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Washington — Eyeing more efficient resource scheduling and procurement, as well as better price signals, the New York Independent System Operator plans to activate Wednesday a new locational reserve region for New York City in its day-ahead and real-time energy markets.

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An analyst with S&P Global Platts Analytics does not expect the change to have much immediate impact on pricing in the ISO, but said the new structure likely has more implications for the future as the state of New York aims to transform its grid to 100% emissions-free power.

NYISO received sign-off from the Federal Energy Regulatory Commission Friday to proceed with tariff revisions (ER19-1678) to implement the new reserve region and create a method for calculating the price for New York City reserves.

Currently, NYISO procures operating reserves for four locational reserve regions: the New York Control Area, which is statewide and encompasses load zones A-K; the East of Central-East region, or load zones F-K; the Southeastern New York region made up of load zones G-K; and the Long Island region, which is load zone K.

RESERVE REQUIREMENTS

State reliability rules require procurement of 2,620 MW of operating reserves statewide and lays out specifics on the quantity and type of reserves that must be procured from the different regions.

As such, NYISO already carries roughly 1,000 MW of its reserves within New York City, including about 500 MW of 10-minute reserve capability. But these reserve requirements are not explicitly modeled in NYISO's market software. Instead, they are met through "the procurement of the other locational reserve products; reliance on latent reserve capability; and if necessary, out-of-market action," the grid operator said in its April tariff filing.

The current process has provided "a workable framework," meeting the 30-minute and 10-minute reserve requirements in 99% and 97% of real-time intervals for 2018, respectively, after accounting for latent capability. But future reliance on latent reserves "could prove problematic," NYISO argued, as resources not procured through the markets lack schedules to provide reserves and thus "lack any incentive to take the necessary actions [like fuel procurement] ... to make such latent capability available if called upon."

The new Zone J reserve region will have a 500 MW 10-minute reserve requirement and a 1,000 MW 30-minute reserve requirement, with a $25/MWh demand curve value, which would rise to $500/MWh during scarcity events.

EARLY STEP

"Stricter emissions standards in NYC will reduce fossil-fired capacity in the early 2020s, and the introduction of offshore wind with interties to Zone J/K, as well as increased energy storage, could increase volatility in the value of reserves," Kieran Kemmerer, a power market analyst with Platts Analytics, said Monday in an email. "Thus the introduction of a more formal structure to procure and price reserves in Zone J is an early step to get ahead of some expected changes in NY."

The state earlier in the month passed a landmark greenhouse gas emissions reduction bill that sets it sights on achieving net-zero GHG emissions by 2050. The state's resource mix could see a massive transformation, with gas generation becoming illegal by 2040 under the new law. Gas-fired and dual fuel facilities accounted for between 26.9% and 42.8% of the state's daily generation thus far in June.

Kevin Lanahan, NYISO's vice president of external affairs and corporate communications, anticipates the new reserve region will "allow for more efficient scheduling and procurement of resources to meet system needs."

"Further benefits of the new rules include locationally specific market price signals for the resource availability and flexibility needed to maintain reliability," Lanahan said Monday. "The NYISO and our stakeholders also believe the new reserve region will help provide incentives for investment in resources located in New York City that can supply 10-minute and 30-minute reserve products."

-- Jasmin Melvin, jasmin.melvin@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com