New York's Clean Energy Standard and What Lies Ahead

Major changes are coming to New York's generation mix. 

Last week, the New York Public Service Commission (PSC) issued an order establishing the details of a program announced by Governor Andrew Cuomo back in January. The Clean Energy Standard seeks to accomplish two important goals for the Cuomo administration: achieving 50 percent renewable content in power production by 2030 and preserving the economic viability of three upstate nuclear plants. The PSC order also directs the New York State Energy Research Development Authority (NYSERDA) to develop a proposal for a plan by which the PSC and the State achieve the objective of developing offshore wind resources.

The main renewable portion of the Clean Energy Standard will consist of two tiers:

Tier 1 

This tier will be for procurement of renewable energy credits (RECs) from new renewable resources built since January 1, 2015. The eligible technologies for this tier include biogas, biomass, liquid biofuels, fuel cells, hydroelectric, solar, tidal/ocean and wind. There will be a delivery requirement for this tier; RECs must be purchased from facilities in the NYISO control area or from facilities that can deliver power into the NYISO control area, with a contract path (including transmission) either to the NYISO spot market of a load-serving entity (LSE) in New York. These requirements are very similar to the ones for the current “Main Tier” renewables procurements by NYSERDA, with the exception that the 30 megawatt (MW) limit on run-of-river hydro has been removed. The timing and amounts of purchases by LSEs under Tier 1 will be as follows:

LSEs will have three ways to comply with the Tier 1 requirements:

• Direct purchase of RECs, which can be traded among third parties;

• Purchase of RECs from NYSERDA, which acquires them under long-term contracts with Main Tier facilities; or

• By making an Alternative Compliance Payment (ACP) for any shortfall between the number of RECs held by the LSE and the LSE’s minimum REC requirement for the applicable year

The PSC declined to allow electric distribution companies to own or develop renewable generating assets that would be eligible for Tier 1.

Tier 2 

This is a more limited maintenance program for older facilities than that proposed by the PSC staff. Eligible resources are limited to small hydro (5 MW or less), wind facilities and biomass direct combustion facilities that were in commercial operation any time prior to January 1, 2003, and that may retire without additional support for their environmental benefits. Facilities must demonstrate that, without the maintenance contracts, they would cease operations.

ZEC program (Tier 3)

This was perhaps the most controversial aspect of the Clean Energy Standard program and order. The purpose of the ZEC program is to maintain the economic viability of the three upstate nuclear plants (Ginna, Nine Mile and Fitzpatrick), which have seen material declines in revenues due to the continued low-cost natural gas environment (the sole downstate plant – Indian Point – could be eligible at some point should prices decrease in its zone, rendering the plant uneconomic). 

The Cuomo administration and the PSC have justified the program on the grounds that, without these zero-carbon plants, New York will not be able to meet its carbon reduction goals, as any feasible scenario for replacing the capacity and energy provided by the plants would involve higher carbon sources. Unlike the RECs in Tier 1, ZECs will not be a tradeable commodity. Rather, NYSERDA will enter into contracts with each of the eligible nuclear plants for ZECs at an administratively set price and each LSE will have to buy its pro rata share (based on the LSEs share of energy consumed in the State) of ZECs directly from NYSERDA. The total cost of the ZEC program is estimated at close to $1 billion for the first two years, and around $7 billion for the entirety of the 12-year program.

What's Next 

Going forward, there will be a number of implementation issues that will be addressed by the PSC and NYSERDA. By December 1, 2016, NYSERDA will publish, for the 2017 compliance period, a REC price, the estimated quantity of RECs it will offer for sale, an ACP amount and a firm schedule of fixed dates for annual and potential supplemental solicitations. It is also possible that some entities most affected by the program (especially the ZEC program) will challenge the CES order, either in the form of a petition for rehearing to the PSC or in an appeal to the New York or Federal courts. 

The PSC and proponents of the program designed it with an eye toward avoiding the fate of schemes that have been struck down by the courts as being preempted by the Federal Power Act. But the formula for determining future ZEC prices still includes a factor that is tied, indirectly perhaps, to wholesale energy and capacity prices (unlike REC prices), which could invite parties who oppose the program to challenge its validity under the Federal Power Act.