August 8, 2019 by Jackson Morris, NRDC Director, Eastern Region, Climate & Clean Energy Program and Cullen Howe, NRDC Senior Renewable Energy Advocate, Climate & Clean Energy Program
Part I of this blog gives a background on how energy is regulated in New York and how capacity markets work.
Why is New York Examining This Issue Now?
NYISO’s capacity market rules have the potential to make it difficult for New York to reach its clean energy goals, which – thanks to the passage of the Climate Leadership and Community Protection Act (CLCPA) – are now enshrined into law. These goals include a requirement to procure 70% of the state’s electricity by 2030; 9,000 MW of offshore wind by 2040; 3,000 MW of energy storage by 2030; and an overall 85% reduction in statewide greenhouse gas emissions by 2050.
- A central concern held by many stakeholders, including NRDC, is that NYISO’s capacity market rules could prevent clean energy resources supported by state and local policies from selling in that market, thereby depriving these resources of an essential source of revenue. Were that to occur, because utilities and other energy suppliers are required to buy enough capacity to meet the installed reserve margin, they would in turn be obligated to buy capacity from other, non-supported resources, ensuring the continued operation of highly polluting power plants even though they are not necessary to keep the lights on. Such a perverse and inefficient outcome would jeopardize the ability of the state to reduce overall greenhouse gas emissions by 40% by 2030 and 85% by 2050 as required by the CLCPA.
- Another concern is that NYISO’s rules undercount the value of cleaner resources like energy storage systems, as well as wind and solar while over-crediting highly polluting power plants. Uncertainty about whether clean energy resources supported by state and city policies will be allowed to sell into the capacity market, and how much credit they may receive, is already increasing the cost of financing these resources. The uncertainty in NYISO’s rules prevents these resources from being able to count on capacity revenue for purposes of financing, driving up their cost (just last week, the state Department of Public Service filed a complaint with FERC for this very reason—requesting that FERC preemptively clarify and confirm that storage resources won’t be mitigated and thus excluded from participating in the NYISO capacity market as the state begins to solicit projects to meet the 3,000 MW by 2030 storage target).
It’s important to note that not all regions of the country use a mandatory capacity market. Rather, mandatory capacity markets are used only by 3 regional grid operators: NYISO, ISO-NE, and PJM. Elsewhere in the country, states are principally responsible for ensuring adequate supply of resources. Many states do this through an “integrated resource planning process” by which state regulators rather than a FERC-regulated regional grid operator require utilities to put together plans to guarantee adequate reserves. Other models exist as well. California has its own unique system that requires utilities to contract with capacity resources. Texas has a regional energy market similar to New York’s but achieves needed investment in the system through energy prices alone, without a capacity market.
Given that the current structure of New York’s capacity market poses a direct barrier to achieving the state’s clean energy policies, the Public Service Commission (PSC) has decided to revisit this regulatory regime and consider whether other alternatives can more efficiently facilitate a transition to a cleaner energy system. It has issued an order commencing a proceeding that poses a series of questions to stakeholders focusing on whether the currently constructed capacity market is compatible with the state’s clean energy policies, whether the interaction of these policies and market structures result in safe and adequate service at reasonable rates for customers, whether alternative measures should be considered to ensure the procurement of generation resources that are aligned with state policy goals, and what next steps the PSC should take with respect to this issue. The order is seeking comments from interested parties within 90 days and will allow for reply comments.
NRDC welcomes this inquiry and plans to participate. After all, the NYISO markets (including resource adequacy protocols) need to facilitate the efficient achievement of New York State’s bold transition to a clean energy future—not stifle that progress with market constructs that delay a much needed evolution.