September 15, 2010).8October 20107BHI Massachusetts “Green” Energy CostsFigure 1: Annual Costs of Selected Green Energy Programs1,2001,000Cost ($Millions)800600400200020102011201220132014201520162017201820192020For example, the DPU estimates that the EERF payments will grow by a 51 percent compound annualgrowth rate between 2009 and 2012. The investments in energy efficiency using EERF and otherfunding, such as “Outside,” are facing diminishing marginal returns. By 2020, all of the lower costhigh return investments, such as replacing incandescent light bulbs with florescent bulbs will havebeen made. At that point, the more expensive investments, with a lower relative return, will be theonly options available. In other words, it will take more dollars to squeeze the same quantity of energysavings from each new investment.Theoretically, using the 51 percent compounded growth rate, EERF would cost over $8.5 billion in 2020or 16 cents per kWh, and more than $24.5 billion over the entire period. This would be anoverwhelming burden on Massachusetts electricity ratepayers.Figure 2 and Table 3 break out the costs by individual program. The EERF is the largest at over 25percent of total cost. This charge makes up for shortfalls in running energy efficiency programs and iscontained in the distribution charge on electricity bills. As a result, most consumers will not be awareof its true cost. The EERF and “Outside” comprise over 36 percent of the total costs, which isastonishing considering the lack of transparency and accountability surrounding these programs.October 20108BHI Massachusetts “Green” Energy CostsTable 3: Total Cost of Individual Green Energy Mandates, Programs and Incentives2010 2020Mandate, Program and IncentiveCost (2010 NPV $)EERF2,803Class I RECs2,257Outside1,138Energy Conservation1,112Solar Carve out846430Class II RECsRGGI409Alternative Energy Certificates337Renewable Energy222Net Metering198Smart Grid44Long term Contracts13Total9,81530%Percentage of Cost25%28.28%Figure 2: Cost Breakdown by Program22.77%20%15%11.48% 11.22%10%5%8.54%4.35%4.13%3.40%3.01%2.24%0.45%0.13%0%ProgramOctober 20109BHI Massachusetts “Green” Energy CostsMassachusetts Compared to Competitor StatesTable 4 lists the Bay State’s renewable energy and energy efficiency subsidies, taxes, incentives andmandates along with competitor states.9 We define competitor states as those that are in the top ten inthe BHI 2009 Competitiveness Index and the Massachusetts Technology Collaborative’s The Index ofInnovation Economy, 2009. The analysis indicates that, at 25, Massachusetts imposes the most renewableenergy mandates, programs and incentives of the eight states. Massachusetts provides 15 financialincentives for renewable energy and energy efficiency, while Texas and Vermont provide 13, Utah andMinnesota provide seven, and New Hampshire provides eight. At 10, Massachusetts is second toColorado in imposing non financial regulations and policies for renewable energy and energyefficiency. Texas imposes only seven, while New Hampshire and Utah require eight. Of these states,Massachusetts has the highest average electric power rates and the 4th highest in the nation.We conclude from this comparison that Massachusetts imposes more mandates, programs andincentives than other competitor states, which jeopardizes our competitiveness, especially incompetition for manufacturing firms and other large consumers of electricity.9Compiled by authors based on Beacon Hill Institute State Competitiveness Reports 2001 2009 and Massachusetts TechnologyCollaborative as enumerated in its The Index of Innovation Economy, 2008.October 201010BHI Massachusetts “Green” Energy CostsTable 4: Massachusetts Programs for Renewable Energy and Energy Efficiency Compared to Competitor StatesNewMassachusetts Utah Minnesota Colorado Washington Hampshire VermontFinancial Incentives157Corporate TaxDeduction/Exemption2X1010Green Building Incentive81313XXXIndustry RecruitmentXLocal Loan ProgramXLocal Rebate ProgramXXXXXXPACE FinancingXXPerformance IncentiveXXPersonal Tax CreditXProperty Tax IncentiveXXXXLocal Grant ProgramSales Tax IncentiveState & Non ProfitProgram10TexasXXXXXXXXXXXXXXXXXXXXXXXXXXXXGrantXState Loan ProgramXXXXXXState Rebate ProgramXXXXXXXXXXXXXXXXXXXUtility Grant ProgramUtility Loan ProgramXUtility Rebate ProgramXXXXXXXXRegulations & Policies1089129787Appliance EfficiencyXBuilding Energy CodeX2XXXXStandards for Public BuildingsXXXXXXGreen Power PurchasingXXXXXInterconnectionXXXXXXLine Extension AnalysisXGreen Power Utility OptionXXXXXXXXXXNet MeteringXPublic Benefits FundXXRenewable Portfolio StandardXXSolar Access Law/ GuidelineXXSolar and Wind Access LawSolar/Wind PermittingXXXXXXXXXXXXXXXXXXXXXXXX25151922191521ConclusionOctober 2010XXOther PolicyTotalX1120BHI Massachusetts “Green” Energy CostsMassachusetts joins many other states in the dash to achieve a green energy future. The state has laidout a roadmap to achieve this goal that is filled with aggressive renewable energy and efficiencymandates, programs and incentives. However, renewable energy sources such as solar, wind andbiomass are much more expensive to electricity ratepayers than conventional sources of energy derivedfrom fossil fuels.The costs of the mandates, programs and incentives are already embedded in our monthly electric bills.In the next ten years, as the mandates begin increasing, these costs will soar. Electric utilities will haveno choice but to pass costs onto their customers, the citizens and businesses of the Commonwealth.The Renewable Portfolio Standard and other polices will erode the state’s competitiveness and hurt it’seconomy.Massachusetts policymakers should relieve electricity ratepayers of these costly burdens and repealmany of the green energy mandates, programs and incentives that the state currently imposes.October 201012BHI Massachusetts “Green” Energy CostsMethodologyPrices: All dollar values are presented in 2010 Net Present Value (NPV) dollars, using a 5% discountrate.Renewable Energy: This is the surcharge of $0.0005/kWh on all electricity. The total cost is the chargemultiplied by the total load in kWhs.Energy Conservation: This is the surcharge of $0.0025/kWh on all electricity. The total cost is thecharge multiplied by the total load in kWhs.RGGI: This estimate is from the DPU Order on Electric Three Year Energy Efficiency Plans.10 Weestimated this cost by dividing the estimated total cost of RGGI by total electricity consumption foreach year. Estimates for years beyond 2012 are based on an assumption that costs grow at the rate ofinflation through 2020 (the 2010 cost estimate is $1.06/MWh).11 There are no available forecasts ofRGGI spending, although as the carbon limit drops RGGI allowances should increase in price. Ourestimate is conservative and likely underestimates the cost of this program.EERF: This estimate is from the DPU Order on Electric Three Year Energy Efficiency Plans.12 Ourestimate was calculated by dividing the estimated total cost of EERF by total electricity consumption.Estimates for years beyond 2012 are based on the assumption that the costs grow at the rate of inflationthrough 2020, since there are no current forecasts available for future EERF spending.13 Moreover, webase EERF on ISO of New England’s 1.1 percent estimate for the growth of electricity consumptionover the period, which includes the effects of the energy efficiency investments and electricity savings.Because the easiest projects will be pursued first, we should expect EERF costs to rise more rapidly ashigher cost/lower benefit projects are pursued. If EERF grows at the same average annual rate that itdoes in the DPU plan (51 percent) it balloons to over $8 billion dollars in the year 2020 (and over $24billion for the full 11 years).Massachusetts Department of Public Utilities, under “DPU Order on Electric Three Year Energy Efficiency Plans,” (January 2010)http://www.env.state.ma.us/dpu/docs/electric/09 116/12810dpuord.pdf, (accessed September 15, 2010).11 Ibid, 179.12 Ibid.13 The Congressional Budget Office, “Budget and Economic Outlook: An Update,” under “Detailed Economic Projections,”http://www.cbo.gov/doc.cfm?index=11705 (accessed October 20, 2010).10October 201013BHI Massachusetts “Green” Energy Costs“Outside”: This estimate is from the DPU Order on Electric Three Year Energy Efficiency Plans.14 Thecosts are based on a per MWh unit of measure. We estimate the cost by dividing the estimated totalcost of “Outside” by total electricity consumption. Estimates for years beyond 2012 are based on theassumption that the costs grow at the rate of inflation through 2020 projected by the CongressionalBudget Office.15Class I RECs: This estimate is derived from the Renewable Portfolio Standard. The requiredproportion of electricity sales from Class I sources is multiplied by the total private electricity sales tofind the required number of RECs. We then multiply the number of RECs by the forecasted price.There are forces we would expect to drive up the price of RECs (such as a reduced number ofproductive places to put wind power plants) as well as forces we might expect to drive down the price(improved energy technology). We utilize a private forecast of RECs from 2011 – 2020 under theassumption that the federal Production Tax Credit is extended and no federal cap and trade policy isenacted over the period.16 The total cost of Class I RECs on the table does not include the impact of thesolar carve out, which are reported separately. For all RECs, we estimate a per MWh cost by dividingthe total cost by the total energy demand. For example, the cost of Class I RECs is approximately$24.50 for 2010, but the average cost per MWh is $3.43, because it is averaged across all sources ofenergy. The reason for this is to show the impact of RECs on the average cost of electricity.Class II RECs: The proportion of electricity that must be derived from Class II sources is fixed at 3.6percent for certain renewable resources and 3.5 percent for waste energy.We find the requirednumber of waste and non waste Class II RECs, then multiply each by the cost of waste and non wasteClass II RECs (currently around $4.75 and $23.50 per MWh respectively). We assume the REC pricesincrease at the rate of inflation projected by the Congressional Budget Office.Alternative Portfolio Standard (APS): The proportion of electricity that is required to be derived fromalternative sources (other than renewable sources) is 1.5 percent in 2010. It is scheduled to expand by0.5 percent each year until 2014. After 2014 it is scheduled to expand by 0.025 percent each year until2020. The total cost is calculated by multiplying the number of Alternative Energy Credits (AECs) bythe 2010 price of $18. We assume prices increase at the rate of inflation projected by the CongressionalBudget Office.DUP ,Three Year Plan, 179.U.S. Congressional Budget Office, Budget and Economic Outlook: An Update August 2010, Internet, available athttp://www.cbo.gov/doc.cfm?index=11705, (accessed October 20, 2010)16 We used a projection by Energy Ventures Analysis Inc. Inc., May 16, 2010.1415October 201014BHI Massachusetts “Green” Energy CostsSolar Carve Out: This program is intended to replace some of the Class I RECs, so our cost estimateaccounts for the reduction in Class I RECs. The level of required SRECs is found by increasing theannual growth rate from the previous two years by 30 percent (so that if the growth from the previoustwo years was 10 percent, the growth required for the year in question would be 13 percent, the growthfor the next year would be 17 percent, and so on). We obtain the values for 2010 and 2011 fromestimates on the Massachusetts Executive Office of Energy and Environmental Affairs website(Adjusted Mechanics to the Minimum Standard, Opt In Term, and ACP Rate).17 The level of solarRECs is multiplied by $411.10/MWh, the current market rate for SRECs.18 We then multiply thenumber of SRECs by the price of Class I RECs and subtract that number from the cost of SRECs. Wedeflate the SREC cost by 3.5 percent per year to reflect the expected decline in installed costs ofphotovoltaic technology, using recent historical figures.19Smart Grid: This estimate is based on three approved and one proposed smart grid pilot projects. Theestimated total cost for these four projects is $75,416,560. We assume $5 million annually to cover thecost of capital (and the cost of debt used to finance this capital) and maintenance.This is theapproximate annual cost of amortizing the projects over 20 years. Because these are pilot projects, acontinuation of this program could make this estimate significantly below actual costs.Net Metering: Because there are no forecasts or publicly available numbers for this program, weestimate these numbers based on the assumption that other subsidies encouraging people andmunicipalities to generate electricity in a residential setting are effective.To gauge the totalparticipation we assume that the level of net metering grows at a constant rate from zero to themaximum level allowed (3 percent of total peak load) over ten years and is credited at retail electricityrates. We take this number and multiply it by the difference in cost between retail and wholesaleelectricity (we assume delivery costs will be negligible because the electricity is being generated veryclose to where it will be consumed). We assume that 30 percent of the 3 percent is sold back into thegrid, and that the 3 percent maximum is reached in 2018.20Executive Office of Energy and Environmental Affairs, “Adjusted Mechanics to the Minimum Standard, Opt In Term, and ACP Rate,”Internet, available athttp://www.mass.gov/?pageID=eoeeaterminal&L=5&L0=Home&L1=Energy%2c+Utilities+%26+Clean+Technologies&L2=Renewable+Energy&L3=Solar&L4=RPS+Solar+Carve Out&sid=Eoeea&b=terminalcontent&f=doer_renewables_solar_adjusted mechanics&csid=Eoeea(accessed October 1, 2010).18 Flettexchange, “Massachusetts SREC Prices,” http://www.flettexchange.com/, (accessed October, 18, 2010).19 Ryan Riser, Galen Barbose, Carla Peterman, “Tracking the Sun: The Installed Cost of Photovoltaics in the US from 1998 to 2007,”Lawrence Berkeley National Laboratory, (February 2009) http://eetd.lbl.gov/ea/ems/reports/lbnl 1516e.pdf,20 Yih huei Wan, “Net Metering Programs,” National Renewable Energy Laboratory, (Oak Ridge, TN: February 1997) 2.17October 201015BHI Massachusetts “Green” Energy CostsLong term Contracts: Green Community Act, which requires Massachusetts electric distributioncompanies to enter into 10 to 15 year contracts with renewable energy projects located within stateboundaries, including state and adjacent federal waters.To calculate the cost of renewable energy under the RPS and other mandates, programs andincentives, BHI utilized data from the Energy Information Agency (EIA). We collected data on totalretail of electricity (in megawatt hours) from the Massachusetts Electricity Profile for 2008.21 Wereduce the projected net energy for load by 13 percent to account for municipal utilities, which are notobligated to meet the RPS.22 These net figures are then inflated through 2020 using the ISO projectionsfor the growth of electricity demand in Massachusetts (1.1 percent compound annual growth rate).23Table 5 displays the results.Table 5: Projected Massachusetts Electricity Demand and Amount Required by the RPS ComponentsProjectedRPSClass 2Class 2Electricity(Old(Waste toSolarYearDemandClass 1Renewable)energy)Carve OutAPSTotal RPSMWhsMWhsMWhs201047,359,2152,334,3131,704,9321,657,57333,648710,3886,440,853201147,880,1672,795,3851,723,6861,675,80677,425957,6037,229,905201248,406,8483,254,6641,742,6471,694,240133,8161,210,1718,035,537201348,939,3243,711,4751,761,8161,712,876203,6711,468,1808,858,018201449,477,6564,160,7891,781,1961,731,718292,2001,731,7189,697,621201550,021,9114,597,6231,800,7891,750,767404,5681,875,82210,429,568201650,572,1525,147,8591,820,5971,770,025415,0772,022,88611,176,445201751,128,4455,727,9931,840,6241,789,496407,4202,172,95911,938,492201851,690,8586,319,9071,860,8711,809,180399,9052,326,08912,715,951201952,259,4586,923,7961,881,3401,829,081392,5282,482,32413,509,070202052,834,3127,539,8591,902,0351,849,201385,2872,641,71614,318,098550,570,34552,513,66319,820,53219,269,9623,145,54519,599,856114,349,559TotalMWhsMWhsMWhsMWhsU.S. Department of Energy, Energy Information Agency, “Electricity, State Electricity Profiles,” Massachusetts Electricity Profile, 2008edition, http://www.eia.doe.gov/cneaf/electricity/st_profiles/massachusetts.html,. (accessed September 15, 2010).22 Commonwealth of Massachusetts Department of Energy Resources, Massachusetts Renewable Portfolio Standard Annual ComplianceReport for 2007, (July 29, 2010):16, http://www.mass.gov/Eoeea/docs/doer/rps/rps 2007annual rpt.pdf, (accessed September 15, 2010).19 ISO, 22.21October 201016BHI Massachusetts “Green” Energy CostsTo these totals, we apply the percentage of renewable sales prescribed by the Massachusetts RPS. Forexample, 6 percent of total electricity demand in Massachusetts must be from new renewable sources(Class I) by the end of 2011. We repeat this process for each year from 2010 through 2020. In 2020,Massachusetts requires that 15 percent of electricity sales be sourced from new renewable sources(Class I) minus 0.73 percent for the solar carve out, 3.5 percent of sales from old renewable sources(Class II) and 3.6% of sales from waste to energy projects (Class II), and 5 percent from the AlternativePortfolio Standard technologies (Combined Heat and Power, flywheel storage, coal gasification andefficient steam technologies). By 2020, renewable energy sources must account for 27.1 percent of totalelectricity sales in Massachusetts.October 201017BHI Massachusetts “Green” Energy CostsSources:Commonwealth of Massachusetts. General Court, 186th Sess., “Cost of Energy Efficiency Surcharge.”http://www.malegislature.gov/Laws/GeneralLaws/PartI/TitleII/Chapter25/Section20. See also Databaseof State Incentives for Renewables & Efficiency, (June 2010).http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=MA07R&re=1&ee=1.The Congressional Budget Office, Budget and Economic Outlook: An Update”, Detailed EconomicProjections, (August 2010) http://www.cbo.gov/doc.cfm?index=11705.Evolution Markets Inc. 2010. “REC Markets – February 2010: Monthly Market Update, Class I RECprices.” (February). http://new.evomarkets.com/scripts/getmmu.php?uid=web&mmu_id=509.Evolution Markets, Inc. 2010. “Maximum price of Alternative Energy Credits (AECs): Monthly MarketUpdate.” (February).http://new.evomarkets.com/pdf_documents/February%20REC%20Market%20Update.pdf.Executive Office of Energy and Environmental Affairs. 2010. “Adjusted Mechanics to the MinimumStandard, Opt In Term, and ACP Rate.”http://www.mass.gov/?pageID=eoeeaterminal&L=5&L0=Home&L1=Energy%2c+Utilities+%26+Clean+Technologies&L2=Renewable+Energy&L3=Solar&L4=RPS+Solar+CarveOut&sid=Eoeea&b=terminalcontent&f=doer_renewables_solar_adjusted mechanics&csid=Eoeea.________________________________________________. 2009. “Alternative Portfolio StandardRequirements by Year,” March. , http://www.mass.gov/Eoeea/docs/doer/rps/rps 225 cmr16 mar 122009.pdf.________________________________________________. “Class II RPS generation requirements.”http://www.mass.gov/?pageID=eoeeaterminal&L=4&L0=Home&L1=Energy%2c+Utilities+%26+Clean+Technologies&L2=Renewable+Energy&L3=Renewable+Energy+Portfolio+Standard+%26+Alternative+Energy+Portfolio+Standard+Programs&sid=Eoeea&b=terminalcontent&f=doer_rps_aps_program_sum&csid=Eoeea.________________________________________________. “Minimum price of Solar RECs.”October 201018BHI Massachusetts “Green” Energy Costshttp://www.mass.gov/?pageID=eoeeaterminal&L=5&L0=Home&L1=Energy%2c+Utilities+%26+Clean+Technologies&L2=Renewable+Energy&L3=Solar&L4=RPS+Solar+CarveOut&sid=Eoeea&b=terminalcontent&f=doer_renewables_solar_solar credit&csid=Eoeea.________________________________________________. “Price Ceiling of Solar RECs, and SRECrequirements for 2010 and 2011.”http://www.mass.gov/?pageID=eoeeaterminal&L=5&L0=Home&L1=Energy%2c+Utilities+%26+Clean+Technologies&L2=Renewable+Energy&L3=Solar&L4=RPS+Solar+CarveOut&sid=Eoeea&b=terminalcontent&f=doer_renewables_solar_current parameters&csid=Eoeea.________________________________________________. 2010. Renewable Portfolio Standard: “Class IRPS generation requirements,” (January)http://www.mass.gov/Eoeea/docs/doer/renewables/solar/225CMR1400Jan8 2010.pdf.________________________________________________. . “Solar Credit Clearinghouse Auction.”http://www.mass.gov/?pageID=eoeeaterminal&L=5&L0=Home&L1=Energy%2c+Utilities+%26+Clean+Technologies&L2=Renewable+Energy&L3=Solar&L4=RPS+Solar+CarveOut&sid=Eoeea&b=terminalcontent&f=doer_renewables_solar_solar credit&csid=Eoeea.________________________________________________. “13% capacity factor,” 5,http://www.mass.gov/Eoeea/docs/doer/renewables/solar/Questions%20on%20SREC.pdf.Flettexchange, “Massachusetts SREC Prices,” http://www.flettexchange.com/.Industrial Wind Action Group. “Class II REC prices: ICAP – REC Recap – Sept 10, 2010.” E mailcorrespondence with the Industrial Wind Action Group.ISO New England Inc., Regional System Plan: Third Draft, (Holyoke, MA: September 8, 2010).Massachusetts Department of Public Utilities. 2010. “DPU Order on Electric Three Year EnergyEfficiency Plans,” (January). http://www.env.state.ma.us/dpu/docs/electric/09 116/12810dpuord.pdf.Nstar. 2003. “Cost of renewable energy surcharge.” (January).http://www.nstaronline.com/docs3/tariffs/108.pdf.Nstar. 2010. “Definition of EERF charges” (June). http://www.nstaronline.com/docs3/tariffs/107.pdf.October 201019BHI Massachusetts “Green” Energy CostsRiser Ryan, Galen Barbose, Carla Peterman. 2009. “Tracking the sun: The Installed Cost ofPhotovoltaics in the US from 1998 to 2007.” Lawrence Berkeley National Laboratory. (February).http://eetd.lbl.gov/ea/ems/reports/lbnl 1516e.pdf.SRECTrade.com. 2010. “Market price of Solar RECs.” (August). http://www.srectrade.com/blog/srecmarkets/massachusetts/first massachusetts srec auction closes q1 srecs sell for 500.U.S. Energy Information Administration. 2010. “Average electricity consumption per residence in MAin 2008.” (January). http://www.eia.doe.gov/cneaf/electricity/esr/table5.html.____________________________________. 2010. “Cost of wholesale electricity.”(October).http://www.eia.doe.gov/cneaf/electricity/wholesale/wholesale.html. Our conservative estimate is basedon the numbers available on this spreadsheet:http://www.eia.doe.gov/cneaf/electricity/wholesale/nepool10.xls._____________________________________. 2010.” Levelized Cost of New Generation Resources fromthe Annual Energy Outlook 2010” http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html.October 201020BHI Massachusetts “Green” Energy CostsThe Beacon Hill Institute Study TeamDavid G. Tuerck is Executive Director of the Beacon Hill Institute for Public Policy Research at SuffolkUniversity where he also serves as Chairman and Professor of Economics. He holds a Ph.D. ineconomics from the University of Virginia and has written extensively on issues of taxation and publiceconomics.Benjamin Powell is a Senior Economist at the Beacon Hill Institute and Assistant Professor ofEconomics at Suffolk University. He holds a Doctorate in Economics from George Mason University.Paul Bachman is Director of Research at BHI. He manages the institute s research projects, includingthe STAMP model and conducts research on other projects at the BHI. Mr. Bachman has authoredresearch papers on state and national tax policy and on state labor policy and produces the institute’sstate revenue forecasts for the Massachusetts legislature. He holds a Master Science in InternationalEconomics from Suffolk University.Rick Weber graduated with a Bachelor of Science in Economics from San Jose State University. He is currentlyenrolled in the Ph. D. program at the economics department at Suffolk University.The authors thank Eli Cutler and Frank Conte, BHI Director of Communications, for editorial assistance.October 201021BHI Massachusetts “Green” Energy CostsThe Beacon Hill Institute at Suffolk University in Boston focuses on federal, state and local economicpolicies as they affect citizens and businesses. The Institute conducts research and educationalmandates, programs and incentives to provide timely, concise and readable analyses that help voters,policymakers and opinion leaders understand today’s leading public policy issues.©October 2010 by the Beacon Hill Institute at Suffolk UniversityTHE BEACON HILL INSTITUTEFOR PUBLIC POLICY RESEARCHSuffolk University8 Ashburton PlaceBoston, MA 02108Phone: 617 573 8750 Fax: 617 994 4279bhi@beaconhill.orghttp://www.beaconhill.orgOctober 201022