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NYISO CO2 emissions price could cut power sector gas use up to 7.8%: Analysis Group

New York — Pricing carbon dioxide emissions into the New York Independent System Operator's wholesale power markets could reduce statewide gas use in the power sector up to 7.8% by 2030, analysis released Thursday said.

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In New York's power sector in 2018, 41% of in-state generation came from power plants that predominately burn natural gas, and introducing a carbon price in the NYISO markets will hasten reductions in power sector gas use, the Analysis Group said in a report "The Role and Economic Impacts of a Carbon Price in NYISO's Wholesale ElectricityMarkets."

The NYISO is trying to embed a carbon price within its power plant dispatch system, realizing New York has some of the most aggressive climate goals in the county, Rich Dewey, the grid operator's president and CEO, said during a conference call to discuss the report.

"The NYISO's markets are some of the most efficient in the country and can be leveraged to achieve those goals," Dewey said.

The Climate Leadership and Community Protection Act, passed in June, sets a requirement for New York to eliminate greenhouse gas emissions from all man-made sources in the state by 2050. It also codifies a mandate for the power system to rely on renewable energy resources for 70% of supply by 2030 and on zero-emitting resources for 100% of supply by 2040.

"It will require a clear focus on the incentives expressed through energy markets and on the potential for market mechanisms to help transition the state's economy through the upcoming changes at the lowest possible cost," the Analysis Group report said.

This energy transition will also "dramatically change" the demands on electric generating resources, particularly those which emit the largest volumes of carbon emissions, it said.

Building on the results of previous studies done by consultant Brattle Group and the multi-stakeholder Integrating Public Policy Task Force, as well as consultant Potomac Economics, Thursday's report includes a range of potential gas consumption reductions.

"Recognizing that these are indicative and directional results (in light of the somewhat outdated assumptions in those studies), statewide gas use in the power sector would drop in the range from 2.4% to 7.8%, depending on the study year," the report said.

Gas use reductions vary by zone, with most reductions occurring in downstate areas where gas use changes in the largest regional zones (F, G, J, and K, comprising more than 99% of New York downstate gas demand) range from a 7% increase to a 10% decrease, depending on the zone and the year, Analysis Group said.

The authors highlighted the results should be interpreted as "indicative of directional change in gas use," and not a hard forecast.

Gas-fired and dual-fuel units were providing almost 38% of New York's power supply late Thursday afternoon.

Although a small impact relative to total gas consumption in the state, a carbon price would help New York meet its climate goals.

Pricing emissions would accelerate gas use reductions, "both directly in the power sector and indirectly by supporting New York's electrification of fossil energy use in other sectors," the report said.

It will also create incentives for repowering fossil units in Zone J.

IMPLEMENTATION

From an ISO standpoint the initiative is currently before stakeholders who would need to vote to approve it before filing proposed tariff changes with the Federal Energy Regulatory Commission, Dewey said.

"Due to the role of FERC, we said we will not bring a proposal to the commission unless it's clear that the state government supports it," he said.

The CLCPA does not explicitly outline how its goals need to be met, but mandates creation a Climate Action Council that will be a 22-member body made up of the heads of different state agencies, experts appointed by the governor and others.

That council is still being formed and has two years to develop a scoping plan, which Dewey said he hopes includes the NYISO's carbon pricing initiative.

Software design, implementation and testing are the major components of activating the carbon pricing plan and the NYSIO estimates it would take 18 months to put in place.

Dewey also said they want to allow ample time for market adjustment. There are forward markets that trade on signals tied to the wholesale market and we don't want to disrupt that so we stick with an 18-month window if we started today," he said.

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

-- Edited by Richard Rubin, newsdesk@spglobal.com