Various power producers, utilities, consumers and developers have weighed in on proposed incentives for developing offshore wind energy in New York state. But in comments submitted to state regulators, the New York ISO, the state's electric grid operator, backed the financing proposal as compatible with competitive markets while other stakeholders derided it as a costly, unfair and uncompetitive subsidy.
The incentives at issue are part of a procurement and financing strategy released Jan. 29 by the New York State Energy Research and Development Authority, or NYSERDA, which serves as the state's energy financing vehicle. Under the strategy's two-stage procurement plan, NYSERDA would facilitate development of 2,400 MW of new offshore wind by allowing utilities to own offshore wind resources or mandating that load-serving entities either enter into power supply contracts with offshore wind generators or purchase offshore wind renewable energy credits, or ORECs, that are tied to generation from offshore wind farms.
Through offshore wind procurements slated to begin in 2018 and other efforts, the state aims to achieve its Clean Energy Standard goal of procuring 50% of statewide electricity from renewables by 2030 while reducing greenhouse gas emissions 40% by 2030 from 1990 levels. The New York State Public Service Commission on April 4 issued a notice of proposed rulemaking setting out various financing options for implementing the strategy, which complements the state's existing REC program for new renewables.
Responding to that NOPR, the NYISO told the NYPSC that other than incorporating the social cost of carbon dioxide emissions into wholesale markets, ORECs are the most appropriate mechanism for incentivizing offshore wind energy in competitive power markets. The grid operator said ORECs will help developers site their offshore wind generators in the highest value locations and respond to price signals.
Among the various procurement choices offered in the NOPR, the NYISO endorsed "fixed ORECs," which act much like existing Tier 1 RECs and provide a limited revenue hedge against changes in energy and/or capacity electricity prices to selected wind farms that receive a fixed, as-bid OREC price throughout the contract's lifetime. The grid operator said it favors fixed ORECs as they require developers to consider market signals for investment decisions and retain the financial risk associated with new projects.
According to the NYISO, a "carbon indexed OREC" variant, which limits the indexed reference price to the CO2 emissions adder-related cost component of locational based marginal pricing, could be an efficient alternative as well. Such an approach would require developers to consider market signals for investment decisions while minimizing concerns with over-payments to renewable resources should carbon pricing be implemented, the NYISO said.
The NYISO also weighed in on standard performance-driven "index ORECs," which the NYPSC said would provide the most hedge as they would offer constantly changing premium payments based on the net difference between the project's winning bid price and the average commodity market price. But the NYISO said index ORECs still would shift investment risk onto consumers and thus are not a suitable mechanism.
The grid operator similarly rejected other potential procurement options, including bundled power purchase agreements, or PPAs, utility-owned generation, and various other OREC-types, including one similar to New York's nuclear "zero-emissions" credits. The operator said bundled PPAs and utility-owned generation would be inefficient, insulate offshore wind developers from market prices and shift financial risk to consumers, and those other OREC-types fail to improve on elements of the fixed and indexed ORECs.
Views from the power industry, consumers
In contrast, the Independent Power Producers of New York, which represents the state's merchant generators, urged the NYPSC to reject the proposal in its entirety. Until a "market-based" carbon adder is implemented, the Independent Power Producers of New York said, new offshore wind farms should be required to compete directly with all other new qualifying renewable energy resources in NYSERDA's Tier 1 REC procurements.
In joint comments, two Consolidated Edison Inc. utilities along with Fortis Inc. subsidiary Central Hudson Gas & Electric Corp., National Grid USA subsidiary Niagara Mohawk Power Corp., and Avangrid Inc. subsidiaries New York State Electric & Gas Corp. and Rochester Gas and Electric Corp. maintained that a hybrid "fixed/index OREC" model is the best option as it would limit both costs and risks to customers while still providing needed certainty. The utilities also opposed using utility-backed PPAs but said utility ownership of offshore wind resources is in the public interest as it represents the cheapest solution.
America's largest state-owned utility, the New York Power Authority, or NYPA, concurred with NYSERDA's assumption that transmission and interconnection infrastructure should be developed, sized and constructed to support single offshore wind facilities. However, NYPA said consideration in the awarding of the first offshore wind contracts should be given to "whether the generator lead transmission lines could be owned and operated by a separate offshore transmission owner if that approach would achieve cost savings."
Noting that New York currently lacks settled supply chains and that wind lease areas, leaseholders and experienced companies and workers are limited, NYPA warned that significant incremental procurement costs are "highly likely" during the first procurement phase. NYPA also cautioned that allocation of targets and costs to the balance of the utility's load "may encumber" its efforts to meet the Clean Energy Standard goals. Further, any shift in costs to customers could risk "forcing employers to reconsider doing business in New York," NYPA said.
According to NYSERDA, the estimated incremental cost — the amount above the value of energy, capacity and Tier 1 RECs — during the first phase of the development of 800 MW of offshore wind will range from $200 million to $1.2 billion, depending on which procurement approach New York adopts.
Opposing the proposal, a group of 60 large industrial, commercial and institutional energy consumers said, "It makes little sense for the commission to favor one renewable generation technology over others, or to force overburdened customers to pay multiples more for the same carbon-free electric generation attributes."
Anbaric Holding transmission subsidiary Anbaric Development Partners criticized the NOPR's prohibition of developers of open access, shared radial and independently owned offshore transmission facilities from submitting bids to the first phase request for proposals. Anbaric said the prohibition will "impede, if not prevent, effective and robust competition in the offshore wind industry" as well as delay economically efficient deployment of offshore wind and will impose needless costs on ratepayers.
Wind developer Deepwater Wind said the state ought to authorize and procure offshore wind as soon as possible to capitalize on the federal 12% investment tax credit that might end after 2019. Deepwater Wind also said the commission should require careful consideration of the financial feasibility of proposed projects in procurement decisions, such as the ability to successfully complete a tax equity financing.
