Back in February of this year, the Federal Energy Regulatory Commission (FERC) approved a number of rules for the New York Independent System Operator (NYISO). Unfortunately, it appears that these orders could make it more difficult for renewable energy resources, energy storage, and demand response resources to participate in the capacity market of both New York City and a number of surrounding areas. Critics have suggested that the new rules could deter investment in clean energy, making it more difficult to achieve New York’s clean energy goals.
NYISO Buyer-Side Mitigation
As things stand, NYISO buyer-side mitigation (BSM) rules require all new resources in ‘mitigated capacity zones’ be subject to a price floor when bidding into the capacity market. These mitigated capacity zones include New York City, and NYISO Load Zones G - J, with the price floor equal to 75% of the unit’s net cost of new entry (net CONE). NYISO Load Zones are noted in the image below, and you can view a full map of NYISO Load Zones by following this link.
The original purpose of these BSM rules was to mitigate the market power of buyers in the capacity market, because these buyers also supply capacity, giving them an incentive to suppress market prices. Since the original application of BSM, however, the rules have been expanded to apply to all new entrants in mitigated capacity zones. This essentially assumes that all of these new entrants have price-suppressing capabilities, which is not necessarily the case.
There are two economic tests used to determine whether or not new entrants may be exempt from NYISO BSM price floors. Units are exempt if they pass either of the following tests:
A: The forecast of capacity prices in the first year of the entrant’s operation is higher than the default price floor (equal to 75% of mitigation net CONE).
B: The forecast of capacity prices in the first three years of the entrant’s operation is higher than the unit-specific net CONE for that unit. Revenues received from renewable energy credits are netted out of net CONE.
2015 Complaint to the FERC
In 2015, a number of agencies and bodies, including the New York Public Service Commission, the New York Power Authority, and New York State Energy Research and Development Authority filed a complaint with the FERC regarding NYISO BSM rules, claiming that the rules were unjust, unreasonable, and too widely applicable. The complaint suggested that, by applying the minimum bid requirement to all new entrants, BSM rules resulted in over-mitigation for buyer-side market power. The complaint requested exemptions for:
Demand Response Resources
Following the complaint, the FERC ordered NYISO to include exemptions for certain renewables and self-supply resources as part of its BSM rules. In turn, NYISO established an exemption for renewables capped at 1,000 megawatts (MW) of installed capacity.
Impact on Energy Storage
With its most recent orders, the FERC, unfortunately, rejected requests that energy storage be exempt from BSM price floors. This decision likely has significant implications for the energy storage sector and the deployment of energy storage systems in the coming years. 320 megawatts of energy storage (95% of NY’s planned storage capacity) is expected to go online in the mitigated capacity zone in the next two years. With the FERC’s new orders, it will be much more difficult for these resources in the capacity market. This is potentially detrimental to New York’s goal of 3,000 MW of energy storage by 2030, as outlined in the Climate Leadership and Community Protection Act (CLCPA).
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