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2₵/kWh Increase Expected in NY Wholesale Markets from Proposed Carbon Pricing

  • January 15th, 2019

The state of New York is joining the ranks of California, New Jersey, Hawaii and Washington as the leaders in pushing for 100% clean energy.  Announced in late December 2018, NY Governor Andrew Cuomo pledged the state will push to transition to be fully dependent on green energy by 2040.  This is in addition to the Clean Energy Standard (CES) that was introduced back in 2016.  The original Clean Energy Standard set the goal that 50% of New York’s electricity would be generated by renewable sources by 2030.  This new announcement gives the state another decade to further increase the development of green generation.  The state has also approved an initiative to set energy storage targets at 1,500MW by 2025 and 3,000MW by 2030. 

Another initiative of the 2016 Clean Energy Standard is to reduce greenhouse gas emission by 40% by 2030 and 80% by 2050.  CES and the Zero Emissions Credits (subsidy for the carbon-free upstate nuclear fleet) were introduced to incentivize new renewable generation and also keep the nuclear power plants from shutting down due to low wholesale energy market prices.  CES and ZECs currently impact supply rates around $0.00350/kWh, or around $3,500 per 1,000,000 kWh of usage.  These prices are expected to continue to increase in the upcoming years. 

In August of 2017, New York announced a proposal to introduce carbon pricing into the wholesale electricity market as decarbonization objectives were not taken into account.  The wholesale market as operated by the New York Independent System Operator (NYISO) are restricted in their ability to call upon carbon-friendly and cost-effective generation when the grid needed the additional generation.  More details about the original carbon proposal can be found at https://energywatch-inc.com/nyiso-contemplates-carbon-pricing-much-will-rates-increase/

The cost of carbon emissions will be administered on the wholesale energy level in which the grid operator, NYISO, will incorporate a dollar per ton of C02 into the base energy price.   NYISO will charge each supplier for its carbon emissions at a specified price as part of its monthly settlement.  The supplier would then include these charges into their standard energy offers in a $/mWh adder.  A carbon charge would raise energy market clearing prices at time when a traditional generator is on margin.  All suppliers benefit from the higher energy prices and would incentivize bringing online newer, lower carbon emitting generation. 

The New York Public Service Commission or (PSC), will set the Gross Social Cost of Carbon (SCC) that are consistent with the current CES programs.  Net prices with the inclusion of the Regional Greenhouse Gas Initiative (RGGI) is between $40-$42/ton starting in 2020, with prices increasing thereafter. 

Although base energy prices will increase due to the carbon pricing, there is the potential for some of these increases to be offset by existing programs in place due to CES.  REC and ZEC prices may drop due to increased supply of renewable energy credits in the market and less of a need to subsidize the nuclear power plants due to higher base energy prices.  There will most likely be a sharp increase is supply costs should the program be installed with a gradually decrease in future years.  Early estimates have wholesale rates to increasing $0.0015-0.002/kWh initially, but the net impact could be under $0.0005/kWh due to credits, lower CES and ZEC costs and other factors.  There is still no definitive time frame on implementing carbon pricing. 

Sources:

https://www.nyiso.com/documents/20142/1397731/Carbon%20Pricing%20Straw%20Proposal%20Presentation.pdf/128d2b38-d372-3961-f4b7-052b0a0f7320

https://www.nyiso.com/documents/20142/2179214/Carbon%20Pricing%20Draft%20Recommendations%2020180802.pdf/575a6d2b-ad09-d8f8-e566-39a0c04f9a43

https://www.nyiso.com/documents/20142/2625121/Consumer%20Impact%20of%20Carbon%20Pricing%20-%20Final.pdf/41bc35f9-b5de-63cd-a76b-1fa647c71037

https://www.nyiso.com/documents/20142/2244202/Analysis-of-a-New-York-Carbon-Charge-9-17-2018.pdf/0930b5ec-aa1b-b837-4cd8-cd8f8768d57d