SB 65
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Enrolled - Revised
Senate Bill 65 (Senator Kelley)
Finance Economic Matters
Electricity - Renewable Energy Portfolio Standard - Tier 2 Renewable Sources,
Qualifying Biomass, and Compliance Fees
This bill reduces the amount of solar energy required under the State Renewable Energy
Portfolio Standard (RPS) each year from 2022 through 2029, while leaving the nonsolar
requirement generally unchanged, before realigning with current law beginning in 2030.
The relative difference is more pronounced in the near-term. The bill also increases solar
alternative compliance payments (ACPs) beginning in 2023, before gradually returning to
near parity with current law by 2030. Nonsolar ACPs are unchanged. The bill also
(1) excludes black liquor, or any product derived from black liquor, from Tier 1 beginning
with the 2022 compliance year and (2) continues Tier 2 in perpetuity at 2.5% beginning
with the 2021 compliance year. A presently existing obligation or contract right may not
be impaired in any way by the bill. The bill generally takes effect June 1, 2021, except
for the provisions related to black liquor, which take effect October 1, 2021.
Fiscal Summary
State Effect: No effect in FY 2021. The Public Service Commission can handle the bill’s
requirements with existing budgeted resources. The effect on State expenditures for
electricity is discussed in the Additional Comments section below.
Local Effect: The effect on local expenditures for electricity is discussed in the
Additional Comments section below. Revenues are not directly affected.
Small Business Effect: Potential meaningful, as discussed in the Additional Comments
section below.
Analysis
Bill Summary: Changes to the RPS percentage requirements and ACPs are shown in
Exhibit 1.
Exhibit 1
Annual Tier 1 RPS Specifications
Curent Law vs. the Bill
Percentage of Retail Sales Alternative Compliance Payments1
Current Law The Bill Current Law The Bill
Tier 1 Tier 1
2
Year Total Solar Total Solar Nonsolar Solar Nonsolar Solar
2022 33.10% 8.50% 30.10% 5.50% 30.00 60.00 30.00 60.00
2023 35.40% 9.50% 31.90% 6.00% 30.00 45.00 30.00 60.00
2024 37.70% 10.50% 33.70% 6.50% 27.50 40.00 27.50 60.00
2025 40.00% 11.50% 35.50% 7.00% 25.00 35.00 25.00 55.00
20263 42.50% 12.50% 38.00% 8.00% 24.75 30.00 24.75 45.00
2027 45.50% 13.50% 41.50% 9.50% 24.50 25.00 24.50 35.00
2028 47.50% 14.50% 43.00% 11.00% 22.50 25.00 22.50 32.50
2029 49.50% 14.50% 47.50% 12.50% 22.50 22.50 22.50 25.00
2030+ 50.00% 14.50% 50.00% 14.50% 22.35 22.35 22.35 22.50
RPS: Renewable Energy Portfolio Standard
1
Dollars per megawatt-hour.
2
Total columns include solar and offshore wind and reflect Tier 1 only; the bill also permananetly continues
Tier 2 at 2.5% beginning in 2021. Under the bill, Tier 1 does not include black liquor, or any product derived
from black liquor, beginning in 2022.
3
New offshore wind capacity is required beginning with at least 400 megawatts in 2026, increasing to at least
800 megawatts in 2028, and to at least 1,200 megawatts in 2030. The bill does not change these requirements.
Source: Department of Legislative Services
Current Law: For general information on Maryland’s RPS, see the Appendix –
Renewable Energy Portfolio Standard.
SB 65/ Page 2
Tier 2
Tier 2 of Maryland’s RPS first expired at the end of 2018 but was subsequently reinstated
by Chapter 757 of 2019. The reinstatement was effective from October 1, 2019, through
2020, which left a nine-month gap. Prior to its expiration, Tier 2 included only large
hydroelectric sources. There is one facility in the State that qualifies as Tier 2 – at
Conowingo Dam.
Qualifying Biomass and Black Liquor
“Qualifying biomass” (for RPS compliance) means a nonhazardous, organic material that
is available on a renewable or recurring basis, and is waste material that is segregated from
inorganic waste material and is derived from sources including:
mill residue, except sawdust and wood shavings;
precommercial soft wood thinning, slash, brush, or yard waste;
a pallet or crate;
agricultural and silvicultural sources, including tree crops, vineyard materials, grain,
legumes, sugar, and other crop by-products or residue;
gas produced from the anaerobic decomposition of animal waste or poultry waste;
or
a plant cultivated exclusively for the purpose of being used as a renewable source
to produce electricity.
Qualifying biomass does not include old growth timber, unsegregated solid waste or
postconsumer wastepaper, or invasive exotic plant species. An electricity supplier receives
credit toward meeting RPS requirements for electricity derived from the biomass fraction
of biomass co-fired with other fuels.
According to the recent comprehensive report prepared by the Power Plant Research
Program in the Department of Natural Resources, Maryland is the only state in the region
that includes black liquor as an eligible Tier 1 resource besides Pennsylvania, where black
liquor facilities must be located in that state to be eligible. The sole in-state facility that had
produced black liquor renewable energy credits (RECs) used for compliance with
Maryland’s RPS, Luke Mill in Allegany County, closed in 2019.
SB 65/ Page 3
Additional Comments (Electricity Prices):
Solar Carve-out
Holding other factors constant, significantly reducing demand for solar renewable energy
credits (SRECs) under the bill should also reduce their price, even if the ACP is increased,
unless the market is in very short supply. Put another way, the bill should decrease both
the quantity and price of SRECs, unless there is such a significant shortage that prices rise
as far as ACPs allow. Even so, as shown in Exhibit 2, the bill generally reduces the
maximum potential solar compliance cost from 2022 through 2029, even at maximum
ACPs under both scenarios.
Exhibit 2
Maximum Potential Compliance Costs, Solar Carve-out
Current Law vs. the Bill
Current Law The Bill Difference $/Megawatt-hour
2022 $306,000,000 $198,000,000 -$108,000,000 -$1.80
2023 256,500,000 216,000,000 -40,500,000 -0.68
2024 252,000,000 234,000,000 -18,000,000 -0.30
2025 241,500,000 231,000,000 -10,500,000 -0.18
2026 225,000,000 216,000,000 -9,000,000 -0.15
2027 202,500,000 199,500,000 -3,000,000 -0.05
2028 217,500,000 214,500,000 -3,000,000 -0.05
2029 195,750,000 187,500,000 -8,250,000 -0.14
2030+ 194,445,000 195,750,000 1,305,000 0.02
RPS: Renewable Energy Portfolio Standard
Note: Maximum compliance cost is estimated using the percentage each year that must come from solar
under the RPS and the maximum theoretical price of each SREC (the ACP). Energy use is assumed to be
60 million megawatt-hours annually. The average residential household uses one megawatt-hour of
electricity per month. The Department of Legislative Services cannot advise on the likelihood of the State
approaching the maximum potential compliance cost in any year under either current law or the bill.
Source: Department of Legislative Services
The SREC effect begins mid-fiscal 2022 and continues through mid-fiscal 2030; however,
the Department of Legislative Services cannot advise on the likelihood of any particular
SB 65/ Page 4
reduction in actual compliance costs due to the bill. Still, based on the potential maximum
compliance costs for solar over the next several years, the effect is potentially
significant/meaningful for State and local governments and small businesses.
For illustrative purposes only, in 2022, accounting for the three percentage point
reduction in overall SREC demand, if the bill reduces SREC prices from $60 (the
maximum theoretical amount) to $45, overall compliance costs would be reduced by
$158 million, or about $2.63 per megawatt-hour. The State government uses about
1.5 million megawatt-hours of electricity each year.
Black Liquor and Tier 2
Black liquor has a relatively small and declining market share in the region and, therefore,
it exerts minimal influence over REC and electricity prices paid by governments,
businesses, and households. Historically, the cost of Tier 2 has had a negligible effect on
rates.
Additional Information
Prior Introductions: None.
Designated Cross File: HB 875 (Delegate D.E. Davis) - Economic Matters.
Information Source(s): Public Service Commission; Department of Natural Resources;
Department of Legislative Services
Fiscal Note History: First Reader - January 13, 2021
rh/lgc Third Reader - March 10, 2021
Revised - Amendment(s) - March 10, 2021
Enrolled - April 14, 2021
Revised - Amendment(s) - April 14, 2021
Analysis by: Stephen M. Ross Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 65/ Page 5
Appendix – Renewable Energy Portfolio Standard
Maryland’s Renewable Energy Portfolio Standard (RPS) was enacted in 2004 to facilitate
a gradual transition to renewable sources of energy. There are specified eligible (“Tier 1”
or “Tier 2”) sources as well as carve-outs for solar and offshore wind. Electric companies
(utilities) and other electricity suppliers must submit renewable energy credits (RECs)
equal to a percentage specified in statute each year or else pay an
alternative compliance payment (ACP) equivalent to their shortfall. Historically, the
requirements have been met almost entirely through RECs, with negligible reliance on
ACPs. The Maryland Energy Administration must use ACPs to support new renewable
energy sources.
Chapter 757 of 2019 significantly increased the percentage requirements, which now
escalate over time to a minimum of 50% from Tier 1 sources, including 14.5% from solar,
by 2030. In 2021, the requirements are 30.8% for Tier 1 sources, including at least 7.5%
from solar. Tier 2, which has been extended several times, terminated after 2020.
Generally, a REC is a tradable commodity equal to one megawatt-hour of electricity
generated or obtained from a renewable energy generation resource. In other words, a REC
represents the “generation attributes” of renewable energy – the lack of carbon emissions,
its renewable nature, etc. A REC has a three-year life during which it may be transferred,
sold, or redeemed. REC generators and electricity suppliers are allowed to trade RECs
using a Public Service Commission (PSC) approved system known as the Generation
Attributes Tracking System, a trading platform designed and operated by PJM
Environmental Information Services, Inc. that tracks the ownership and trading of RECs.
Tier 1 sources include wind (onshore and offshore); qualifying biomass; methane from
anaerobic decomposition of organic materials in a landfill or wastewater treatment plant;
geothermal; ocean, including energy from waves, tides, currents, and thermal differences;
a fuel cell that produces electricity from specified sources; a small hydroelectric plant of
less than 30 megawatts; poultry litter-to-energy; waste-to-energy; refuse-derived fuel; and
thermal energy from a thermal biomass system. Eligible solar sources include
photovoltaic cells and residential solar water-heating systems commissioned in fiscal 2012
or later. Tier 2, when it was in effect, eventually included only large hydroelectric power
plants.
RPS Compliance
According to the most recent RPS compliance report on PSC’s website,
electricity suppliers retired 11.4 million RECs at a cost of $134.5 million in 2019, as
average REC prices rose from their 2018 levels, as shown in Exhibit 1.
SB 65/ Page 6
Exhibit 1
RPS Compliance Costs and REC Prices
2015-2019
2015 2016 2017 2018 2019
Compliance Costs ($ Millions)
Tier 1 Nonsolar $85.1 $88.2 $50.0 $56.4 $79.3
Tier 1 Solar 39.1 45.6 21.3 27.4 55.2
Tier 2 2.6 1.4 0.7 1.0 .06
Total $126.7 $135.2 $72.0 $84.8 $134.5
Average REC Price ($)
Tier 1 Nonsolar $13.87 $12.22 $7.14 $6.54 $7.77
Tier 1 Solar $130.39 $110.63 $38.18 $31.91 $47.26
Tier 2 $1.71 $0.96 $0.47 $0.66 $1.05
REC: renewable energy credit
RPS: Renewable Energy Portfolio Standard
Note: Numbers may not sum to total due to rounding.
Source: Public Service Commission
In 2019, wind (43%), black liquor (23%), small hydroelectric (11%), municipal solid waste
(11%), and wood and waste solids (7%) were the primary energy sources used for
Tier 1 RPS compliance. Maryland facilities generated 4.7 million RECs in 2019:
approximately 2.5 million Tier 1 RECs and 2.2 million Tier 2 RECs. Many RECs can be
used for compliance in both Maryland and other surrounding states, although there are
geographic and energy source restrictions.
Pursuant to Chapter 393 of 2017, the Power Plant Research Program in the Department of
Natural Resources has released its final report on a comprehensive study of the RPS. The
report contains historical data but also looks at future scenarios. The report can be found
here or on the department’s website.
SB 65/ Page 7
Statutes affected: Text - First - Electricity - Renewable Energy Portfolio Standard - Qualifying Biomass: 7-701 Public Utilities, 7-704 Public Utilities, 7-701 Public Utilities, 7-701 Public Utilities
Text - Third - Electricity - Renewable Energy Portfolio Standard - Qualifying Biomass: 7-701 Public Utilities, 7-704 Public Utilities, 7-701 Public Utilities, 7-701 Public Utilities
Text - Enrolled - Electricity - Renewable Energy Portfolio Standard - Tier 2 Renewable Sources, Qualifying Biomass, and Compliance Fees: 7-701 Public Utilities, 7-703 Public Utilities, 7-705 Public Utilities, 7-701 Public Utilities, 7-704 Public Utilities, 7-701 Public Utilities, 7-701 Public Utilities