To: New York Public Service Commission
From: Columbia Consulting Inc.
Date: March 10, 2014
Subject: Policy Recommendation to Private Investor in Renewable Energy in New York State
I. Summary:
In September 2004, the New York Public Service Commission (PSC) adopted a renewable
portfolio standard (RPS) which set a renewable energy target of 30% of state electricity
consumption by 2015. Of this 30%, approximately 20.7% of the target will be derived from
existing renewable energy facilities and one percent (1%) of the target to be met through
voluntary green power sales. The remaining will need to be met through new renewable
generation managed by the New York State Energy Research and Development Authority
(NYSERDA). However, with the RPS mandated timeline coming to a close next year, the state
government will need to decide whether to extend the RPS to encourage renewable energy
generation and if so, whether the target should remain the same, be decreased, or increased.
This policy memo will support the recommendation that New York State should extend the RPS
through to 2025, without modifying the targets. This recommendation is supported by the fact
that the RPS has already proven to provide economic and social benefits to New York State
since its inception in 2004 and will likely continue to do so into the future. Furthermore, the RPS
will also help the state reach its greenhouse gas emission reductions commitments.
Two alternatives were analyzed. The first alternative is to remove the RPS entirely based on
common criticisms, however data from the current RPS program have proven these criticisms
unfounded. Another alternative is to keep the RPS and increase the target, however this is not a
viable option as the current RPS program will likely not meet the 30% target due to market
factors. These market factors, such as cheap natural gas and uncertain tax incentives, will
continue to persist for the next 10 years making a higher renewable energy target difficult to
attain.
In summary, the memo argues that New York State should continue to encourage renewable
energy development through its current RPS program and maintain the target for another 10
years to 2025, with a review in 2020.
The policy question this memo aims to answer is the following: “With the New York State
Renewable Portfolio Standard commitment expiring in 2015, should the state extend the
timeline and if so should the target change?”
The policy recommendation is that New York State should continue to encourage
investment in renewable energy by extending the existing renewable portfolio standards
through to 2025, without modifying the targets. However, the target should reviewed in 2020.
II. The Current Situation – Energy in New York State
New York allows electric and natural gas utilities to decouple revenue from the sale of electricity
and natural gas, respectively. By allowing utilities to decouple, New York allows utilities to
increase their revenue by selling less electricity and natural gas
New York obtains its generation mainly from natural gas, nuclear, and hydroelectricity. Natural
gas is the leading generation fuel, accounting for 44 percent of the state’s generation, followed
by nuclear power from its four nuclear plants which contribute 30 percent of the state’s
electricity. Hydroelectricity produces 18 percent of the state’s electricity. Coal, wind, solar and
biomass contribute a combined share of 7 percent. New York also imports electricity from
neighboring states and Canada.
The bulk of current renewable generation in New York comes from hydroelectricity, with small
but growing amounts from wind, solar and biomass. The state is home to the largest
hydroelectric power plant in the eastern United States, the 2,353-megawatt Robert Moses
Niagara plant, and produces more hydroelectric power than any other state east of the Rocky
Mountains. New York is also among the top states using landfill gas and municipal solid waste
to fuel electricity generation.
In a report published by Mark Jacobson in Energy Policy, the Stanford researcher along with 12
other academics mapped out how New York State could transition entirely to wind, water and
solar power by 2030. The report calculated a cost savings of $33 billion per year and that there
would be enough energy left over to power every vehicle in the state. Although this research
finding presents an aggressive view on the renewable energy potential for the state, it does
show that renewable energy has the capacity to play a large role in the state’s future energy
mix.
III. Renewable Portfolio Standard in New York State
The Renewable Portfolio Standard
(RPS), established by the New York
State Public Service Commission
(PSC) and administered by the New
York State Energy Research and
Development Authority (NYSERDA),
has been New York’s primary policy
initiative to promote the development
of new renewable energy resources
since it was established in 2004.
The PSC established two tiers of
resource types under the RPS. The
Main Tier consists primarily of
medium to large-scale electric
generation facilities that deliver their
electrical output into the wholesale power market administered by the New York Independent
System Operator (NYISO). The PSC also established a separate tier called the Customer-Sited
Tier (CST). The CST consists of smaller, “behind-the-meter” resources, and make up 5% of the
target. CST technologies include photovoltaic (PV) systems, fuels cells, wind facilities,
anaerobic digester gas, and similar technologies that for the most part produce electricity for
use on site. The CST also includes a competitive program (Competitive PV) for larger solar PV
installations from 200 kW to 2 MW. The RPS target consists of approximately 9.5 million MWh
from the Main Tier and 0.9 million MWh from the Customer-Sited Tier.
Table 1- Pace Energy & Climate Center Study- New York RPS, Where to From Here?
Only renewable energy systems installed on or after January 1, 2003, or previously installed
facilities that make improvements to their renewable energy generation that is incremental to
historical production levels are eligible to participate in the RPS. The Main Tier and Competitive
PV programs operate through the issuance of periodic competitive solicitations; all other CST
resources are supported through first-come/first-served open enrollment programs that provide
a combination of standard offer incentives for the “buy-down” of capital costs and/or energy
production. As of December 31, 2012, the seven completed RPS solicitations have resulted in
active contracts to procure RPS Attributes from 54 large-scale electricity generation projects,
facility upgrades or facility re-powerings. These solicitations resulted in facilities under contract
from a variety of renewable generation types including wind, biomass, biogas, and hydroelectric.
Wind comprises the majority of contracted projects, representing approximately 79% of
generation. When all of the currently contracted projects reach commercial operation,
approximately 1,834 MW of new renewable capacity will be added.
IV. Recommendation: Extend the RPS to 2025
The New York State RPS target, which mandates the state to derive 30% of its energy
generation from renewable sources, will expire in 2015. With the RPS mandated timeline
coming to a close next year, the state government will need to decide whether to continue with
an RPS approach for encouraging renewable energy generation and if so, whether the target
should remain the same, be decreased, or increased.
This policy memo will support the recommendation that New York State should extend the RPS
through to 2025 without modifying the targets. Section IV.I of this memo supports this
recommendation by demonstrating that the RPS has made a positive social and economic
impact to the state. Section IV.II of this memo demonstrates how the RPS will help the state
meet its greenhouse gas emission reduction commitments. Section IV.III discusses why keeping
the target at its current level is realistic, as the state will likely fail to meet current targets by
2015 and an increase would not be feasible.
IV.I – The RPS made a positive impact to New York State
In September 2013, NYSERDA released a 2013 review of the renewable portfolio standard. The
report included an analysis of quantifiable benefits and costs which demonstrated that public
investment through the RPS Main Tier had a positive impact on the State’s economy and added
social value. The report concluded that approximately $1 of State RPS funding invested
captured on average almost $3 in direct investments in New York. Specific highlights from the
summary report include:
Approximately $2.7 billion dollars of direct investments in New York State are expected
over the projected life of the renewable energy facilities
Fossil fuel usage is expected to be reduced by 1% or approximately 130 trillion Btus.
Program costs are expected to comprise less than 0.2% of total retail electricity
expenditures.
Net electricity imports are expected to decline by approximately estimated 4.7%, or an
average of 1.17 million MWh per year
One key success factor of any government program is the creation of jobs and the RPS has
successfully fulfilled this criteria. There is expected to be a per year net gain of approximately
670 jobs in the New York economy. This increase in jobs is mainly due to the displacement of
approximately 5% of imported electricity from other states or from Canada. By increasing the
state’s generation capacity through renewable energy, more jobs are created with a positive
impact on the economy. The cumulative gross state product (GSP) gain is expected to be
approximately $2 billion, with a net present value (NPV) of $921 million. In a time period where
unemployment rates are still at a high, continuing the RPS could be a political move favored by
voting New Yorkers.
From 2002 to 2037, electricity system modeling results show that New York generators produce
approximately 37.5 million more megawatt-hours of electricity in-state in the current generation
profile. This generation results in a cumulative GSP gain of approximately $1.1 billion, with an
NPV of $414 million.
IV.II - GHG Emissions Reductions
New York is a member of the Regional Greenhouse Gas Initiative (RGGI), a regional agreement
among ten Northeast states to limit greenhouse gas emissions. This agreement requires states
to cap carbon dioxide emissions from the electrical generation sector and to reduce those
emissions by 10 percent by 2018 through a cap-and-trade scheme. Furthermore, in the 2014
Draft New York State Energy Plan, the state has established a goal to reduce the emission
intensity of the electricity sector by 50% by 2030 and to achieve an 80% reduction in total
emissions by 2050 (with 2010 baseline).
Having an RPS beyond 2015 and into 2025 will help to compliment all of the New York State’s
aggressive emission reduction targets. Based on the current RPS, there is evidence that GHG
emissions have been reduced significantly. Between 2014 and 2025, the peak years of
renewable energy generation from the Current Portfolio, it is estimated that 50 million tons of
CO2 per year will be avoided, as well as displacing about 15 million tons each of NOx and SO2
from 2006 through 2037. Positive environmental impacts are attributed to the fact that the
portfolio of renewable generation is dominated by wind energy, a zero-emission resource that
displaces a significant amount of fossil fuel combustion, avoiding the emissions of greenhouse
gases and criteria air pollutants.
IV.III – Keeping the 30% RPS target
Currently, NYSERDA anticipates the state will not meet the 30% RPS target. Production of 4.77
million RPS Attributes are expected to result in 2015 from commitments made through
December 31, 2012, under both the Main Tier and the Customer-Sited Tier programs. This
represents progress of about 46% toward the NYSERDA portion of the RPS target (recall that
the non-NYSERDA target was fulfilled by pre-existing renewable energy sources). Current
Customer-Sited Tier contracts and accepted applications are anticipated to support the
installation of systems capable of producing 287,972 MWh by 2015, representing 33% of the
total Customer-Sited Tier portion of the NYSERDA RPS target. Renewable energy production
under active Main Tier contracts is expected to be 4.49 million MWh in 2015, corresponding to
47% of the Main Tier target
NYSERDA has $1.316 billion of authorized and committed funds to promote renewable energy
project development to reach the RPS target. However, even with this dedicated investment, it
is unlikely NYSERDA will fulfill its RPS mandate and as such, New York State will not likely
reach the full 30% target.
Factors influencing the economics of renewable energy projects, which have changed since the
inception of the RPS, are mostly to blame. The most significant factor is that expected future
prices of natural gas has lowered substantially from what was expected back in 2009.
Continued low natural gas prices result in reduced wholesale revenues for projects, increase
financing and hedging difficulties, and ultimately drive up ratepayer premiums to develop
renewable energy. The 2016 expiration of the federal business energy investment tax credit,
which is generally equal to 30% of renewable energy capital expenditures, creates uncertainty
in the future revenue streams of proposed renewable energy projects. The uncertainty
translates to increases in borrowing rates and also impacts the future cash flows of the project.
Program Target Progress Progress as % of Target
Customer-Sited Tier 878,089 287,972 33%
Main Tier 9,519,765 4,486,656 47%
Total 10,397,854 4,774,628 46% Table 2-NYSERDA (2013) RPS Main Tier Program Review
Finally, project developers face challenges in siting and permitting, which result in higher project
costs and reduce the pace of development of market-ready projects.
Therefore the RPS should still be encouraged, but with the current market conditions that will
not likely change in the next 10 years, maintaining the current goal of 30% is advisable and the
most feasible. However, market conditions do change and technology is rapidly advancing
which leads to decreased costs and increased efficiencies. Hence a review of the RPS target in
2020 should be conducted and at the time, an increase in the target can be assessed if seen to
be feasible.
Table 3- Pace Energy & Climate Center Study- New York RPS, Where to From Here?
V – Alternative #1 - Cancel the RPS after 2015
Utilities often argue that increases in renewable energy put pressure on the existing electricity
system, thereby increasing the cost of production. The NYSERDA 2013 Review found that,
taking into account wholesale electricity price, reductions resulting from the program had a
cumulative net rate impact of essentially zero.
Utilities may also see the RPS as a threat to their current business. However, much of the
current RPS generation is displacing out-of-state generation. The RPS is in turn creating new
opportunities for existing utilities to increase their market share. From 2002 to 2037, electricity
system modeling results show that New York generators produce approximately 37.5 million
more megawatt-hours of electricity in-state in the current generation profile. This generation
results in a cumulative GSP gain of approximately $1.1 billion, with an NPV of $414 million. In
fact, projections show an overall net increase in GSP from the RPS well into 2034.
Figure 1- NYSERDA (2013) RPS Main Tier Program Review Vol. 2, Figure 17: Net GSP Impacts by Year of RPS Current Case
Often critics of
renewable energy
deployment will argue
on the basis that the
cost per MW is higher
than conventional
sources. It is important
to distinguish between
two types of costs,
capital costs and the
marginal cost to operate.
Although the capital
costs for renewable
energy may be higher
than conventional
sources with current
technology, the marginal
costs per MW is lower. It is critical to note that generation displaced by the operation of new
renewable energy facilities is typically the most expensive generation, which sets the prices for
the entire market. By displacing this generation, the wholesale electricity price paid by in-state
ratepayers is reduced. The effect is known as the Merit Order Effect and is a phenomenon seen
in many jurisdictions that deploy a great deal of renewable energy. As renewable energy takes a
larger share of power generation, more expensive forms of generation will essentially be
“priced-out” of the market and will in turn, lower the price of electricity across the board.
V.II – Alternative #2- Increase the RPS target
Although the results to date for the RPS program have been achieved more cost-effectively than
originally projected, market conditions are not as favorable as in the past for renewable energy
development. NYSERDA has suggested that the remaining authorized funding doesn’t appear
sufficient to achieve the 2015 program targets that were originally established for the reasons
cited in section IV.III above.
Looking forward to 2025, natural gas price projection continue to remain relatively low, with
natural gas taking a larger share of electricity production (see diagram below for EIA
projections). This suggests that the market conditions for financing renewable energy will
remain difficult and an increase in the RPS target is not feasible. However, a review of the target
should be conducted in 2020 in the chance that market conditions have changed.
VI - Addressing Future RPS Challenges:
As stated in section IV.III, there are several factors influencing the economics of renewable
energy projects, which have made it difficult for the state to reach the 30% renewable energy
target by 2015. These factors include lower natural gas prices, uncertainty in federal tax
policies, and permitting; all of which effect the ability for these renewable energy projects to
attract the financing needed to execute the project.
One potential way the state is looking to address the availability for renewable energy financing
is through the New York Green Bank. In December 2013, the New York State Public Service
Commission (PSC) issued an Order establishing the New York Green Bank, a state fund with
an initial capitalization of $218.5 million with the sole purpose to facilitate private market
financing of renewable energy and energy efficiency projects that have difficulty accessing
financing due to market barriers. The Order was issued in response to a petition filed by
NYSERDA on September 9, 2013 seeking $165.6 million of uncommitted funds raised through
clean energy surcharges on the State’s investor owned utility customers. This was combined
with $52.9 million in auction proceeds from the Regional Greenhouse Gas Initiative. Eligible
proposers include energy service companies, developers, equipment manufacturers or others
that provide equipment, materials and/or services related to renewable energy and energy
efficiency projects along with financial institutions or other third-party capital providers that are
financing, or intending to finance, such project. Projects to be supported by the NY Green Bank
can include a broad range of commercially proven technologies, including solar, wind and other
renewable energy generation technologies; residential and commercial/industrial energy
efficiency measures; electricity load reduction; on-site clean generation, and similar projects that
can support the State’s clean energy objectives, including the RPS. Examples of the types of
investment partnerships the NY Green Bank may engage in include credit enhancements, co-
investing with the private sector in a loan fund for clean energy, loan warehousing/short-term
project aggregation or other similar arrangements.
The creation of the NY Green Bank will leverage the states funds with private capital and help to
meet the RPS targets in a more cost effective way.
VII. Implementation
New York State should seek internal approvals and announce the extension of the RPS target
into 2025. Doing so will show a commitment to renewable energy generation and help to create
some certainty in the market place for renewable energy. The state should also consider how
much more funding is necessary to meet the extended commitments.
Sources:
The NYS Public Service Commission’s Consumer Website - NY's Green Power Program.
Accessed 3.9.2013.
http://www.askpsc.com/askpsc/page/?PageAction=renderPageById&PageId=a8022193f892947
a1d26b67506005183#top
Capital New York: More renewable energy for state. January 8, 2014.
http://www.capitalnewyork.com/article/albany/2014/01/8538507/more-renewable-energy-state
New York State Publice Service Commission: Your Energy Your Choice.
http://www3.dps.ny.gov/W/PSCWeb.nsf/All/E49B23F98BB39EAF85257687006F3ACF?OpenDo
cument
New York: An Energy and Economic Analysis: July 29, 2014.
http://www.instituteforenergyresearch.org/2013/07/19/new-york-an-energy-and-economic-
analysis/
US Energy Information Administration - New York State Energy Profile. Accessed March 5,
2014. http://www.eia.gov/state/print.cfm?sid=NY
US Energy Information Administration – Natural Gas Forecasts. Accessed March 13, 2014.
http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm
2014 Draft New York State Energy Plan. Accessed March 7, 2014. http://energyplan.ny.gov/
NY Green Bank. Accessed March 5, 2014. http://greenbank.ny.gov/Approach.aspx
NYSERDA Renewable Portfolio Standard Main Tier 2013 Program Review. September 5, 2013.
Michigan and New York renewable portfolio standards (RPS) are adding jobs and reviving
economic growth. November 11, 2013.
http://switchboard.nrdc.org/blogs/pbull/renewable_portfolio_standard_r.html
Examining the feasibility of converting New York State’s all-purpose energy infrastructure to one
using wind, water, and sunlight. Energy Policy. 12 Mar 2013. Jacobson MZ, RW Howarth, MA
Delucchi, SR Scobie, JM Barth, MJ. Dvorak, M Klevze, H Katkhuda, B Miranda, NA Chowdhury,
R Jones, L Plano, AR Ingraffea, Navid A. Chowdhurya, Rick Jones, Larsen Planoa, Anthony R.
Ingraffeaf
Pace Energy and Climate Center. New York’s Renewable Portfolio Standard: Where To From
Here? Jackson Morris, Andrea Cerbin, Jordan Stutt and Adam Cohn