FERC Order May Undermine Renewables, Energy Storage in New York’s Capacity Markets
The Federal Energy Regulatory Commission has rejected the latest proposal from New York’s grid operator to allow renewable energy and batteries to compete against fossil fuels in its wholesale capacity market. That may give the state’s regulators and policymakers more reason to consider alternatives to federally regulated energy markets.
In a Friday order, FERC’s Republican majority denied grid operator NYISO’s proposal to restructure what it terms its “buyer-side market power mitigation rules” to allow wind, solar, batteries and other carbon-free resources to compete against fossil-fueled power plants in its Installed Capacity Market.
NYISO’s latest proposal came after FERC’s February decision to deny its first plan to alter those buyer-side mitigation (BSM) rules in ways that would free those state-supported clean resources from being forced to use administratively determined minimum bids that are likely to be too high to allow them to clear the market.
NYISO said the new rules are needed to reform its capacity market structure to align with New York’s Climate Leadership and Community Protection Act. The CLCPA demands that New York get 70 percent of its electricity from renewables by 2030 and reach 100 percent zero-carbon emissions by 2040.
To reach those goals, the state is mandating 6 gigawatts of distributed solar by 2025 and 9 gigawatts of offshore wind by 2035, as well as 3 gigawatts of energy storage by 2030. Most of that is needed in New York City and its surrounding downstate population centers — the same regions where NYISO’s existing BSM rules could effectively bar them from participating in its capacity market.
That’s a problem for New York’s clean energy goals for two reasons. First, it will deprive renewable and storage projects of the ability to earn capacity revenue and undermine their cost-effectiveness and ability to raise financing. Second, it could prevent downstate New York from accessing the relatively lower-cost capacity those resources could provide, forcing it to rely on existing fossil-fueled generators and increasing capacity costs passed on to utilities and their customers.
It’s also unclear why BSM rules, created to prevent companies that both own generators and buy capacity from entering uneconomically low bids from those generators to artificially drive down their own capacity costs, should apply to new zero-carbon resources.
NYISO’s proposal pointed out that the Climate Leadership and Community Protection Act and other state laws and regulations are likely to prevent new fossil-fueled capacity resources from entering the market, while also clearing the way for carbon-free resources to be built. It also pointed out that its downstate region is expected to need large amounts of new capacity and that its proposed two-part test for assessing state-supported resources was not expected to lead to the kind of market price suppression that the BSM rules are meant to prevent.