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Be Vewy Vewy Quiet. I’m Hunting Carbon

The biggest issue confronting the energy industry in New York today is decarbonization. That is, how to reliably meet the energy needs of the state’s residents and businesses while drastically reducing and eventually eliminating altogether greenhouse gas emissions - and do it without breaking the bank. The challenge is especially – well, challenging – for the electricity sector. Under the Climate Leadership and Community Protection Act or CLCPA, enacted into law this summer, all the electricity needs of New York are to be met by carbon-free resources no later than 2040.

The path from where we are now – where 60% of the electricity used in the state is carbon free – to zero carbon will be a difficult and uncertain one. One big challenge is that 33 of that 60% is represented by nuclear power and all those plants are slated for retirement between 2020 and 2046.

As a practical matter, all the state’s existing fossil generation, as well as the nuclear capacity will need to be replaced with a combination of wind and solar power, augmented by large amounts of battery storage. The CLCPA specifically requires that the state procure at least 9,000 MW of offshore wind, 6,000 MW of solar and 3,000 MW of storage, but much more will be required to decarbonize completely.

The CLCPA requires that the rest of the economy must also eliminate or offset its carbon emissions by 2050. That will mean replacing fossil fuels in the transportation, heating and cooking sectors with electric alternatives, which will mean even larger amounts of wind and solar resources.

The highest profile and highest priority issue that the New York Independent System Operator, or NYISO, is currently working on is how to maintain a viable competitive wholesale power market in the face of the state’s need to vastly increase the number of renewable resources, resources that are presently not cost-effective at current market prices.

Instead, these wind and solar resources must be subsidized through out of market payments by customers. Because such resources offer their power into the markets at very low (or even negative prices) those subsidies are having the effect of depressing the market prices available to the conventional flexible resources that are needed to balance the system. Unless this challenge is addressed, reliability could be jeopardized.

The solution that NYISO has been promoting for the last two years is a proposal that would reduce the size of the subsidies required by carbon-free resources by reflecting the cost of carbon in wholesale energy prices. Under this carbon pricing proposal, a “social cost of carbon” would be added to the offers submitted by fossil generators and when those offers are cleared, the market price of power will be higher. Estimates are that it would add roughly 2 cents per kilowatt-hour to the price of energy paid by consumers and paid to renewable generators.

Not surprisingly, generator advocates have been very supportive of this proposal, but consumer advocates have been more skeptical. Studies conducted to date have suggested that carbon pricing may have little impact on actual carbon emissions and may fall well short of what is needed to attract large amounts of new resources, but they are clear that the proposal will cost consumers hundreds of millions, if not billions, of dollars[1].

Consumer groups fear that they will be stuck paying twice. Once in the form of higher energy rates and again to subsidize all the new renewable resources. From their point of view, that really would be Looney Tunes.

[1] / The Brattle Group Initial StudyDamark Energy Advisors Initial StudyThe Brattle Group Revised StudyResources for the Future Initial StudyDamark Energy Advisors Revised  StudyThe Brattle Group Final StudyMonitoring Analytics StudyResources for the Future Final Study

Catherine Luthin's picture

Thank Catherine for the Post!

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Discussions

Bob Meinetz's picture
Bob Meinetz on Jan 27, 2020 3:33 pm GMT

"As a practical matter, all the state’s existing fossil generation, as well as the nuclear capacity will need to be replaced with a combination of wind and solar power, augmented by large amounts of battery storage."

Nonsense, Catherine. Nuclear does not "need" to be replaced - in fact, it needs to stay open if New York is to have the remotest chance of meeting its zero-carbon goals.

I realize solar developers, anti-nuclear zealots, and natural gas interests wish nuclear proponents would remain "vewy, vewy quiet", but we've already been quiet for too long.

Matt Chester's picture
Matt Chester on Jan 27, 2020 4:27 pm GMT

One big challenge is that 33 of that 60% is represented by nuclear power and all those plants are slated for retirement between 2020 and 2046.

Do you think there's a chance these plants are extended? Or perhaps small modular nuclear comes in? If the measure is focused on carbon-free generation, then nuclear obviously can play an important role there

Audra Drazga's picture
Audra Drazga on Jan 31, 2020 12:40 pm GMT

Catherine, 

Love the title of this article - fun and different. 

1)  I am wondering if there are plans on how states like NY are going to get to 100% carbon-free power generation by a set date.  Or are these just arbitrary numbers tossed out there as a hope? 

2) What sort of impact is this going to have on ratepayers?  We are already hearing some states that are wanting to up their fees to subsidize these programs.  Those who do not have solar panels may end up paying for these programs.  
 

 

Catherine Luthin's picture
Catherine Luthin on Jun 10, 2020 6:26 pm GMT

Thanks, Audra, and good questions!

1.  These goals are ambitious, but I can tell you we are working hard to make deep cuts in our clients' fossil fuel consumption.

2.  These are the early days, there will be an impact on ratepayers, it is hard to quantify as of yet. We have seen a wide range of estimates.

 

Paul Chernick's picture
Paul Chernick on Feb 4, 2020 2:06 pm GMT

Catherine,

Where does the difference between what the ratepayers pay (market-clearing generator bid price plus carbon adder) and what the generators are paid (market-clearing price) go? Does the NYISO hand that over to the state to use in decarbonization? rebate to consumers in some form?

Catherine Luthin's picture
Catherine Luthin on Feb 11, 2020 10:01 pm GMT

Hi Paul, thank you for your question. The excess revenue is intended to be refunded to consumers, but since the NYISO has no authority over retail electric matters, it’s proposal stipulates only that the monies will be refunded to load-serving entities or LSEs. It would be up to the Public Service Commission to ensure that the LSEs returned it to consumers, as opposed to simply keeping it. 

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