Beyond Grandfathering: Rhode Island Balances Climate and Affordability on Legacy Distributed Generation (DG) Program Costs

Authors: Jim Kennerly, Director, Toby Armstrong, Associate Director, Jonas Kaplan-Bucciarelli, Market Analyst

Reading Time: 7 minutes

As we have discussed throughout our Achieving Climate + Affordability series, affordability has moved to the center of energy policy discussions across the Northeast. Significant inflation following the COVID-19 pandemic and the wars in Iran and Ukraine have increased pressure on household budgets, while energy bills remain one of the most visible and consequential components of the cost of living.

At the same time, Northeast states remain statutorily committed to some of the country’s most ambitious decarbonization targets. Achieving those goals will require both decarbonization of electricity generation and widespread electrification of transportation, buildings, and large portions of manufacturing and industry. However, electrification at scale in these industries can only succeed if electricity is an affordable alternative fuel. If electric vehicles, heat pumps, and other electrified technologies are expected to displace fossil fuels at scale, customers must view them as economically attractive alternatives.

This creates a challenge that is becoming increasingly central to energy policy across the region. States must address affordability concerns without undermining the clean energy development needed to achieve legally mandated emission reductions. That challenge has become even more important amid recent federal policy shifts and growing uncertainty surrounding clean energy markets and investment conditions.

As we have explored previously, the challenge is not about choosing between affordability and decarbonization, but about advancing both simultaneously. Rhode Island’s recent reforms to its Virtual Net Metering (VNM) program offer a useful example.

Faced with legitimate affordability concerns associated with a mature clean energy program, the state could have pursued an approach that risked market disruption and reduced investor confidence. Instead, Rhode Island ultimately chose a path that sought to reduce costs while preserving a viable environment for continued clean energy investment and development.

The Problem Rhode Island Was Trying to Solve

At the core of the issue was Rhode Island’s compensation design. Unlike many newer distributed generation programs, Rhode Island’s VNM framework only compensated eligible projects at rates tied closely to the full retail rate of electricity on Rhode Island Energy’s C-06 commercial rate schedule (with a portion of those benefits shared with participating commercial, industrial, municipal, and institutional customers via bill savings). While this structure successfully supported project development, it also created growing concerns regarding long-term ratepayer costs as the program expanded and electricity rates increased over time. Indeed, SEA estimated cumulative VNM program costs of $5.6 billion on a net present value basis through the end of the program in 2060, making VNM one of the state’s most significant identifiable long-term energy cost drivers.1

Across the Northeast, many states have moved away from strictly retail-rate-derived compensation structures for larger front-of-the-meter projects, seeking to provide more cost-efficient compensation while maintaining continued clean energy development. As a result, Rhode Island policymakers faced increasing pressure to address VNM costs and bring the state’s approach more in line with regional trends.

2025 Changes to Maine’s Net Energy Billing (NEB) Program: A Less Balanced Approach to DG Compensation Reform

Policymakers confronting these challenges often find themselves pulled in two competing directions. On the one hand, typical reforms to DG compensation tend to involve protecting existing projects brought online under prior rules to avoid disruption. While understandable, that approach can leave many of the most significant long-term cost drivers untouched. On the other hand, when faced with a program driving disproportionate ratepayer cost growth, there can be pressure to pursue more aggressive reforms that extend to existing projects and investments.

The risk in the latter situation is that affordability concerns begin to drive revisions to existing programs and resources that create lasting - though unintentional - harm with respect to perceived risk in the market, to the detriment of clean energy deployment. When this happens, stakeholder conflict, investment uncertainty, and concerns regarding future market development can unintentionally become the policy outcome itself.

Changes made to Maine’s Net Energy Billing (NEB) program enacted in 2025 offer a recent and instructive example of what can happen in the absence of a careful balancing of affordability-focused solutions with the potential for disruption to clean energy markets and deployment. Like Rhode Island’s VNM framework, Maine’s program provided compensation for large front-of-the-meter projects at levels closely tied to retail rates. As program costs grew, Maine ultimately enacted an Access Fee that applied to both existing and future projects. The resulting debate became highly contentious, creating significant (and likely unnecessary) conflict among stakeholders and ultimately denting market development and investor confidence in Maine’s distribution-scale renewable energy market. As a result, a large number of developers have discontinued new project development, fearing further retroactive changes to project treatment.

Rhode Island Takes an Alternative Approach

To its credit, Rhode Island ultimately charted a different course. While Governor McKee’s initial FY27 budget proposal included an Access Fee and VNM credit freeze, the Administration course-corrected and broadened the discussion beyond these potential policy approaches. Executive Order (EO) 26-012 established a formal process to evaluate alternatives through broad stakeholder engagement and a focus on reducing costs while maintaining continued clean energy development.

Sustainable Energy Advantage (SEA) supported the EO 26-01 process on behalf of the Rhode Island Office of Energy Resources (OER) and the Governor’s Office, in tandem with a broad range of stakeholders throughout. Our role focused on evaluating the affordability implications and tradeoffs associated with potential reform pathways.

To this end, SEA evaluated a range of alternatives, including the Governor’s original Access Fee and credit freeze proposals, optional fixed-rate compensation structures for both new and existing/under development projects, and time-of-use-based compensation approaches. For each pathway, SEA assessed implications for Rhode Island ratepayers, project developers, investors, and long-term market development, including expected ratepayer costs, project economics, investor certainty, and program participation. SEA also provided expert testimony before both the House and Senate Finance Committees as policymakers considered potential reforms to the VNM program.

The Result: An Approach Balancing Deployment with Enhanced Cost-Effectiveness

The resulting reforms, which the Governor signed into law on June 12, 20263, centered on a voluntary fixed-compensation option with the following features:

• Projects electing the new framework can now receive compensation beginning at $0.19/kWh in 2027, increasing annually at 2.75%4

• Compensation is guaranteed over a fixed, 25-year term from the date of opt-in

• Projects choosing the new framework are protected against retrospective compensation changes in future revisions to the net metering tariff (similar to the protections provided under Rhode Island’s Renewable Energy Growth (REG) program)

Thus, in exchange for accepting a lower and fixed compensation structure with a fixed compounding growth schedule, project owners gain greater long-term revenue certainty and protection against future policy changes. Furthermore, SEA’s analysis of the legislation as enacted suggests that ratepayers can simultaneously save as much as $2 billion on a net present value basis through 2060 - up to a 36% reduction relative to the status quo- if all project owners adopt the voluntary structure.5

An early indication of the framework’s effectiveness in balancing deployment and affordability objectives is that, based on SEA’s discussions with market participants, many VNM project owners are likely to elect the voluntary fixed compensation option rather than remain exposed to future uncertainty surrounding C-06 rate design as Rhode Island Energy rolls out advanced metering that permits more complex and granular designs that could reduce the value of their projects.

In addition, the General Assembly reduced the VNM program cap from 275 MW to 175 MW, with the state’s intent being to replace that 100 MW through future Renewable Energy Growth (REG) procurements, thereby preserving VNM treatment as an option for projects currently in the interconnection pipeline.

Looking Ahead: Lessons for Rhode Island and Beyond

The VNM reforms are unlikely to be the end of the debate in Rhode Island surrounding clean energy deployment and affordability objectives. Executive Order 26-01 also contemplates future reviews of the state’s Renewable Energy Growth (REG) and behind-the-meter net metering programs, which will create additional opportunities to apply lessons from the VNM process.

More broadly, Rhode Island is far from alone in having to continue to carefully balance these objectives. As Northeast states continue to pursue ambitious electrification and decarbonization goals, pressure to keep electricity affordable is likely to intensify. Historically, these states have most often addressed this challenge by grandfathering existing projects under their original compensation structure and applying reforms only to future development.

While a strict grandfathering-only approach can avoid market disruption, changing compensation only for future projects may not always produce affordability improvements at a scale sufficient to support electricity’s growing role as an alternative transportation, heating, and industrial fuel. Thus, we anticipate that the resulting affordability discussions will extend beyond changes that only affect future projects, raising the question of how to address legacy program costs while preserving investor confidence, continued clean energy deployment, and long-term decarbonization objectives. Rhode Island’s experience with VNM offers one example of how states can approach that challenge.