How well-crafted state policy can drive decarbonization in an evolving energy transition.
As we reach the midpoint of the pivotal decade for climate action, the energy transition is at a crossroads. Our ability to rise to the herculean task before us – decarbonizing our electric grid – is growing further out of reach.
Meeting growing clean energy targets (in most cases via legally binding state renewable portfolio standards) will be difficult enough, but recent projections of massive growth in electricity demand driven by the electrification of sectors such as transportation and home heating along with AI’s insatiable appetite for power have raised the bar even higher.
By some estimates, electricity demand in the United States will double, or even triple, by 2050. Meeting this unprecedented demand will require an enormous buildout of clean energy resources.
In the face of this dual challenge of surging demand paired with rising clean energy targets, distributed generation – predominantly solar and storage projects up to 5 MW – has proven it is ready to scale and meet the moment. Compared to their larger utility-scale cousins, these projects can be deployed rapidly, cost effectively and in difficult-to-decarbonize locations on the grid.
To date, we’ve made substantial progress in deploying distributed generation, largely due to federal tax incentives that have enjoyed continued bipartisan support from Congress. But they alone will not be enough to drive the urgently-needed buildout of distributed generation infrastructure, especially as they are likely to be weakened or repealed by the Trump Administration and Congressional Republicans.
At the state level, supportive policies have enabled distributed generation to blossom from an untested promise to a full-fledged industry. However, the challenge of scaling the industry to the level that’s required cannot be met with continued incrementalism.
We’ve spent the last two decades tinkering around the edges with distributed generation policy and market design. Pilot-scale distributed generation incentive programs that are too often at the mercy of continued political support, coupled with disjointed, restrictive, and inefficient permitting and interconnection processes, have led to widespread boom-and-bust cycles in distributed generation project development.
We cannot afford to gamble the climate crisis on half-measures. This stop-and-go approach will never allow developers to deploy projects at the scale they are capable of – or, more importantly, the scale the energy transition demands.
Instead, we must look to the states to lead on transformative policies to scale distributed solar and storage – starting with long-term market certainty.
Historically, distributed generation markets have been governed by cumbersome, capacity-limited state incentive programs that take years to implement and are often quickly exhausted due to substantial interest from developers. In addition to slowing decarbonization progress, this inconsistent, unpredictable regulatory environment makes it exceedingly difficult for developers to scale their operations in a given market.
Alternatively, policymakers can structure long-term, scalable distributed generation programs around existing wholesale market fundamentals of sustained market access, fair and predictable compensation for services provided to the grid where and when they are needed, and clear, streamlined rules and regulations.
Several states have started down this path. Uncapped, tariff-based programs like New York’s Value of Distributed Energy Resources or Illinois’ community solar tariff serve as strong examples of well-designed policy to enable long-term growth of distributed generation.
With New York’s Value of Distributed Energy Resources program, distributed generation projects are compensated for the benefits they provide to the grid based on location and time of export, sending a clear signal to project developers of where, and when, additional generation is needed. When paired with energy storage, independent power producers can strategically time grid injections to maximize revenue while relieving stressed grid infrastructure for utilities.
In the case of Illinois, community solar projects are compensated at the same price that utilities pay to procure and deliver power to their end-use customers. By allowing distributed solar and storage to participate in existing wholesale markets, Illinois’ community solar program lowers costs for ratepayers by adding more options to an already competitive energy supply marketplace. This also enables a more efficient use of ratepayer funds to supplement distributed generation project revenues via capacity-based and renewable energy credit incentives.
While long-term market certainty and responsible stewardship of ratepayer dollars are key to scaling distributed solar and storage, policymakers must also remove barriers to rapidly deploying projects on the ground. For distributed generation developers, two arenas that present ample opportunity for reform are permitting and interconnection.
In the matter of permitting, Massachusetts – a state with limited land available for solar development and strong competing priorities of preserving critical natural habitat and centuries-old agricultural land – has managed to strike a balance between ambitious state-level decarbonization goals and reasonable local-level siting concerns.
In 2024, Massachusetts lawmakers sought to address the pain of years-long permitting processes for distributed generation projects by passing reforms requiring local governing bodies to issue decisions for small clean energy facilities under 25 MW within 12 months of application. While critics may rightfully point out that local permitting delays may not always be obstructionist in nature, and may instead stem from a small or rural community’s lack of resources, expertise, or existing ordinances governing the siting of clean energy projects, the new law aims to address these concerns by providing statewide model zoning ordinances for distributed generation projects. The legislation also established a dedicated state-level Energy Facilities Siting Board to provide technical and legal assistance to municipalities reviewing projects.
Rather than strongarming municipalities into providing blanket approvals for substantial clean energy projects, the Massachusetts law leverages state resources to empower municipalities to make informed, fair decisions on project approvals – all while giving developers certainty around permitting timelines when making investment decisions.
Beyond structured permitting reforms, Massachusetts policymakers must address the other significant barrier to project deployment: interconnecting to the grid.
Bottlenecks in the interconnection process are nothing new. Since the explosion of growth in the distributed generation industry began in the 2010s, project developers have been plagued by lengthy system impact studies and exorbitant interconnection fees – often adding years-long delays or project-killing costs.
To address this broken process, Massachusetts adopted capital investment projects – proactive grid infrastructure upgrades performed by the utility not only to accommodate existing backlogs of projects seeking to interconnect, but to build excess capacity to serve future needs. The cost of these upgrades, initially borne by ratepayers, are reimbursed by developers as their projects come online.
This model is highly beneficial to all stakeholders in the interconnection process – utilities, developers and state policymakers. Utilities can focus on their core business model of operating and improving distribution infrastructure (while making a healthy return on their investments via state-approved cost recovery mechanisms), developers gain predictability in terms of the speed and cost of interconnecting their projects, and policymakers can shepherd their state’s progress on clean energy commitments.
These examples of well-designed state policy – long-term revenue opportunities based on existing market fundamentals, a balanced permitting process where state and local governments aren’t pitted against each other, and proactive measures to address interconnection backlogs before they arise – demonstrate how states can drive sustainable growth in distributed generation deployment irrespective of the direction of political winds in Washington.
In this decisive decade, we must look to state policymakers to lead on the creation of next-generation distributed generation policy that addresses the evolving dynamics of load growth, increasing clean energy targets, and wavering federal support. These leaders can, and must, use their power to enable the energy transition to proceed as rapidly as possible. The scale of the challenge ahead asks nothing less of us.
Matthew White is manager of policy & market strategy at Aspen Power, a New York-based firm that develops, constructs and operates renewable assets across the U.S.
