Presentation Topic Points

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

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

3. 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.

4. 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

5. 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

6. 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

7. 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

8. 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