As renewable energy development challenges in New England have mounted over the past several years, Massachusetts agencies are facing a massive influx of alternative compliance payments (ACPs) from electricity suppliers.

ACPs, which are paid by utilities when they fail to meet the state’s clean energy requirements, are intended to help Massachusetts meet its statutory climate goals. However, the state’s spending of ACP money has lagged far behind the pace of collection; financial records indicate that the state’s ACP deposits surpassed $500 million in 2024.

While officials and clean energy developers hope the current shortage of renewable energy certificates (RECs) will ease in the coming years and reduce the reliance on ACPs, significant questions remain about the role the REC markets will play in the clean energy transition going forward.

With the first programs dating back to the early 2000s, Massachusetts’ electricity standards are complicated web of technical requirements that collectively direct electricity suppliers to purchase increasing amounts of clean energy.

These programs include the Massachusetts Department of Energy Resources’ Renewable Portfolio Standard (RPS), Clean Peak Standard (CPS) and Alternative Portfolio Standard (APS), and the Department of Environmental Protection’s Clean Energy Standard (CES).

ACPs, which are paid to the state instead of to clean energy developers, function as a cap on the cost of the certificates needed to meet various state requirements, protecting ratepayers from dramatic price spikes.

ACP revenues received by both the DOER and DEP have ballooned since 2020. The DOER’s ACP fund reached about $379 million in mid-2024, while the DEP’s Climate Protection and Mitigation Expendable Trust increased from about $2 million at the start of 2020 to about $186 million at the start of 2024.

Meanwhile, as payments accumulate, some project developers have argued that shortcomings of the REC markets — including low ACP rates — are hindering the development of new renewables.

“These programs have incentivized some projects to come online, but definitely not as fast or robustly as we would like,” said Kat Burnham of Advanced Energy United. She added that the uptick in ACPs over recent years likely indicates that “current programs were not doing enough to stimulate the development of renewable resources.”

“New projects aren’t coming online at the volume they need, and shortages are the result,” said Aidan Foley, founder of the renewable developer Glenvale Solar. “I think long-term, the question is whether this is a mechanism that’s supposed to work for new build assets, or is it just one to harvest RECs from the existing assets?”

Project Development Challenges

Massachusetts launched its RPS in 2003, and the standard has gradually increased over the past two decades.

The state has added several other standards and carveouts aimed at boosting specific resource types or attributes. Across New England, all six states have some form of RPS.

Prior to 2021, the ACP rate for Class I resources — the main category of renewables for the RPS program — was indexed for inflation. In 2021, the administration of Gov. Charlie Baker (R) began reducing the rate. Gov. Maura Healey (D) took office in early 2023.

While the consumer price index for the Northeast increased by about 15% between 2020 and 2023, the Class I ACP rate declined from over $70 to $40, where it remains today. The ACP rate for the CES, which can also be met with Class I RECs, sits at $35 today, compared to about $54 in 2020.

The CPS, which is intended to reduce peak-load emissions and is particularly important for energy storage resources, has kept a constant $45 ACP rate since its introduction in 2020.

As ACP rates have declined, mounting pressures from inflation, supply chain constraints, rising interest rates and regulatory battles have posed major challenges for clean energy development since 2020. These factors have made it harder for developers to finance new renewable projects and have helped contribute to a shortage of RECs on the market.

The New England Clean Energy Connect Project (NECEC), a major transmission line that will facilitate the import of up to 1,200 MW of power from Quebec, has faced major delays and is now expected to come online by early 2026. (See Avangrid Sues NextEra over ‘Scorched-earth Scheme’ to Stop NECEC.)

Vineyard Wind 1, which began producing power in early 2024 and was expected to be completed later in the year, has been prohibited from producing power since a blade collapsed in the summer and still has a significant amount of work remaining on construction. Developers recently resumed work installing turbine blades.

Earlier-stage offshore wind projects are also struggling; in 2023, the developers of two major wind projects totaling about 2,400 MW of capacity backed out of their contracts, citing cost increases. While Massachusetts and Rhode Island selected 2,878 MW of offshore wind power in a recent procurement, the contracts have not been finalized and will likely feature significantly higher prices than previous procurements. (See Multistate Offshore Wind Solicitation Lands 2,878 MW for Mass., RI.)

Michael Judge, undersecretary of energy at the Massachusetts Executive Office of Energy and Environmental Affairs, said the delays to NECEC have had a particularly large effect on the CES.

“The second that comes online, 20% of our electricity is going to come from [NECEC], and it’s going to generate Clean Energy Standard-eligible certificates,” Judge told RTO Insider. “That will likely significantly reduce — if not eliminate — the collection of ACP in that program.”

The Role of Portfolio Standards

“These portfolio standard programs on their own are not a very good tool for financing projects; the way that projects get financed is through long-term contracts,” Judge said, adding that developers “assign a very low value to the RECs beyond the first few years of a project, because the prices can swing pretty significantly.”

In addition to power purchase agreements, the state’s Solar Massachusetts Renewable Target program is specifically aimed at supporting the development of solar within the state, Judge noted.

“The RECs alone are not the driving force for most project development,” said Jessica Robertson, director of policy and business development in New England for New Leaf Energy. Robertson said REC markets are “certainly a piece of the puzzle, but generally … developers are still seeking a PPA or some other long-term contract.”

Glenvale’s Foley said most developers prefer procurements as financing mechanisms but said he thinks the REC markets could provide significant value for new projects if the markets are set up to serve this purpose.

In comments submitted to the DEP in early 2024, Glenvale asked the DEP to “consider improvements to the CES program that can stimulate new project supply to Massachusetts energy consumers.” The company recommended that the department raise the ACP to account for inflation and incentivize long-term contracts for RECs to help stimulate project development.

Larry Chretien, executive director of the Green Energy Consumers Alliance, has also argued in favor of increasing the Class I ACP rate. He said the markets have shown that the current rate is “absolutely” too low and is “not helping new projects get built.”

United’s Burnham expressed hope that recent state policy changes outside the REC markets will help spur renewable development and reduce shortages. She highlighted the state’s recent clean energy permitting and siting reforms and procurement authorizations as one reason for optimism. (See Mass. Clean Energy Permitting, Gas Reform Bill Back on Track.)

“I suspect that we’ll see more development rather than payments to the ACP,” Burnham said. “There is a shared prioritization in investing in the clean energy industry here in Massachusetts.”

Accumulation of Funds

While the state has been ramping up clean energy programs funded by ACPs, challenges with agency bandwidth have made it difficult to spend the money as quickly as it has flowed in.

ACPs for the DOER programs are deposited into a custodial fund held by the Massachusetts Clean Energy Center, with expenditures from the fund controlled by the department. The fund has grown from about $54 million in 2020 to $379 million at the end of June 2024.

While the DOER took in nearly $264 million in ACPs over a two-year period ending in June 2024, it only distributed about $52 million from the program over this same period.

For the DEP, data from the Massachusetts Office of the Comptroller indicates the department’s Climate Protection and Mitigation Expendable Trust has about $196 million available for spending in 2025.

In 2023 and 2024, the DEP trust has registered about $203 million in revenue, compared to about $34 million in expenses and $76 million transferred out of the fund over this period.

The Massachusetts Attorney General’s Office, the state’s official ratepayer advocate, declined to comment.

“When we look at the last couple of years, a lot happened in the world, so there were a lot of different priorities, particularly in 2020 and 2021,” DOER Commissioner Elizabeth Mahony said. “But since we came into office [in 2023], we’ve been trying to utilize these funds in a way that supports the industry, so that we can create projects that therefore create credits, so we don’t have to collect ACP.”

Mahony said the DOER is working to deploy the funds through a range of initiatives, including a storage grant program, building decarbonization efforts for low- to moderate-income households, decarbonization and clean energy deployment at state facilities, heat pump training at community colleges, the state’s Climate Leader Communities program and improving low-income solar access.

From the Climate Mitigation Trust, the department has spent $50 million to seed the state’s Community Climate Bank, $20 million on decarbonization and clean energy projects through the Massachusetts Water Resources Authority, $20 million for the DOER’s Affordable Housing Decarbonization Grant Program, $10 million for the purchase of electric school buses and $7 million on flood resilience.

“You do have to ramp up resources to actually run these programs, but we have been planning for it,” Undersecretary Judge said.

Mahony and Judge both highlighted a series of emergency rulemakings for the CPS in 2024, which the state took “to reduce the reliance on ACP going forward,” Judge said.

In July, facing significant undersupply in the market, the DOER decreased the minimum standard for the CPS to protect ratepayers from excessive costs. In October, the DOER increased the ACP rates for future years. The rate was previously set to decline starting in 2025 but will now increase from $45 to $65 in 2026.

The DEP solicited stakeholder feedback on potential reforms to the CES in late 2023, including a possible ACP rate increase and incentives for new projects and long-term planning, but has not acted on these changes.

“The DEP is still working on that. … It’s more of an internal resource thing,” Judge said, adding that he expects the department to take additional steps at some point in 2025.

“Our goal ultimately is for clean energy projects to be developed, so that they are providing any number of benefits to the grid, including the availability of credits,” Mahony said.

Green Energy Consumers’ Chretien praised the Healey administration’s leadership on clean energy but said there should be more transparency and public engagement around how the ACP funds are used.

“The legislation that created these standards lets the bureaucracy determine what to do with the money,” Chretien said. “It’s not very transparent.” As the state works to meet the challenge of scaling up clean energy while protecting ratepayers from substantial cost increases, “I think they owe the public a little bit of input” on how to spend the accumulated ACP funds.