Will PRESS Reduce Demand for Pennsylvania Tier II AECs?

The shorthand answer is: a label called "Tier II" survives under PRESS, but its contents change. Several legacy resources currently sitting inside Tier II — most notably waste coal and municipal solid waste — would shift into a brand-new Tier III with its own dedicated obligation. For holders of today's Tier II AECs and for compliance buyers writing long-dated offtake contracts, that reclassification is the headline. This article walks through what Tier II looks like today, what PRESS would change, and how to think about demand, pricing, and contracting through the transition.

What Tier II looks like today under Act 213

Under Pennsylvania's Alternative Energy Portfolio Standards Act (Act 213 of 2004), Tier II is the broader, more heterogeneous of the two AEPS buckets. It includes waste coal, municipal solid waste (MSW), integrated coal gasification combined cycle (IGCC), large-scale hydro, distributed generation, demand-side management (DSM), combined heat and power (CHP), demand response, and wood pulping byproducts. Electric generation suppliers (EGSs) and electric distribution companies (EDCs) satisfy a terminal 10% Tier II obligation either by owning qualifying facilities, contracting for their output, or purchasing certificates outright at PJM-EIS GATS.

Cleared Tier II AEC prices have historically traded well below the $45/MWh Tier II alternative compliance payment (ACP), with the segment dominated by waste coal generation supplying a large share of cleared volume. CHP, fuel cells, and DSM have been smaller — but growing — components of the supply mix.

What PRESS proposes for Tier II

PRESS narrows Tier II to a more clean-energy-coherent set of resources: fuel cells, biomass, co-located energy storage, high-percentage hydrogen plants, combined heat and power (CHP), hydro, distributed generation, and demand-side management (DSM). The terminal obligation remains in the ~10% range — but the eligible pool is materially smaller because the legacy thermal resources move out.

The legacy thermal resources — waste coal, municipal solid waste, integrated coal gasification, wood pulping byproducts, and lower-percentage hydrogen — move into a new Tier III with its own ~5% obligation. Tier III is essentially a dedicated home for the resources that the legislature wants to keep eligible for compliance value but does not want bundled with cleaner thermal and flexibility resources.

Demand-side implications by resource type

For CHP, fuel cell, storage, and DSM operators. You stay in the Tier II label, inside a tighter, more clean-energy-coherent bucket. The Tier II demand pool is still anchored to a ~10% obligation against retail load, but the cleared field is smaller. Mechanically, that argues for steady-to-stronger demand per certificate because each remaining certificate carries a larger share of the same obligation. Holders of long-dated CHP, fuel cell, or storage AECs are the most likely beneficiaries of the reclassification.

For waste coal and MSW operators. Your certificates would still have a compliance home — but in a smaller Tier III bucket carved off from Tier II rather than the broader Tier II market. The Tier III obligation (~5%) is roughly half the Tier II obligation, but the Tier III supply pool is also concentrated. Pricing and clearing dynamics will be set by the Tier III obligation size and the supply curve of waste coal and MSW generation in Pennsylvania, not by today's Tier II curve. Expect a distinct Tier III price track to emerge once any final bill is enacted.

For EGSs and large compliance buyers. Procurement strategy splits. Tier II becomes a "performance" tier dominated by CHP, fuel cells, storage, and DSM. Tier III becomes a legacy tier dominated by waste coal and MSW. Long-term contracts written today against "Tier II" should anticipate which side of the line the underlying generator falls on if PRESS passes. Tier-agnostic AEC contracts will need to specify the substitute tier mapping explicitly.

Supply-side dynamics that shape the answer

Two supply-side factors will determine how Tier II AEC pricing actually moves under PRESS:

• The pace of new in-state CHP, fuel cell, and storage deployment. Tier II is a small bucket relative to the headline 50% target, but it depends on a relatively small base of qualifying generators. New CHP and fuel cell projects coming online would push supply up; project retirements would push it down. The Lightning Plan's permitting reform bill is directly relevant here.
• The treatment of pre-enactment certificates. Whether certificates already minted at GATS under Act 213 carry their original tier classification into the PRESS framework, or whether they are reclassified at enactment, materially changes the near-term supply pool. Grandfathering is one of the most consequential transition details still to be settled through amendment.

Pricing scenarios to model

Until the final bill text is known, the responsible posture is to model multiple scenarios rather than to settle on a single point forecast. Three scenarios worth running:

• PRESS as introduced. Tier II narrows as described, Tier III carries a ~5% obligation, and certificates are grandfathered into their original tiers at enactment. CHP / fuel cell / storage Tier II AEC pricing firms over time; waste coal and MSW migrate into a separate Tier III curve.
• PRESS amended toward broader Tier II. Some legacy resources are kept in Tier II to ease the political path. Demand per CHP / fuel cell certificate softens relative to the introduced scenario; Tier III becomes smaller and more concentrated.
• PRESS does not pass this session. Act 213 remains in effect. Tier II AEC pricing continues to settle under today's mechanics, and the strategic question becomes whether to lock in long-dated contracts now or wait for the next legislative window.

What certificate holders should watch

• Whether the final bill preserves a transition mechanism for certificates issued under Act 213 before enactment, and whether that transition is full grandfathering, partial transition, or reclassification.
• How the Tier III obligation is finally sized — the ~5% figure is a proposal and could move materially through amendment.
• Whether the bill carries explicit grandfathering language for certificates already in inventory at GATS at the time of enactment.
• The relative levels of the new tier-specific ACPs, which will set the price ceiling for each cleared market.
• Amendment activity around the definition of "high-percentage" and "lower-percentage" hydrogen, which will determine which hydrogen projects fall into Tier II versus Tier III.

Contracting language to consider now

For any multi-year AEC offtake or procurement contract being negotiated while PRESS is in committee, two contract provisions are worth adding explicitly: (1) a tier-substitution clause that maps each generator to its expected PRESS tier and addresses what happens if the final classification differs, and (2) a price reset or termination right that triggers on enactment of a successor portfolio standard. Tier-agnostic contracts written without these provisions inherit unresolved reclassification risk for the life of the deal.

Bottom line

Tier II AECs survive under PRESS, but the bucket is redefined around cleaner thermal and flexibility resources. The most material change is the departure of waste coal and MSW into a new Tier III. CHP, fuel cell, storage, and DSM operators are positioned reasonably well under the proposed framework; waste coal and MSW operators face a separate, smaller, dedicated market. Pricing scenarios should be modeled across enactment outcomes, and any long-dated contract should be drafted with PRESS reclassification in mind. For the resource-by-resource comparison, see Tier II vs. Tier III.