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Policy, renewable energy project location will drive N.Y. transmission upgrade economics

Highlights

Goal is to increase southern power flow by 900 MW

Economics will be impacted by where new generation is built

New York — The New York Independent System Operator's market monitor has said the economics of a proposed 900-MW transmission upgrade that would increase capacity into Southeastern New York will depend on where incremental renewable energy and storage projects are built.

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The independent monitor, Potomac Economics, will present an evaluation of the proposed public policy transmission projects to the NYISO's Management Committee on Wednesday, a spokesman for the grid operator said Tuesday. The meeting materials have been posted to the NYISO website.

The NYISO's tariff requires the market monitor to "review and consider" any impact on the wholesale power markets from regulated transmission solutions proposed to satisfy the public policy transmission need, according to Potomac.

The monitor found that while the policy requirement included "a long list of standard wholesale market objectives" like cost savings and reliability, it also identified "several objectives that are outside the ordinary scope of the wholesale market."

These include serving more demand in the southeast region, or downstate areas, with efficient and/or renewable resources in the north and west, or upstate areas; promoting job growth; increasing tax receipts; and reducing generation with harmful environmental and health effects.

A NYISO cost-benefit analysis determined these goals can be accomplished through a series of transmission projects called "Segment B," that would increase upstate to Southeast New York interface capability by at least 900 MW. Another group of projects, called "Segment A," would increase transfer capability in the central-east region by at least 350 MW. Potomac's evaluation of the market effects of individual projects considers that uneconomic projects can harm the power markets by inefficiently altering short-term energy and capacity prices, crowding-out efficient market-based investment and inflating long-term market risks.

EXOGENOUS BENEFITS

However, determining whether projects are economic must include "factors that are not fully priced in the NYISO markets," Potomac said. Public policy projects that generate "large unpriced benefits" are more likely to be economic and, thus, less likely to harm the markets, it said.

Specifically, the New York Public Service Commission issued an order directing the NYISO to consider transmission solutions that would increase flows of power from low-cost and renewable generation upstate to high-demand downstate areas.

Potomac's evaluation found the NYISO's recommended projects will be economic if the state's Clean Energy Standard is "satisfied with high levels of intermittent renewable generation upstate." Among other things, the CES requires 70% of New York's power come from renewable sources by 2030.

However, Potomac said if "state policies shift more investment to offshore wind and energy storage in downstate areas, the benefits from the recommended projects will be reduced."

"Ultimately, the benefits of the recommended transmission projects are heavily dependent on the placement of new renewable generation and the locations of retiring generation," the market monitor said.

A revised version of the NYISO's Transmission Public Policy Transmission Planning Report, including the monitor's market impact review, will be submitted to NYISO's board for final review and action after the Wednesday Management Committee meeting, the grid operator said. Comments from interested parties will also be provided to the board.

Interested parties may provide written comments to the NYISO on the revised report no later than March 1, 2019, the grid operator said.

-- Jared Anderson, jared.anderson@spglobal.com

-- Edited by Jeffrey Ryser, newsdesk@spglobal.com