The New York State Energy Plan (“SEP”) calls for 50% of all electricity used in New York State by 2030 to be generated from renewable energy sources (the “50 by 30 Goal”). Additionally, the SEP sets aggressive 2030 targets for emissions (40% reduction in greenhouse gas from 1990 levels) and energy efficiency gains (23% reduction from 2012 levels of energy consumption in buildings). The State has set a long-term goal of decreasing carbon emissions by 80% by 2050.
At its June 2016 session, the New York Public Service Commission (“NYPSC”) is set to adopt a Clean Energy Standard (“CES”) designed to help meet these aggressive goals. As part of its consideration and meeting those goals, the NYPSC should consider factors to enhance the attainment of the CES.
In 2015, Governor Cuomo directed the New York Department of Public Service (“DPS”) to develop a CES to convert the SEP targets to mandated requirements, and to present the program to the NYPSC in June of 2016. Pursuant to this directive, the NYPSC ordered DPS Staff to develop a white paper on CES (the “White Paper”) and set forth a process for the NYPSC to consider the CES at its June 2016 session. The White Paper, which was issued on January 25, 2016, addresses four principal policy objectives:
- increase renewable electricity supply to achieve the 50 by 30 Goal;
- support construction of new renewable generation in New York State;
- prevent premature closure of upstate nuclear facilities; and
- promote the progress of the REV market objectives.
In the White Paper, the DPS staff recommends the following elements for the CES:
- all electric retail load serving entities (“LSEs”), both jurisdictional and non-jurisdictional entities, share the obligation of the CES mandate in proportion to their annual retail electricity sales;
- establishment of CES tiers to support new and existing renewable, with related eligibility requirements;
- demonstration of compliance through the use of tradable renewable energy credits (“RECs”) for renewable energy purchases and zero emission credits (“ZECs”) for purchases from qualified nuclear generation facilities;
- an alternative compliance payment mechanism for each CES tier to cap REC and ZEC prices;
- competitive long-term procurements by the New York State Energy Research and Development Authority (“NYSERDA”) and utilities to support project financing and reduce compliance costs;
- a method for disposition of procured RECs and ZECs; and
- triennial program assessments by the NYPSC.
To assist in supporting the CES, the DPS was directed to perform a “Clean Energy Standard Cost Study” (the “Study”), which DPS staff issued on April 8, 2016. The Study, which examined the impact that key cost drivers can have on overall consumer bills, will assist the NYPSC in designing and implementing a cost-effective CES. The Study estimates that, even in a period of lower electricity prices due to historically low natural gas prices, New York can meet its clean energy target with less than a 1% impact on electricity bills (or less than $1 per month for the typical residential customer) in the near term and shows net positive benefit of $1.8 billion by 2023.
Enhancement Factors to be Considered
As it examines the White Paper and the results of the Study, and the scores of comments submitted in response to both, in preparation for its June session, the NYPSC should consider that the following CES facets should be adopted to help ensure that New York’s aggressive SEP targets are met.
- Resource Diversity
The NYPSC should ensure that source eligibility criteria (e.g., geographic location of the source) are crafted so as to not exclude abundant sources of emission-free sources. DPS staff estimates that 33,700 GWh of incremental renewable generation must be added to the state’s fuel mix in order to me the 50 by 30 Goal. Without reliance on all available emission-friendly sources, the CES goals may not be met.
- Purchase Commitments
The CES proposed by DPS staff requires the creation of an efficient market for the trading of RECs and ZECs. To develop such a market, the White Paper proposed to require long-term purchases of RECs/ZECs by NYSERDA and utilities. Caution should be used in establishing such purchase commitments. As New York experience has shown, long-term procurement mandates by utilities to achieve regulatory goals can lead to material over-payments that inure ultimately to the detriment of customers. The NYPSC should ensure that purchase commitments provide only a portion of the LSE’s CES obligation and are not long-term, and that the buyer has an opportunity to derive revenue (through re-sale) from the REC/ZEC purchases that are not needed for compliance.
- Facilitating Project Finance
The development of new renewable generation resources, which is anticipated to be concentrated at the distribution level, will require the ready availability of project financing. Under this structure, a lender funding the construction of the facility will rely solely on the revenue stream generated by the project without recourse to the other assets of the project developer. The NYPSC can facilitate the financing of new renewable projects by requiring the development of model revenue agreements (e.g., power purchase agreements) that reflect a reasonable and financeable allocation of performance risk and related rights and remedies. Project contracts that are skewed in favor of developers, lenders and sellers (of energy and/or RECs/ZECs) will dissuade host entities and other off-takers from entering into arrangements for on-site distributed generation or into contracts to purchase the output of such generation. Without quality hosts and off-takers, the market for the development of renewable energy will falter.
We will report back on the NYPSC’s disposition of the CES and its issuance of a related implementation order in June 2016.