Thursday, January 24, 2019

Overheard at IPPNY 2018 Spring Conference

ALBANY, N.Y. — New York is reshaping its grid to accommodate public policy goals and an influx of new renewable resources while seeking to maintain a balance between state responsibilities and wholesale electricity market standards, industry stakeholders heard Tuesday at the Independent Power Producers of New York Spring Conference.

Chatterjee | © RTO Insider

“It should not be up to the federal government to tell a state what its energy future is going to be,” FERC Commissioner Neil Chatterjee told conference attendees.

“New renewable resources, storage and other innovative technologies need to be integrated into the market,” Chatterjee said. “As our generation changes, as it modernizes, our policies may have to as well. … This could include revising market rules that might be a barrier to participation, or updating interconnection requirements, or modifying operating procedures for procuring operating reserves and other ancillary services.”

But Chatterjee cautioned that “the revolution in generation would fizzle” without the transmission capacity needed to manage supply and demand.

The Independent Power Producers of New York (IPPNY) held their annual spring conference on May 8 | © RTO Insider

“In New York, like many other places, significant issues arise when vast quantities of cheaper generation resources are located great distances from the load centers,” he said. “In fact, the region might need hundreds of miles of new transmission in order to effect the renewables goal set forth in” the state’s Reforming the Energy Vision program that, along with the associated Clean Energy Standard, requires that 50% of the state’s electricity come from renewables by 2030 and that statewide greenhouse gas emissions be reduced by 40% from 1990 levels by 2030.

New Capacity Market?

Reese | © RTO Insider

IPPNY Board Chairman John Reese, of Eastern Generation, said New York needs a forward capacity market like those in ISO-NE and PJM in order to reduce price volatility and provide investors with more certainty that generation investments will earn returns.

“New York has taken a different path from its neighboring RTOs and is looking at carbon pricing as a way of taking the externalities that you value … and see if we can put it into the marketplace,” Reese said.

Donohue | © RTO Insider

“In a different world, we might have been there nationally today, but in the current environment, the burden is on the individual states to find ways to do that,” said Reese. “IPPNY’s been supportive of including carbon pricing in the marketplace; not choosing winners and losers, but setting a price, allowing the industry and private investment to choose how they invest, where they invest, to allow technology innovation.” (See NY Looks at Social Cost of Carbon, Modeling.)

IPPNY CEO Gavin J. Donohue said, “Like New England, we’re experiencing very low prices, stagnant if not decreasing demand and limited market-based investment. All of these are compounded by regulatory uncertainty and cross-signals within investment, making it very complicated in a one-state ISO to do business.”

Legislative Update

Cusick | © RTO Insider

“It’s important to make sure there’s a shift in investment risks to private developers,” said State Assemblyman Michael Cusick (D), chair of the Assembly Energy Committee. Cusick said he worked to block Gov. Andrew Cuomo’s proposal to allow the New York Power Authority to own and operate other renewable energy resources besides its statutory mandate for hydropower. The plan did not survive in the final budget.

Cusick said he is now focusing on new energy legislation, including a real property tax exemption that would be made available to certain renewable energy technologies such as fuel cells and linear generators (9651A).

State Sen. Joseph Griffo (R), chair of the Senate Energy and Telecommunications Committee, said “all ratepayers pay for our clean energy transformation,” and that legislators need to “apply the Hippocratic Oath here and know when to step back and do no harm.”

The legislative process has so many “intangibles” this year that making an accurate forecast is “almost like meteorology,” Griffo said. “We’re going to be wrapping up energy storage legislation … hoping to ensure competitive procurement processes.”

Griffo added that he “is working with the administration” to ensure the governor advances a candidate to fill the fifth and only open seat left on the Public Service Commission.

Grid Needs Robust IT System

Kauffman | © RTO Insider

Richard Kauffman, chairman of Energy & Finance for New York and chair of the New York State Energy Research and Development Authority’s board, said Cuomo recognized five years ago that the energy system was unsustainable and that “we needed to change the whole system to build the new grid, a mix of large-scale generation and distributed energy resources.”

“It’s a big job to change the system of systems … we want the policies to drive the target, not the target to drive the policies,” Kauffman said.

Technological improvements seen in other industries have not occurred in energy because of how utilities are protected from market forces by the regulatory structure, he said.

“Our grid and its current IT system will not carry us forward; we need a much more robust IT system,” Kauffman said.

He said the model should be how Apple provides the platform for its iPhone and lets the apps come from other developers, who in turn provide feedback to Apple on how to invest to make the platform more valuable.

“Competitive actors will find the projects better than regulated utilities,” Kauffman said. “Competitive markets will figure out what customers want … and building this kind of platform is not a core competence for” the utilities.

“The effort to try to change utility compensation and business practices has begun,” Kauffman said, pointing to the “non-wires” approach of the Brooklyn-Queens Demand Management project, where Consolidated Edison “went to the market for alternative approaches that resulted in $200 million of costs, rather than spending $1.2 billion on substations.” (See “PSC OKs Con Ed Energy Storage Tariff,” NYPSC Expands VDER Project Size to 5 MW.)

Regional Perspectives

Thomas | © RTO Insider

Glen Thomas, president of PJM Power Providers, said, “There’s a lot going right in PJM, but when you look around the edges we start to get concerned about this market going forward.

“PJM just came out with estimates on the cost of new entry and they are dramatically reduced from where they currently sit,” Thomas said. “Of course the cost of new entry calculations are very important because that’s the base by which the curves are set for the capacity auctions, which are coming up here in a couple weeks.”

Power producers in PJM face a flat supply stack “pretty much year-round,” but New Jersey is the biggest challenge facing producers in the RTO’s footprint, he said. Legislation is now on the New Jersey governor’s desk that could see zero-emission credits applied to 40% of the megawatts delivered in the state by 2030, and renewable energy credits applied to 50%. The state also plans to subsidize construction of 3.5 GW of offshore wind and 2 GW of storage by 2030, he noted.

“You have to wonder what’s left of the market,” Thomas said.

Dolan | © RTO Insider

Dan Dolan, president of the New England Power Generators Association, said his region saw the second-lowest prices in history last year at just over $33/MWh, “and at the same time we have the highest wholesale transmission rates of any market in the country — they’ve increased more than 400% over the last 10 years. Our wholesale transmission rates are double those in PJM [and] four times those in MISO.”

And while producers “are seeing remarkable competition, and extraordinary results from investment, reliability and emissions,” consumer bills are going up, Dolan said.

While energy supply costs have declined 35% over the past few years, consumer electric bills have gone up 6%, and consumers are not usually prone to breaking down their bills to see where the increases come from, he said.

Dolan faulted ISO-NE for saying it wants to keep Mystic 8 and 9 running for fuel security reasons after Exelon in March filed to retire the plant. It would take three and a half years to come up with a market construct for that attribute, he said. (See ISO-NE Moves to Keep Exelon’s Mystic Running.)

IPPNY ISO-NE Spring Conference Chatterjee

Shelk | © RTO Insider

“I’d like to think we can walk and chew gum at the same time and get it done a little faster than that,” Dolan said.

John Shelk, CEO of the Electric Power Supply Association, took the long view on market prices, noting how opinions have flip-flopped since RTOs and ISOs were formed about 20 years ago.

“Ten years ago, we thought markets were going to fail … because prices were so high … and now suddenly markets are bad because prices are too low,” he said.

— Michael Kuser