Advancing Solar PV at Lower Cost: Performance Based Incentives, Price Certainty, and Equitable Rate Treatment Ronald Gerwatowski – Senior VP, National Grid December 13, 2013

Presentation Topic Points Net Metering A Comprehensive tariff-based solar growth proposal An interim proposal for Massachusetts

Two legitimate views rest on both sides From one lens: Net Metering is not about Net Metering – It’s about things more Fundamental Two legitimate views rest on both sides From one lens: When net metering is the primary source of funding to get solar financed and installed, it understandably becomes a “do or die” issue for solar advocates; Net metering is an important incentive for less sophisticated customers to self-generate with clean energy who do not want to be in the generation business; From the other lens: Net metered solar customers depend upon the distribution system. And when large-scale implementation of net metering erodes revenue needed to support distribution costs equitably among rate classes, it becomes a concern for the utility. When “virtual net metering” occurs, it is not net metering at all. Rather, it is just a wholesale power transaction with a sophisticated generator whose payments are being received indirectly through distant accounts and secondary contractual relationships. Our solution: Net metering should match generation to load at the location; and policies should reduce financial dependency on net metering by supplementing with a transparent, sustainable, funding vehicle that provides long term revenue certainty to finance solar.

A Tariff-based, Competitive Bidding Proposal Reliance placed on competitive bidding with long term price certainty Similar to a feed-in tariff, but uses competition rather than administratively determined pricing Payments in the form of performance based incentives tied to the entire output of the generation for a specified term of years; creating price certainty clearly set forth in an approved tariff Price certainty brings down the cost by mirroring long term contracts without the utility signing a contract which triggers balance sheet and other accounting issues

The Mechanics of the Proposal Create classifications of solar projects -- for example: Large Scale: greater than one megawatt; Commercial Scale: 300 MW to 1MW; Medium Scale: 25KW to 300MW; Small Scale: up to 25KW Annual Target Set for Entire Program and MW Targets set for each class Bidding for Large Scale and Commercial Scale three times per year Each winning bidder receives its bid price value in the form of performance based incentives tied to 100% of generator output for the term of years embedded in the tariff (with clear legal entitlement to the revenue stream) For Small and Medium Scale, bids used from the larger classes to derive standard performance based incentives Utility takes output and RECs and resells into the market, crediting all distribution customers to offset cost of incentives recovered in rates Utility may offer incentives above bid pricing to encourage locations, technology preferences, or the advancement of other policy objectives, subject to regulatory approval

Net Metering Integrated into Program Net metering continues for on site generation that is designed to match generation production to consumption on site Performance based incentive and net metering value comprise full compensation to finance solar at the “as bid” value Excess generation above consumption not compensated while performance based incentives are paid on 100% of output; but excess compensated when incentives end Need to address post-tariff period contribution to distribution system with appropriate standard that also recognizes benefits of distributed generation

Timing In Rhode Island, the timing is right to implement for 2015 and can be implemented as a seamless extension of the current program on a larger scale In Massachusetts, difficult issues of timing, with SREC II being launched Interim proposal – with narrower application of the concept in MA Allow for future assignment of all or a segment of the larger solar classification to the utility tariff program, subject to a DPU approval Smaller classifications move forward with SREC II as planned

The Objectives Accomplished The solar target established by the policymakers can be met over a designated period of years in a sustainable manner Competitive process assures lower cost to all consumers who fund the program through rates Long term price certainty lowers incentive cost to all consumers Captures the declining cost of solar over time Continues net metering in a manner consistent with its original intent, while recognizing the need to address ratemaking inequity in a balanced, reasonable fashion for all customers