Believe it or not, Massachusetts has emerged as a leader in renewable energy and may be trying to advance that leadership position to energy storage. The Massachusetts Department of Energy Resources just announced the Solar Massachusetts Renewable Target (SMART) Final Program Design report. This is a structure to compensate small- and medium-scale solar and potentially storage projects in the state, and it could become a new model for states across the country. 

A male worker installs solar panels on a rooftop in sunshine.

Image source: Getty Images.

How Massachusetts' new solar program works

The structure of Massachusetts' new program takes cues from auctions around the world that have companies compete to supply resources to the grid, which makes prices more competitive. There will be a reverse auction that will set solar prices for blocks of solar projects ranging up to 5 MW in size. Developers will bid a price and once the block is filled developers will all get the same price as the highest bid that will complete the block. 

On top of the price bid for solar, there will be adders for smaller projects, low-income neighborhood development, different installation locations, and storage. I've included the storage adder matrix below to show an example of what an adder matrix looks like. 

The adder matrix for energy storage from Massachusetts Department of Energy.

The adder matrix for energy storage from Massachusetts Department of Energy. Image source: Massachusetts Department of Energy.

What makes this interesting is that it gives developers an incentive to add storage to their projects. And given the adders are up to 7.6 cents per kWh there will be a large economic justification for bringing more solar into the fold. 

Depending on the system's pricing and success, this could become a model for states around the country looking to add more solar and energy storage to their energy mix. Prices and adders may vary by location, but the general structure looks promising, especially given the competitive nature of the reverse auction process. 

Who to watch in Massachusetts energy market

Who is going to win in the Massachusetts market? Tesla (NASDAQ:TSLA) will likely be a big player, attempting to expand its energy storage presence. I would also expect Vivint Solar (NYSE:VSLR) to be a large player given its big customer base in the state. A wildcard could be SunPower (NASDAQ:SPWR), which has a big presence in commercial solar and has been adding energy storage to the mix, but could be a partner with third-party developers through its Equinox and Helix products. 

Utilities could also have their independent power producer arms come into the market, although they may prefer just buying projects when they're completed or working with a partner in the development process for such small projects. What we should expect is that when requests for proposals are due, likely this summer, there will be a lot of interest. 

As investors, this is worth watching because it could signal the market is opening up to the value of solar + storage in future developments. When the price of the two are low enough, they'll also be able to compete for base load contracts against fossil fuels and reduce the need for spinning reserves (which level out the variability of solar). And for solar companies, that could result in an explosion in the market's potential. Massachusetts is certainly leading the way. 

Travis Hoium owns shares of SunPower. The Motley Fool owns shares of and recommends Tesla Motors. The Motley Fool has a disclosure policy.