September 17, 2020

Policy, Permitting, & Pricing: 2020 NYISO Market at a Glance

By Grace Morrissey, Senior Analyst, Renewables Advisory

This is the second installment in our New York Energy Series. The series explores the opportunities and challenges for large energy users in New York State who want to reduce their energy spending and meet their sustainability goals. Here we examine recent policy changes and offer a snapshot of pricing across the NYISO market. Be sure to check back and follow along, or click here to check out other posts in the series.

 


The NYISO Market

Every wholesale market has its unique attributes, and the New York Independent Service Operator (NYISO) is no different. New York’s energy policy and the many state agencies that are responsible for its implementation, have a strong influence on the NYISO market. In our first installment, Policy Director Shannon Weigel describes the Climate Leadership and Community Protection Act and its accompanying state-wide targets, as well as the structural make up of New York’s complex energy agencies; click here for a high-level overview of New York’s energy landscape. Here is a snapshot of the NYISO market in 2020 as seen through three different lenses: policy, permitting, and pricing.

NYISO Policy

In September of this year, the Federal Energy Regulatory Commission (FERC) rejected NYISO’s proposed changes to the New York capacity market that were intended to accommodate renewable energy assets in a way that aligns with the state’s aggressive renewable energy targets. Renewable energy assets would be considered state-preferred resources – along with battery storage assets and other zero-emission technologies – and NYISO proposed that they be prioritized, price notwithstanding, within the capacity market.

Next door to New York, similar federal action was taken last year when FERC ordered the expansion of the Minimum Offer Price Rule (MOPR) in the PJM capacity market. This order has had an impact on renewable energy development and ultimately on PJM pricing for large energy buyers. These orders are different in nature, though, as FERC’s ruling was an expansion of the PJM MOPR application. In this instance in New York, NYISO had proposed changes to the buyer-side mitigation (BSM) rules – similar to the MOPR in the PJM market – that would have allowed more renewable assets to clear the capacity market. State regulators may request FERC to reconsider in light of this rejection, but for now, agencies at the state and federal levels continue to assess next steps sure to accompany a rapidly changing electricity grid.

NYISO Permitting

Since 2011, electric generators of 25 megawatts or greater have been subject to NYS Article 10 law, which provides guidance to the State Siting Board responsible for siting and permitting. Instead of working with individual towns and counties on a case by case basis, Article 10 was intended to offer a clear and comprehensive pathway for siting and permitting in New York, while also including local stakeholders and the public to voice questions and concerns, or offer support of the project in development. The Article 10 process is lengthy, starting during initial planning of a prospective site, continuing through siting review, construction, and operation. The review process for Article 10 is segmented into four phases, each stipulating requirements and timelines for both the Siting Board and the asset developer.

In addition, the Article 10 process is extensive, taking anywhere from two to more than four years to complete. This timeline and the accompanying uncertainty presented a roadblock for developers either considering assets in New York or with NYISO assets in their pipeline. With the 2019 Climate Leadership and Community Protection Act (CLCPA) as a backdrop, Governor Cuomo announced that the permitting and construction of renewable energy projects in the state must be accelerated in order to fall in lock step with the CLCPA. As such, the Accelerated Renewable Energy Growth and Community Benefit Act addressed that need, including within it Article 23, which renders Article 10 uncodified and stipulates a one-year deadline timeframe for the state agencies to complete the permitting process.

The change to Article 23 has piqued the interest of developers and buyers alike. This shift allows for swifter expected timelines, as well as more certainty around those timelines. This, in turn, brings clarity to the developer constructing the project and the end energy buyer.

NYISO Pricing

The wholesale power purchase agreement (PPA) outlook in the NYISO market is diverse, to say the least: varied across zonal settlements, developmental maturity, and pricing. Developer firms range from smaller regional companies to global giants, and the experience levels of developing, financing, constructing, and operating projects also runs the gamut. The most popular areas for development include Zone C, Zone F, and Zone A, with Zones B and E not trailing too far behind. (Unsure of your facilities’ zonal locations? NYISO’s dashboard or this zone map may help.) Of course, a project’s pricing must factor in zonal settlement as well as the Renewable Energy Credit (RECs) treatment intended for the duration of the contract.

As expected, PPA pricing is steeper when a buyer contracts for a project’s NYISO Tier 1 generated RECs bundled with the energy contract than when a buyer agrees to a REC arbitrage, based on the value of Tier 1 RECs in the New York market. The sale price of Tier 1 RECs varies year over year, with the 2020 price set at $22.09 and the 2019 price set at $22.43. The most competitive PPA pricing including project RECs hovers in the mid- to upper $40s, although pricing reaches beyond the high $70s to low $80s, depending on the project. For a REC arbitrage, more competitive PPA pricing ranges in the high $20s to low $30s, in some cases ranging to the upper $50s. These figures are inclusive of varied contractual elements, such as term length, commercial operations date, bid size, settlement zone, technology, and commercial terms.

Have electricity load in New York State? Interested in what New York renewable energy options may best suit your needs? Reach out to our Edison team to learn more.

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