Explainer: Can Clean Peak Standards Make Energy Economics Meet Energy Justice?

In Brief

American states have long used standards to motivate utilities and other players toward healthier energy. 

Clean Peak Standards represent an approach that focuses on squeezing the dirtiest power sources out of the picture. 

Like every other policy proposition, it raises tradeoffs and exposes flaws in the energy system. Our writer dives in for details. 

Can Clean Peak Standards brighten the view in this part of Brooklyn?

Activists in Brooklyn's Sunset Park neighborhood have explored whether Clean Peak Standards can address air quality and energy inequity. (Photo by Victoria Belanger via Flickr Creative Commons.) 

As intermittent renewable sources increasingly contribute to electricity generation, regulators across the United States are increasingly concerned about the policy support needed to meet peak demand with low-carbon sources. Massachusetts’ first-of-its-kind Clean Peak Energy Standard (CPS) aims to do just this, by mandating that peak energy demand be increasingly met with renewable energy.

Proposed benefits of the CPS include incentivizing battery storage, reducing grid emissions, and alleviating the inequities of exposure to pollution from often-dirty “peaker plants” that switch on during stretches of high demand. However, recent analysis has suggested that the policy has a negligible impact on emissions. This happens, argue critics, because the policy targets peak demand without focusing on the emissions of the marginal unit of generation—the generator that ramps production up and down to respond to changes in demand. Critics suggest that a clean peak standard based around marginal emissions rates would maintain the benefits of the CPS, while also ensuring reductions in short-term power grid emissions. 

What is the Clean Peak Energy Standard? 

Standards are a category of regulatory action that are widely used to achieve ensure minimum desired levels of attainment or quality. In the clean energy space, state renewable portfolio standards (RPS) have been in effect since 1983 starting in Iowa, and expanding to 29 states plus the District of Columbia in 2007. They mandate that a certain portion of electricity generation comes from renewable sources. Thirteen states and territories of the US have set 100% clean or renewable portfolio requirements, with deadlines between 2030 to 2050.

In both the Renewable Portfolio Standard and the Clean Peak Energy Standard, certificate systems track compliance and provide incentives. Under Renewable Portfolio Standards, electricity providers are periodically required to purchase a minimum quantity of Renewable Energy Certificates (RECs) to certify that a portion of their electricity comes from renewable sources. One REC is produced each time a renewable generation facility (e.g. a solar farm) puts one megawatt-hour of renewable energy onto the grid. Since RPS policies are much more common currently, they are generally well-understood by utilities and investors.

Similarly, the Clean Peak Energy Standard requires electric distribution companies to periodically acquire a minimum quantity of Clean Peak Energy Certificates, which represent clean energy being put onto the grid during hours of peak demand each day. These certificate systems create financial incentives for eligible generation or storage facilities, since selling these certificates represents an added revenue stream for the facility owner. In the case of the Clean Peak Energy Standard, the value of the certificates are determined through a competitive procurement process that electric distribution companies have to undertake twice a year.

Given the intermittent nature of solar and wind energy generation, energy storage is crucial for meeting the requirements of the Clean Peak Energy Standard. Since electricity generation from solar and wind systems depend on how much sun or wind is physically available at any given place and time, financial incentives alone would have a limited ability to increase peak electricity performance from intermittent sources. This is especially so for solar energy, since peak demand for most areas happens in the evening, when little to no sunlight is available. In an ideal world, wind and solar energy generated during off-peak hours would be stored by battery systems, and subsequently discharged during peak demand periods as a low-carbon source of peak generation.

Massachusetts is currently the only state with a clean peak standard in effect. New Jersey, New York, California, and Arizona, have previously proposed similar policies. However, the proposals in some of these states have either been voted down (Arizona) or are currently vague (New York and California).

More specifically, energy storage systems in Massachusetts can participate in the Clean Peak Energy Standard if they meet at least one of the following criteria: (1) They are co-located with what is known as a Qualified RPS Resource, (2) They are paired via contract with a Qualified RPS Resource, (3) They charge during periods of generally high renewable energy production on the grid, defined by the periods below.

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Table 1: Energy storage charging windows for participation in the Clean Peak Energy Standard.

However, with the complexities of electricity market design, the intuition that we can store some clean energy now and save it for later does not always work as expected. Critics point out that from an emissions reduction perspective, we should be designing the policy around the emissions intensity of the marginal generator instead of the grid-average emissions intensity—concepts we explore in further detail in the following section.

Critiques of the Clean Peak Standard

The electricity market is unique in that supply and demand need to be constantly balanced, or risk blackouts and system shutdown. With this design, the idea of the marginal generation unit is key. Christy Lewis, Director of Analysis at WattTime, an environmental tech non-profit founded by UC Berkeley researchers, explains it as such:

"To meet electricity demand, a balancing authority instructs generators to turn on, starting with the lowest operational cost, and dispatching generators in order of ascending cost until the full electricity demand is met. The marginal unit of generation is the final generation unit dispatched, which sets the price received for all the dispatched generators.

The marginal unit is also most likely the one to respond to your change in demand at any given time, so shifting electricity load from one time to another affects only the marginal generator(s). For that reason, it is the best measure of what will actually happen [i.e. what emissions are reduced or increased]."

This is crucial because when a grid-connected battery system is charged up, it effectively causes an increase in demand on the marginal generation unit. Therefore, to achieve the policy’s goal of reducing carbon emissions, batteries should be charged during periods where the marginal generation unit is less emissions-intensive than when the battery is discharged (i.e. peak demand periods), rather than charging during periods of “generally high renewable energy production”.

The Massachusetts Clean Peak Energy Standard does not place any consideration on the marginal generation unit during charging and discharging, which recent analysis has found could hamper its effectiveness. In a 2021 Energy article, Lewis, along with colleagues from Columbia University and New York University, modeled the effects of the Massachusetts policy. They find that a $30 Clean Peak Certificate price was found to have roughly the same emissions reduction as a $1 carbon tax. This is because with the current design of the Clean Peak Energy Standard, batteries are usually both charged and discharged when natural gas-based generators are the marginal unit, leading to minimal emissions reductions.

If a similar policy to the Clean Peak Energy Standard were to pass in other states, the lack of attention to the marginal generation unit could even cause an increase in carbon emissions. While coal has mostly been phased out in ISONE (where Massachusetts is), a 2022 PNAS article found that on average, coal is increasingly being used as the marginal generation unit in the US. If, for example, under a clean peak standard in a different region, battery systems are incentivized to charge at night where coal is the marginal generation unit, and then discharge in the evening when natural gas is the marginal generation unit, that policy would likely cause an increase in carbon emissions.

However, the full scope of benefits and trade-offs associated with a clean peak standard go beyond short-run electricity grid carbon emissions. Environmental justice and long-term considerations add complexity to any evaluation of a clean peak standard.

Environmental Justice Considerations

Peaker plants are a category of power generation technologies that generally only operate during the highest demand peaks throughout the year. Peaker plants are disproportionately located in disadvantaged communities, and operate using some of the most pollutive technologies, such as gas-fired turbines, oil-fired turbines, and internal combustion engines. The local health impacts of particulate matter (PM2.5), sulphur dioxide (SO2), and nitrogen oxide (NOx) pollution from peaker plants include cardiovascular disease and lung cancer.

For example, in New York City, the blocks sloping down towards the utility complex in Astoria have been known for decades as “asthma alley”, a reference to the obvious health inequities caused by the peaker plants and other fossil fuel plants in Queens and Harlem. In response to these inequities, environmental justice organizations across the US have advocated in recent years for the retirement of fossil fuel peaker plants, and their replacement with battery storage.

By creating additional incentives for energy storage systems, the Clean Peak Energy Standard could speed up the retirement and replacement of fossil fuel peaker plants with low-carbon alternatives such as battery storage systems. However, Yale Professor of Economics Ken Gillingham adds that if environmental justice is the goal, policymakers might want to add additional measures, such as a higher Clean Peak Certificate value for energy storage located in identified environmental justice communities, to speed up the reduction in use and eventual retirement of fossil fuel peaker plants in these communities where health and environmental burdens are already high. This would happen because the heightened economic signal sent by the Clean Peak Certificates would incentivize the installation of more battery storage capacity in environmental justice communities, dispatching energy during peak hours instead of peaker plants.

Meanwhile, Lewis and her team are developing an environmental justice-focused emissions signal. This signal would measure the health impacts of the PM2.5, SO2, and NOx emissions created by marginal generation units. If implemented in a policy like the clean peak standard, it would incentivize energy storage to charge and discharge at times that would minimize health harms from the power grid.

Long-term considerations

Despite potential perverse short-run outcomes such as increased carbon emissions, Professor Gillingham emphasizes that a policy like the Clean Peak Energy Standard could have a place in view of long-term deep decarbonization goals. With Massachusetts’s 2050 80% clean energy target, large amounts of battery storage could be necessary to keep the lights on in a future electricity grid characterized by large amounts of wind and solar generation. With battery storage costs still relatively high, the Clean Peak Energy Standard could be seen as a positive development that will add battery capacity to Massachusetts’s grid, while contributing to market creation which could drive down battery storage costs over time, in a similar pattern as solar panels.

Echoing these sentiments, Robert Klee, a Yale School of the Environment Faculty and former Commissioner of the Connecticut Department of Energy and Environmental Protection, adds that the Clean Peak Energy Standard could be slightly ahead of its time. The Clean Peak Energy Standard would definitely reduce grid emissions at a future saturation point when wind or solar energy is being curtailed, due to generation exceeding supply.

However, both Professor Gillingham and Lewis suggest that if a clean peak standard policy were designed around a focus on the marginal generator, the same benefit of incentivizing energy storage could still be achieved. This would require the tweaking of the value of the clean peak certificates, so that energy storage owners would receive a desired level of financial incentive based on how often the storage units are activated under the policy. For example, if the marginal emissions-focused policy caused a more infrequent distribution of clean peak certificates compared to the Massachusetts baseline policy, then the value of each certificate could be raised to compensate. 

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