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Energy Market Update: June 27, 2018

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This week, we’re talking about NYISO and New York State electricity energy pricing. May was an eventful month, and regulatory proposals are impacting prices statewide. Tim Bigler, Direct Energy Business Strategist, is here to walk you through what’s going on in New York.

Tune in to the video below.

(NYISO is the federally regulated operator of New York’s energy grid. The DEC is the Department of Environmental Conservation of New York state.)

New York Electricity Pricing

Utility Dive reported last month that on May 1, NYISO released a carbon pricing straw proposal. The proposal would align the wholesale energy markets to the state’s aggressive decarbonization goals. Essentially, NYISO is incorporating carbon costs into the price of energy.

Later in the month, another report revealed that the DEC was proposing new carbon emission limits on the state’s existing power plants. This is part of a broader effort in New York to phase out coal plants by 2020*, and also to limit new fossil fuel plants across the state.

If we look at peak prices in NYISO Zone J (New York City) in terms of dollars per megawatt hour, the effects of these proposals are plain to see. In short, prices are expected to rise. But, critically, the state has proposed that the NYISO proposal’s effective date be moved up (from 2023 to 2021). It’s no surprise, then, that we see a dramatic jump in prices for the 2021 index. Note that these forecasts are not guaranteed, and that things could change. The bottom line is that whenever NYISO’s decarbonization proposal is enacted, prices are expected to spike dramatically.

Electricity prices, however, are on the rise in general in New York. This is partly due to the national trend of natural gas storage lagging behind the 5-year-average. The Northeast region (including NYISO) is heavily gas-fired. Electricity prices could also rise in response to rising oil prices.

State and federal regulators could still shake things up, and there is a good deal of uncertainty to be sorted out. But from what they are seeing now, traders and analysts expect decarbonization to drive energy prices up by $10/Mwh or more when it comes into effect in NYISO. And it’s not just zone J; prices across the state are creeping up in reaction to May’s proposals.

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*Does not include Carbon Capture and Storage enabled plants

Posted: June 27, 2018