How CHP Projects Qualify for Pennsylvania Tier II AECs

Qualification and calculation are different questions. This guide covers the first: what Pennsylvania requires before a CHP system can be certified and begin generating Alternative Energy Credits.

Five things determine the answer — the statutory standard, system size, location, fuel, and who owns the environmental attributes.

The standard

52 Pa. Code § 75.62(e) states it plainly: a facility, to be qualified for alternative energy system status, must demonstrate that it generates electricity from or conserves electricity through a Tier I or Tier II alternative energy source.

For a CHP system, this means demonstrating metered electrical generation. 52 Pa. Code § 75.63 then provides that an alternative energy credit may be certified for each MWh of electricity generated by a qualified system, or each MWh of electricity conserved by a qualified system or demand-side management measure.

Thermal output is not part of this test. Useful thermal energy appears in the § 75.1 definition of a distributed generation system — it describes what kind of system qualifies, not what the credit is issued on. There is no combined thermal-electric efficiency threshold in Pennsylvania's program.

System size determines the pathway

52 Pa. Code § 75.1 defines a distributed generation system as the small-scale power generation of electricity and useful thermal energy from systems with a nameplate capacity not greater than 5 MW.

• Below 5 MW. The system falls within the distributed generation definition and is evaluated on that basis.
• At or above 5 MW. The system falls outside that definition. Demand-side management is the applicable Tier II category, and § 75.63 provides for credit issuance on MWh of electricity conserved. The specific measurement basis is established during certification.

Nameplate capacity governs — not average output, not typical operating load. A 5.5 MW unit that rarely runs above 4 MW is still above the threshold.

If your system sits near 5 MW, resolve the pathway before the application goes in.

Location

Act 114 of 2020 restricted Tier II compliance to Pennsylvania-sited generation. Before Act 114, Electric Generation Suppliers could source Tier II AECs from anywhere in the 13-state PJM region. That is no longer the case.

The practical consequence: a CHP system physically located in Pennsylvania qualifies. One in Ohio, New Jersey, or Maryland does not, for Pennsylvania Tier II purposes — even if it interconnects to PJM.

This restriction is also why Tier II AEC prices rose sharply after 2020. The 10% Tier II obligation stayed constant while the eligible supply pool contracted to in-state generation only.

Fuel

Tier II is a broad category. Natural gas, biogas, biomass, and waste-fuel CHP systems can all qualify — the credit is issued on electrical generation, and Tier II does not impose the renewable-source restrictions that apply to Tier I.

Digester gas and landfill gas warrant a classification check. Biologically derived methane is a Tier I resource under Act 213, while distributed generation under 5 MW is a Tier II resource. A biogas-fueled CHP sits at that boundary, and the classification carries a large revenue consequence — Pennsylvania is unusual in that Tier II currently trades well above Tier I. Which tier applies to a given system should be settled at application rather than assumed. See digester gas classification.

Environmental compliance

52 Pa. Code § 75.62(f) provides that a facility may not be qualified unless the Department of Environmental Protection has verified compliance with applicable environmental regulations and the standards in section 2 of the AEPS Act (73 P.S. § 1648.2).

For a CHP system this generally means the air quality permit or exemption determination is current and the facility is in compliance. An open enforcement matter or a lapsed permit will hold up qualification.

Compliance is also continuing, not one-time. Under § 75.62(g), alternative energy system status may be suspended or revoked for noncompliance — including where the Department notifies the Commission of violations of the section 2 standards.

Who owns the attributes

This is the requirement most often discovered late.

52 Pa. Code § 75.13(i) provides that a customer-generator eligible for net metering owns the alternative energy credits of the electricity it generates, unless there is a contract with an express provision assigning ownership elsewhere, or the customer-generator expressly rejects any ownership interest.

The default favors the host. But the contract governs, and CHP systems are frequently built under structures that assign attributes away:

• Power purchase agreements — the developer commonly retains environmental attributes
• Energy services agreements — attribute treatment varies; often silent
• ESCO contracts — pre-2020 agreements are frequently silent, which under the § 75.13(i) default leaves attributes with the host
• Equipment leases with output guarantees — check whether attributes were assigned as part of the guarantee structure

Read the agreement before preparing an application. Where a contract is silent, the default applies. Where it expressly assigns, the assignment controls — though assignments in older contracts are sometimes renegotiable, since the Tier II market was not meaningfully priced when many of those templates were drafted.

The application

Applications are submitted to the alternative energy credit program administrator, with copies to the Department of Environmental Protection and any other parties the Commission designates. Under § 75.62(a), the application must be verified by oath or affirmation.

§ 75.64 sets out the administrator's role: distribute and review applications, reject incomplete ones, determine geographic eligibility, and qualify applicants who filed completely, met the geographic standard, complied with environmental regulations, and used a qualifying fuel source or technology. The administrator provides written notice of the qualification decision within 30 days of receiving a complete application.

"Complete" carries weight there. An incomplete application does not start the 30-day clock — it gets returned.

Once qualified, the facility receives a certification number, a PJM-GATS account is established, and monthly generation data is entered into GATS to create AECs.

What suspends or revokes qualification

§ 75.62(g) and § 75.64(6) provide that alternative energy system status may be suspended or revoked, and past, current, or future credits withheld or retired, for noncompliance. The enumerated circumstances include:

• The system no longer satisfies the qualification standards in § 75.62
• The owner or aggregator provided false or incorrect information in an application
• The owner or aggregator provided false or inaccurate information to the credit registry
• Failure to notify the administrator of changes affecting generation output
• Failure to notify the administrator of a change in ownership or aggregator
• Failure to respond to data or information requests from the Commission, the Department, or the administrator

The notification obligations are ongoing. A capacity change, a fuel change, an ownership transfer, or a change of aggregator all require notice.

When issuance begins

AECs are issued from the certification date forward. Generation before certification does not produce credits.

A CHP system that has operated for years without certification remains eligible to be certified. Issuance begins at certification, not at commissioning.

Frequently asked questions

Does a CHP system need to export to the grid to qualify?

No. Qualification turns on metered generation, not on export. Behind-the-meter systems serving onsite load qualify on the same basis.

Does thermal output affect qualification?

No. § 75.62(e) requires demonstrating that the facility generates or conserves electricity. Useful thermal energy appears in the § 75.1 system definition but is not a qualification test and not a credit basis.

Is there a minimum efficiency requirement?

Not for AEC eligibility. Pennsylvania's program does not impose a combined thermal-electric efficiency floor. Efficiency matters to project economics and to other programs — it is not a Tier II qualification gate.

What if the system is exactly 5 MW?

§ 75.1 defines distributed generation as "not greater than 5 MW," so a system at exactly 5 MW falls within the definition. Above 5 MW it does not.

Can a system qualify if the CHP was installed years ago?

Yes. Prior operation does not disqualify a system. Issuance begins at certification rather than at commissioning.

What happens if ownership changes after certification?

The administrator must be notified. Failure to notify of an ownership or aggregator change is among the enumerated grounds for suspension or revocation.

Check your system's eligibility

Qualification turns on system size, location, fuel, environmental compliance, and attribute ownership — and the last one frequently depends on a contract signed years earlier. Submit your system details for an eligibility review. Submit a Project.