the south shore town of Kingston is discovering that going green is not only good for the environment but good for the municipality’s bottom line.

Kingston is plunging into the renewable energy business, partnering with private firms to put up giant wind turbines and a large-scale solar installation. Tapping existing state and federal subsidies and using its political muscle on Beacon Hill to create others, Kings­ton has figured out a way to transform the state’s enthusiasm for all things green into an income stream that could approach $1 million a year.

The town is leasing space at its former municipal landfill to two companies that are putting up a large wind turbine and a solar installation. The town is also orchestrating the construction of three wind turbines on private property adjacent to the landfill. In all, the projects are expected to generate 10 megawatts of clean, carbon-free electricity—enough to power 8,000 to 10,000 homes.

Kingston is planning to buy all of the electricity produced by the three projects. Some of the power will be used to lower the municipality’s electric bill, but most of it will be resold at a hefty profit. The town expects to collect at least $750,000, and possibly as much as $1 million, in annual lease payments, new tax revenues, and sales of electricity. The pot of money is so big that town residents are already fighting over how to spend it.

“Kingston’s on the cutting edge,” says Selectman Mark Beaton, chair­man of the town’s Green Energy Commi­ttee. “If Kings­ton can pull this off, any town can.”

But that’s what has some people worried. With little regulatory oversight, towns are rushing to put up high-cost green energy projects that nevertheless make them money because of a host of state and federal subsidies. Kingston, for example, is exploiting a state subsidy program in a way that was never intended. The program was designed to help homeowners and municipalities reduce the size of their electric bills, but Kingston has transformed it from a money-saver to a money-making initiative.

The program requires Kingston’s local utility, NStar Corp., to buy the town’s green power at very high prices. But NStar won’t end up paying the tab; it will pass the cost of this high-priced electricity on to its 1.1 million electric customers, who live in Greater Boston, the western suburbs, the South Shore, and Cape Cod and the Islands. Those customers will pay slightly higher electric bills to cover the cost of Kingston’s green profits. If other communities follow Kingston’s lead—which is likely because of the profit potential—NStar estimates its customers will end up shouldering roughly $30 million a year in additional costs.

Net metering

The clock was ticking toward midnight, so Rep. Thomas Calter, a Kingston Democrat, literally took matters into his own hands. A bill making it easier to site wind turbines passed the House, but only after time-consuming votes forced by the measure’s opponents. The bill needed final approval in the Senate if it was going to become law before the session expired on July 31 last year. To speed things along, Calter grabbed the legislative documents and raced down the hall to the Senate. But he was too late. Time had expired. 

It was a big setback for Calter. He had been pushing hard for the legislation because of a small provision in it dealing with the obscure issue of net metering. Calter says he doesn’t really know that much about the issue, but he knows Kingston’s Board of Selectmen wanted it passed. “I take my marching orders from them,” he says.

Net metering is a grass-roots ap­proach to developing renewable energy. The goal is to encourage homeowners, businesses, and municipalities to put up their own solar panels or wind turbines and reduce their reliance on electricity supplied from the regional power grid.

It’s fairly simple in concept. When the sun is out or the wind is blowing, the homeowner will offset his power usage by generating his own electricity. At times, he may even produce more electricity than he needs, with the surplus being fed into the grid. But when it’s nighttime or the wind is still, the homeowner will get all or most of his power from the grid. A special meter measures this flow of electricity. It spins forward when the customer is buying electricity from the power grid and backward when the customer is delivering power to the grid. At the end of each month, the customer is billed for his net consumption, thus the term net metering.

Net metering has been around for a long time, but it wasn’t until Gov. Deval Patrick signed the Green Com­munities Act in 2008 that renewable energy developers began to take notice. The law increased the size of projects that qualified for net metering and required utilities to pay far more for net metered electricity supplied to the grid, particularly electricity supplied by governmental entities. Previ­ously, utilities had only been required to pay their avoided cost, or the wholesale price of power. But the Green Com­munities Act required them to pay the retail price they charge their customers, which is a combination of the wholesale price of electricity plus the various distribution and transmission charges that show up on a bill.

The difference between wholesale and retail is substantial. NStar says the current wholesale price for electricity is about 5 cents a kilowatt hour, but under existing net metering tariffs the utility would pay three times that amount, or 15 cents, for net-metered electricity from a governmental entity such as Kingston. The payment for net-metered electricity generated by a private developer is 11 cents. NStar officials say the net-metered rates are subject to change as retail rates change.

Patrick administration officials say the higher price for net metered electricity is warranted because it’s a retail offset. In other words, a customer is using net metered electricity to reduce his utility bill, so it’s only fair he should be compensated at the same rate he pays. “Why shouldn’t I be able to sell it back at the rate I buy it at?” asks Ian Bowles, who until recently was the state’s secretary of energy and environmental affairs.

A change to state law will allow businesswoman Mary O’Donnell to put up three wind turbines on her property and sell the power through the town of Kingston at a higher rate.

The proposed changes in net metering that Calter was pushing for originated in the House. They raised the cap on how much of a utility’s power can come from net metering projects, from 1 to 3 percent of the utility’s peak load, with 2 percent set aside for government projects. They also clarified that municipalities could contract out renewable energy projects to third parties and still have them qualify for the higher net-metered government rate. The only catch was that all of the project’s power had to go to the municipality and the project itself had to be located on town land.

That definition became a problem for Kingston when local businesswoman Mary O’Donnell came to the Board of Selectmen with a novel proposition. She wanted to put up three wind turbines on her former sand and gravel pit adjacent to the town landfill and run the electricity through the town’s meters so it would qualify for the higher net-metered rate offered to governmental entities. She said her project would increase her property tax payments to the town with none of the negative side effects associated with most developments, like traffic or an influx of school-age children.

“When Mary came to us with the proposal for wind turbines, we jumped at it,” says Shirley MacFarlane, the chairman of the Kingston Board of Selectmen. She says the board immediately reached out to Calter, the local state rep, and Senate President Therese Murray, who also represents the town. The two lawmakers managed to tweak the legislation while House and Senate negotiators were resolving differences between their bills.

The legislation went into the conference committee defining a government project as one owned or operated by a governmental entity or one that assigns 100 percent of the output to a government entity and is located on land owned by the governmental entity. It came out with the last clause—“on land owned by the governmental entity” —dropped. That single edit paved the way for O’Donnell to generate power, run it through the town’s meters, and collect the town’s net metered rate of 15 cents as opposed to the private developer’s rate of 11 cents.

When the wind siting bill failed to pass on July 31, Murray vowed to push it through during informal sessions of the Senate. She kept bringing the bill up for a vote, but Re­publicans opposed to the wind siting provisions kept blocking it, which was easy because it only takes one objection to stymie action during an informal session.

In September, the governor and top law­makers began pressing for what they said was must-pass spending legislation. The $400 million bill provided money for prisons, Medicaid benefits, and services for homeless families. It also included the net metering provision, plucked verbatim out of the wind siting bill. Sources say Murray, a Plymouth Democrat, played an instrumental role in inserting it into the bill.

Rep. Karyn Polito, a Republican then running for treasurer, temporarily blocked the spending bill in the House. Demo­crats, led by the governor, attacked her for grandstanding and putting the poor and disabled at risk. “What­ever needs to happen needs to happen in order to get this done,” Patrick said at the time. “I don’t care what it is. Let’s just get it done.”

The bill eventually passed and Patrick signed it into law in October. With its passage—and the pieces now in place for Kingston to launch its green energy initiatives—Murray’s interest in the broader wind siting legislation suddenly seemed to evaporate. She stopped bringing the bill up for action during the Senate’s informal sessions.

Three deals

Mark Beaton is what you might call a practical environmentalist. He runs a pub in Kingston called The Charlie Horse, where he began embracing green initiatives long before they became fashionable. He composts and recycles, put solar panels on the roof of his restaurant, and outfitted his truck so it would run on grease from the restaurant fryolator. Beaton wants to save the planet, but he also wants to save money.

He’s brought that same sensibility to his dual roles as chairman of Kingston’s Green Energy Committee and a member of the Board of Selectmen. He has mastered the minutiae of state energy laws covering a host of arcane subjects and used that knowledge to develop energy projects that are not only popular with save-the-Earth environmentalists but make money for the town of 12,000 people.

Under Beaton’s lead, Kingston has three energy projects under development: a 2-megawatt wind turbine and a 2.3-megawatt solar installation to be located on the town’s former landfill, and the proposal from local businesswoman Mary O’Donnell, which would consist of three 2-megawatt wind turbines on private land she owns adjacent to the landfill.   

All three projects are expected to tap existing federal subsidies providing cash grants for 30 percent of the cost. The state’s Clean Energy Center is also chipping in more than $2.6 million for planning and renewable energy price supports for the wind project on the landfill.

From left, Kingston town administrator Jill Lyons, and Board of Selectmen Dennis Randall, Sandra MacFarlane, Joseph Casna Jr., Richard Arruda, and Mark Beaton

The landfill projects will generate significant new revenue for the town in the form of lease payments, property taxes, and electricity sales. No income projections have been done, but Beaton and other town officials have done some back-of-the-envelope calculations.

The Board of Selectmen approved 20-year deals with D&C Construction of Rockland and San Diego-based Borrego Solar Systems, a firm with offices in Lowell. The deals will yield a combined annual lease payment of $253,500, which will rise slightly each year.

The town will pay 11 cents a kilowatt hour for the solar power and 11.5 cents for the wind power, with both prices set to rise slightly each year. A portion of the electricity will go to power the town’s municipal buildings, saving Kingston an estimated $171,000 a year on its utility bill. The remainder of the power will be resold to NStar at the municipal net-metered price of 15 cents a kilowatt hour, generating income for the town of approximately 4 cents a kilowatt hour, which is estimated to bring in about $150,000 over the course of a year.

Beaton says the leases with D&C and Borrego allow the town to generate significant income without investing any upfront capital. “When the sun shines and the turbines spin, it’s going to make money for us,” he says. “We have taken a used landfill and turned it into a cash cow.”

In its arrangement with O’Donnell, the town agreed to purchase all of her electricity and resell it to the grid. None of the power will be used locally. The town will receive its net-metered rate of 15 cents a kilowatt hour, which is 4 cents higher than what O’Donnell would have been paid if she had net-metered the electricity herself.

At a November meeting, Kingston’s Board of Select­men debated how the town should be compensated for helping O’Donnell. O’Donnell told the selectmen her budget was so tight that she couldn’t afford to pay the town anything more than the higher property taxes she would owe after installing three $2 million wind turbines on her property. Estimates of how much her property tax payments would increase ranged from $150,000 to $180,000 a year.

“I’m having a very difficult time getting this fin­an­ced, ”O’Donnell told the selectmen. “There’s not a lot of money in this.”

O’Donnell even tried to win the board’s support for legislation that would require NStar to pay the cost of connecting her project to the regional power grid. NStar objected, saying the cost should be borne by O’Donnell and not by the utility’s customers. The board took no action on the legislation; NStar later estimated the connection cost for O’Donnell’s project would be roughly $165,000.

Neither O’Donnell nor her consultant offered any details on her projected costs and revenues. Instead, she made an emotional appeal to the selectmen to support her project. O’Donnell said developing green energy is expensive but worth it in the long run because projects like hers are necessary to reduce the country’s dependence on foreign oil and avoid the need to send Americans overseas to fight and die protecting that oil. “Help me out to help make your commitment [to renewable energy] a reality,” she said.

Kingston’s town counsel, Lisa Mead, pointed out to the selectmen that the municipality was helping O’Donnell land a significantly better price for her power. “The town is being used, to put it really bluntly, as a pass through,” she said, in explaining the arrangement.

O’Donnell bristled at the suggestion she was using the town. “The town is getting a lot,” she said, pointing out that her project will generate new tax revenue for the town and no new costs. “I think it’s a win for everybody.”

The Board of Selectmen, accepting at face value O’Donnell’s claim that she would be making little or no money on the wind deal, voted to pocket only 1 percent of the revenue from the sale of her electricity as compensation for serving as a conduit to the town’s higher net-metered price.

A change in direction

Most states have net metering laws, but the statutes often differ in significant ways. The goal of the laws is to help utility customers meet some or all of their electrical energy needs by developing their own renewable energy sources. With lawmakers increasing the size of eligible facilities and the amount of electricity subject to net metering, a policy question has arisen over what to do when a customer generates more electricity than he uses over an extended period of time.

Some states allow the customer to apply credits for his surplus electricity to future bills. Other states let the utility pocket the surplus power at no charge or buy the electricity at the utility’s avoided cost. Some even direct utilities to credit a customer’s surplus generation to the accounts of low-income assistance programs.

Kevin Fox, a law partner at Keyes & Fox LLC in San Francisco who advises renewable energy developers on regulatory compliance, monitors state net metering laws for the Interstate Renewable Energy Council, a nonprofit group that advocates for sensible regulation. He says he is not aware of any state other than Massachusetts that allows a net-metered customer to be paid for electricity generation that greatly exceeds that customer’s electricity needs. He worries that municipal projects like the one in Kingston could eat up the cap space available for net-metered power.

“It would be unfortunate if providing incentives for municipalities to get into the renewable energy business to turn a profit crowded out the ability of utility customers in Massachusetts to use net metering to meet their own electricity needs,” he says.

Bowles, the state’s former secretary of energy and environmental affairs, says he urged Gov. Patrick to sign the latest net metering provisions into law. He acknowledges the changes represented a slight shift in direction and says the state will need to monitor the situation over the next few years to make sure municipalities aren’t operating as wholesale power developers and using their status to secure retail rates for their electricity.

But Bowles says he is not overly concerned. He says the net metering changes are an innovative way to help homeowners and municipalities participate in the state’s efforts to promote renewable energy. He also notes the amount of power being generated by the Kingston net metering projects is negligible. “This doesn’t keep me up at night,” he says. “This is all, to my mind, directionally a good thing.”

Yet the cost and size of net metering may be bigger than it first appears. Kingston, for example, is receiving a net-metered price estimated at 15 cents a kilowatt hour for its electricity. In addition, the renewable energy developers working with Kingston will receive renewable energy credits for each kilowatt hour of power they produce.

The credits can be sold to companies that market electricity in Massachusetts, which are required to demonstrate that 5 percent of their power is coming from renewable sources. The price of credits varies with demand, but they are currently selling for 2 to 3 cents a kilowatt hour for wind power. For the renewable energy credits spun off by the wind project on Kingston’s town landfill, state officials committed to buy the credits at 4 cents a kilowatt hour.

Combined, the 15 cent net-metered price and the 2 to 4 cents for renewable energy credits means the total cost of Kingston electricity will be in the 17- to 19-cent range, on par with the price of power from Cape Wind. Cape Wind, the controversial offshore wind project that has drawn criticism for its high-cost power, is charging 18.7 cents a kilowatt hour, a price that includes renewable energy credits.  NStar says it’s troubled by how the definition of a municipal net metering project keeps changing.When it comes to size, Kingston’s 10-megawatt project is fairly small. But state officials fully expect other towns will follow Kingston’s lead and the 3 percent cap will be reached. For NStar, 3 percent represents about 149 mega­watts. Coincidentally, the Green Communities Act separately requires utilities to negotiate long-term contracts for renewable energy equal to 3 percent of their load. National Grid, the largest electric utility in Massa­chu­setts, complied with that provision by signing its contract for half of the power output of Cape Wind.

NStar and other utilities are allowed to pass the cost of net metering along to their customers, but company officials worry that as rates keep increasing they will be blamed. They are also troubled at how the definition of a municipal net metering project has morphed from a project owned and operated by a municipality to one that is run by a third party on municipal land, and, with the latest changes, to a project that isn’t even on town land, with power just assigned to the municipality.

“We’ve been concerned about the blurred lines between public and private development under the old law. There is even more blurring with this new law,” says Mark Reed, NStar’s director of government affairs.

Eleanor Tillinghast, the president of Green Berkshires, an environmental advocacy group that has opposed wind projects in western Massa­chu­setts, says what’s happening in Kings­ton is going to fuel a gold rush mentality among municipalities as they scramble to take advantage of net metering subsidies.

“This really isn’t net metering anymore,” she says. “It’s become quite an amazing subsidy that will benefit the few towns that manage to get projects going before the 3 percent cap is reached, and everyone else will pay. Once other towns see the bonanza, they’ll pressure legislators to expand the program, adding even more costs to ratepayers’ electricity bills.”

None of these public policy concerns were on the minds of Kingston residents in early December when the Board of Selectmen held a meeting to discuss what should be done with all the money expected to flow the town’s way.

The Green Energy Committee wants the money to go into a revolving fund that could be tapped for low-interest or no-interest loans to town residents for projects that would reduce their energy consumption. The town’s Fin­ance Committee, meanwhile, wants at least a portion of the money to go for more pressing, immediate needs, including ice and snow removal, capital projects, or the town’s unfunded pension liability.

The discussion got heated at times as some speakers warned about the dangers of climate change and others extolled the need for tax relief. No vote was taken, but the board seemed to be leaning toward using the money to plug holes in the town budget. On one point, everyone agreed: The town’s Green Energy Committee had done a great job in making green power pay. Mary O’Donnell, a beneficiary of those efforts, offered heartfelt praise to the committee members. “They taught us all how to make money and do a public service at the same time,” she said.