I. Background

On June 11, 2015, Governor Shumlin signed into law H. 40, An Act Relating to Establishing a Renewable Energy Standard (the “RES”). This significant renewable energy law establishes a mandatory renewable energy standard for Vermont utilities and is expected to lead to the build-out of approximately 400 MW of renewable energy projects in Vermont by 2032. H. 40 repeals Vermont’s Sustainably Priced Energy Development (“SPEED”) Program, except for the standard offer program. The SPEED Program established renewable energy targets for retail electricity providers, but it allowed them to sell the environmental benefits associated with that power as renewable energy credits (“RECs”) to out-of-state utilities that must comply with their respective state Renewable Portfolio Standards (“RPS”). Under the SPEED Program, Vermont was the only New England state without a mandatory RPS, which is a requirement that a defined percentage of utility energy portfolios come from renewable energy resources. In passing H. 40 Vermont adopts its own version of an RPS.

Specifically, the RES requires that retail electricity providers (1) have a minimum amount of renewable electricity in their supply portfolios; (2) support relatively small (≤ 5 MW) renewable energy projects connected to the Vermont grid (known as “distributed renewable generation projects”); and (3) invest in projects to reduce fossil fuel use for heating and transportation (known as “energy transformation projects”). H. 40 also makes significant changes to the ownership of a project’s environmental attributes (including RECs) under Vermont’s net metering program and includes certain setback and screening provisions for ground-mounted solar projects. Part II of this summary provides an overview of the RES. Part III summarizes the changes to net metering along with the new setback and screening.

II. Key Elements of the RES

As noted above, the RES is comprised of three interrelated tiers:

1. a total renewable energy requirement, which is essentially an RPS;
2. a distributed renewable generation (“DRG”) requirement; and
3. an energy transformation requirement that can be satisfied through either additional distributed generation and/or cost-effective projects that reduce Vermont’s fossil fuel consumption and related GHG emissions.

Effective Date: Takes effect on July 1, 2015.

Flexibility for Utilities: Under the RES, utilities are allowed to bank excess RECs in a given year for use in one of the following three years, make alternative compliance payments to the Clean Energy Development Fund, and can engage in joint efforts to satisfy one or more of the RES tiers.

Total Renewable Energy (Tier 1):

Required Amount: Utilities must own bundled renewable energy and/or RECs equivalent to 55% of retail sales in 2017, escalating steadily to 75% on and after 2032.

Eligible Resources: Utilities can use any renewable energy, new or existing, with environmental attributes attached or any class of tradable RECs owned and retired so long as its energy is capable of delivery in New England.

Practical Implications: Because energy from existing renewable energy plants satisfies this tier, including hydroelectric dams, utilities are not expected to build new renewable energy facilities to meet the total renewable energy requirement.

Distributed Renewable Generation (Tier 2):

Required Amount: Utilities must own bundled renewable energy or RECs from DRG equivalent to 1% of retail electric sales in 2017, increasing annually to 10% on and after 2032.

Eligible Resources: Utilities may use renewable energy or RECs from plants that come into service after 6/30/15 that are (1) 5 MW or less and directly connected to the Vermont utility grid or (2) net metering systems for which the utility retires the systems environmental attributes.

5 MW Exception: A utility that cannot meet its DRG requirements using facilities that are 5 MW or less may petition the Public Service Board (the “Board”) to allow use of facilities larger than 5 MW if the larger project would qualify as DRG but for the plant capacity, i.e., the project must be connected to the Vermont grid.

Relationship to Other Tiers: Bundled energy and RECs used to satisfy the DRG requirement also count towards the Total Renewable Energy requirement.

Practical Implications: The Department of Public Service projects that this tier will cause the build-out of over 400 MW of distributed generation in Vermont.

Energy Transformation Requirement (Tier 3):

Required Amount: This is a distinct requirement that starts at 2% of retail sales (BTU equivalent) in 2017, rising annually to 12% on and after 2032.

Eligible Resources: Utilities may use additional DRG (beyond that required above) and/or energy transformation projects. Project eligibility is evaluated against several statutory criteria, including that the proposed project must (1) commence on or after 1/1/15; (2) result in a net reduction in a customer’s fossil fuel consumption and related GHG emissions; (3) cost less than the alternative compliance rate; and (4) meet the needs for the goods or services at the lowest present value life cycle cost they provide, considering environmental and economic costs in addition to alternatives that do not increase electricity consumption.[1]

Compliance Waiver: Utilities may petition the Board in a given year for relief from all or part of the energy transformation requirement, without penalty or alternative compliance payment, if compliance would result in a significant rate increase.

Practical Implications: Expected to generate nearly $400 million in net energy cost savings for Vermont as a whole.

Alternative Compliance Rates:

Total Renewable Energy Rate: $0.01 per kWh, adjusted annually for inflation.

DRG & Energy Transformation Rates: $0.06 per kWh, adjusted annually for inflation.

Vermont REC Trading System:

The Board must establish a system of tradable RECs and ensure that the system recognizes RECs traded on the New England Information System (“GIS”) as well as the environmental attributes of renewable energy that may qualify for the RES but may not be monitored on the GIS.

Biomass:

DRG/Energy Transformation: To qualify, a biomass plant must (1) generate both electricity and thermal energy from same fuel, with the majority of the energy recovered being thermal; and (2) biomass energy production must comply with “renewability standards” to be adopted by the Commissioner of Forests, Parks and Recreation.

Total Renewable Energy: Biomass that does not qualify for DRG or Energy Transformation still qualifies under the Total Renewable Energy tier.

Hydropower:

DRG/Energy Transformation: To qualify, a hydropower plant must be certified by the Low-impact Hydropower Institute or must have received water quality certification from the Agency of Natural Resources (“ANR”) after 1/1/87.

Total Renewable Energy: Hydro that does not qualify for DRG or Energy Transformation still qualifies under the Total Renewable Energy tier.

III. Standard Offer, Net Metering, and Solar Setback and Siting Provisions.

In addition to establishing the RES, H. 40 includes a variety of provisions that impact renewable energy development in Vermont through changes to the ownership of environmental attributes for net metering projects and certain setback and siting requirements for ground-mounted solar projects.

Standard Offer Program:

No Substantive Change: Explicitly states that no substantive changes are intended.

Standard Offer Facilitator: Changed the name of the SPEED Facilitator to the Standard Offer Facilitator.

Net Metering:

Flips Default Ownership of Environmental Attributes: Amends 30 V.S.A. 219a(h) to provide that the utility will receive ownership of the environmental attributes associated with a net metering system, including any RECs, unless the customer chooses to retain them when applying for the system. Environmental attributes and RECs transferred to the utility must be retired.

• Effective Date: Takes effective on 7/1/15, but does not apply to complete applications filed prior to the effective date.

Future Net Metering Program: Amends 30 V.S.A. § 8010(c) concerning the redesigned net metering program set to commence on January 1, 2017 pursuant to Act 99 of 2014, providing:[2]

• If customer retains the RECs associated with a net metering project, the value of the customer’s “credit” will be reduced by “an appropriate amount;” and
• Clarifies that the Board can vary the length of time and the amount of the credit assigned to net metering customers in order to maximize access to financing, e.g., greater credit if taken over 10 years and lower if over 20 years.
• Effective Date: Takes effect on 1/2/17, but does not apply to complete applications filed before 1/1/17.

Landfills and Cooperative Projects: Amends 30 V.S.A. § 219a to clarify that a net metering project located on a municipal landfill, or net metering project initiated by an electric cooperative, may be built by the municipality, the cooperative, or a developer on their behalf.

Municipal Party Status:

Adds 30 V.S.A. § 248(a)(4)(F) to provide that the town select boards and town planning commissions in which a proposed facility will be located have the right to appear as a party in any Section 248 proceeding.

Solar Setbacks:

Adds 30 V.S.A. § 248(s) to provide for the following:

Minimum Setbacks for Ground-Mounted Solar:

>150 kW

• 100 feet from edge of state or municipal highway; and
• 50 feet from property boundaries.

≤ 150 kW but greater than 15 kW

• 100 feet from edge of state or municipal highway; and
• 50 feet from property boundaries.

≤ 15 kW

• No setback requirements.

The Board’s Discretion: The Board may require larger setbacks or approve agreement for smaller setbacks between petitioner, municipality, and property owner adjoining smaller setback.

Setback Defined: Shortest distance between nearest portion of a panel or support structure and a property boundary or edge of a highway’s traveled way.

Effective Date: Effective upon passage.

Solar Screening:

Amends 30 V.S.A. § 248(b)(1) to provide the following:

Compliance and Exception: Ground-mounted solar facilities must comply with

• Screening requirements under municipal bylaws and ordinances; and
• The recommendation of a municipality applying a bylaw or ordinance; unless
• The Board finds that requiring such compliance would (1) prohibit or have the effect of prohibiting the installation of the facility or (2) have the effect of interfering with the facility’s intended functional use.

CPG Condition: Bylaw/ordinance and municipal recommendation will be a condition to an issued CPG provided they do not trigger the exception described above, i.e., prohibit installation or interfere with functional use.

Effective Date: Effective upon passage.

Solar Screening Bylaws & Ordinances:

Adds 24 V.S.A. § 4414(15) and amends 24 V.S.A. § 2291 to provide the following:

Municipal Authority: Authorized to adopt freestanding bylaws or ordinances establishing screening requirements for ground-mounted solar.

No Enhanced Restrictions: Prohibits screening requirements that are more restrictive than screening requirements applied to “commercial development.”

Screening Defined: Reasonable mitigation measures to harmonize a facility with its surroundings, including landscaping, vegetation, fencing, and topographic features.

No Municipal Land Use Permit: Municipalities are not authorized to require a land use permit for a solar facility.

Enforcement: The Board enforces screening bylaw & ordinance compliance pursuant to 30 V.S.A. § 30.

Effective Date: Effective upon passage.

Reports:

H. 40 directs that a number of reports be developed in connection to the new legislation, including the following:

Solar Siting Task Force: Task Force created to study issues pertaining to sitting, design, and regulatory review of solar facilities. Members include the Department of Public Service, ANR, Renewable Energy Vermont, a landscape architect, and a Vermont resident, among others.

• Instructed to issue proposed legislation on design, siting, and regulatory review of solar projects by 1/15/16.

ANR Renewable Impacts: ANR directed to report on environmental and land use impacts of renewable electric generation in Vermont, methods for mitigating impacts, and recommendations for appropriate siting and design.

Town Adoption of Solar Screening: Commissioners of Housing and Community Development and of Public Service directed to submit a report identifying the municipalities that have adopted screening requirements, summarizing them, and itemizing the Board proceedings where the requirements were applied.

Joint Energy Committee Recommendation: Joint Energy Committee instructed to make recommendations on what revisions, if any, should be made to statutes applicable to energy efficiency entities appointed under 30 V.S.A. § 209(d) and what legislation should be enacted to clarify or alter the relationships between energy efficiency entities and the energy transformation category.

Ratepayer Advocate Offices: Commissioner of Public Service directed to evaluate various forms of ratepayer advocate offices and report any recommendations on how to improve the structure and effectiveness of the Division of Public Advocacy.

[1] The Public Service Board is currently investigating how to design a revised net metering program pursuant to Act 99. Information related to this investigation is available at: http://psb.vermont.gov/statutesrulesandguidelines/proposedrules/rule5100.

[2] Examples of energy transformation projects may include home weatherization or other thermal energy efficiency measures, air source or geothermal heat pumps, increased use of biofuels, support for electric vehicles or related infrastructure, and infrastructure for the storage of renewable energy on the grid.