NRG Energy suggests ways for New York to execute renewable energy goal

NRG Energy (NYSE: NRG), in April 22 comments filed at the New York State Public Service Commission, offered several ideas on how the state can achieve its new 50% renewables by 2030 goal, including a “carve out” that would ensure more costly solar can compete with large-scale wind projects.

On Jan. 21, the commission expanded a Large-Scale Renewables (LSR) proceeding to include a more expansive set of objectives, namely, to establish a Clean Energy Standard (CES) to meet Gov. Andrew Cuomo’s goal of meeting 50% of New York State’s electricity needs with renewable energy by 2030 (the “50 by 30 goal”). NRG Energy provided comments and recommendations to assist the commission in crafting an effective CES to achieve the desired renewable resources in the most cost-efficient manner for New York State consumers and businesses, while respecting the proper functioning of the New York ISO wholesale markets.

Among other things, the commission should implement a separate “solar carve-out” provision to insure that New York’s CES procures both wind and solar resources over the next decade, said NRG. A carve out for solar facilities is justified, since solar has a number of unique benefits, including localized deployment, a production profile that typically follows peak load, silent operations, no moving parts, and zero emissions. Such benefits, in particular solar generation’s daytime, load-following profile, serve as a strong complement to wind power and other renewables.

NRG added: “However, as the Commission is aware, solar resources encompass a relatively young and still-developing technology group, which offer unique benefits to the bulk-scale and local power systems often difficult to capture in simple bundled energy + REC bids. As such, solar resources typically offer power system benefits on a more expensive $/W or $/kWh basis than other renewable resources, like wind power, which typically has the lowest levelized cost of electricity among bulk-scale renewable resources. Thus, it is foreseeable that unless the Commission establishes a separate solar carve out, wind will serve as the primary resource for meeting the 50 by 30 goal, resulting in the state’s renewables deployment to skew towards a single resource type.

“The Commission’s cost study on the CES reinforces the need for the CES to pursue a balanced portfolio of renewable resources, particularly in the early years of the program. In the cost study, modeling of Tier 1 resources finds that solar deployment will be relatively stagnant until the mid- to late-2020s, and even then solar market growth is anticipated to occur primarily in utility-scale solar deployment.”

In another area, NRG said the commission should carefully consider how units with long-term power purchase agreements (PPAs) interact with the FERC-jurisdictional wholesale markets. In order to reach the 50 by 30 goal, NRG estimates that New York will need 15,000 MW–25,000 MW (nameplate) of new capacity. Simply adding that amount of capacity into the NYISO ICAP market, as if it had no cost, would significantly distort the capacity market price signal for both existing and new generators that rely on the ICAP market to remain in business or to make new investment decisions, NRG wrote. Thus, if policy does not directly address the appropriate treatment of contracted resources in the NYISO markets, the commission risks creating significant dislocation in the existing generation market, which would potentially lead to expensive reliability-must-run contracts, which ultimately undermines reliability and increases ratepayer costs

NRG added: “To counteract these impacts, the Commission should consider exempting new renewable resources procured under long-term contracts from participating in the NYISO’s capacity markets. This approach would recognize the different purposes being served: the NYISO capacity market as the tool to attract and allocate capital to meet the state’s resource adequacy needs, and the contract-based procurements under the CES as the means to leverage private capital to meet the larger societal goals of reduced emissions and environmental sustainability.

“If not exempted from participation in the NYISO market, to prevent these contracts for new renewable energy from inefficiently displacing lower-cost existing or new merchant capacity, the renewables should be subject to the NYISO’s buyer-side mitigation provisions, which should apply in ROS as well as in the down-state capacity zones. At a minimum, the Commission should ensure that participation by new capacity is phased into the wholesale capacity market.

“Alternatively, if the buyer-side mitigation presents an insurmountable obstacle to the new renewable energy projects from being compensated in the NYISO capacity market, stakeholders should consider a ‘two-tier’ pricing mechanism, in which the contracted renewables would be included in the capacity market and paid the market clearing price based on their inclusion in the market, while other capacity would be paid the price that would have occurred but for the contracted renewable capacity entering. This maintains the effectiveness of the capacity market price as an indicator of the marginal cost of meeting resource adequacy requirements with market-based merchant resources, while providing capacity revenue to contract-based renewables that are meeting state policy goals, albeit at a reduced level.”

Another issue addressed by NRG are the economic challenges faced by upstate nuclear resources, and in fact many resources in New York, that are based in part on market design flaws, such as inadequate scarcity pricing and incomplete capacity markets. “Efforts to retain these resources should focus on market design reforms, such as improved energy market price formation and a forward capacity market, rather than a bolt-on to the Clean Energy Standard,” NRG said.

“To the extent, however, that the Commission adopts Staff’s proposal for nuclear units, Tier 3 should be appropriately excluded from the actual CES, since it is primarily an economic development mechanism for the communities hosting certain nuclear generating plants in New York with the collateral benefit of emission-free energy. However, due to the inherent structural limitations – i.e., only one or perhaps two sellers, with one of them affiliated with one of the largest ESCO buyers in the state – there should be no pretense that Tier 3 could be a ‘market.’ Instead, if the state proceeds with Tier 3, NRG recommends establishing the cost of ZECs prospectively based on the proposed ‘missing money’ comparison of costs and expected market revenues described in the white paper, and passing through the costs proportionally to all ESCOs and default service providers, including NYPA and LIPA, on a uniform per-kWh basis that suppliers will include in their supply charges to all NY energy consumers. Any true-ups for estimation errors would be included in the following year’s fixed per-kWh pass-through, to avoid exposing LSEs to ZEC cost risk.”

A PSC staff whitepaper recommends three ‘tiers’ of the CES, differentiated by vintage and competitive opportunity, but all meeting the technology eligibility requirements of the existing Main Tier. The whitepaper also recommends a separate tier, outside of the CES, to support the financially-challenged upstate nuclear generators.

NRG is the largest independent power producer in the U.S. with over 50,000 MW of capacity powered by solar, wind, nuclear, gas, coal, oil and cogeneration. NRG is an active participant in the New York markets, with conventional generation, retail energy services, distributed and grid-scale solar in operation, as well as a microgrid, distributed energy management platform and energy storage projects in development.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.