By Michael Kuser

RENSSELAER, N.Y. — NYISO stakeholders on Thursday debated the content of a draft study on the impact of public policy on the New York grid and learned about the ISO’s proposed changes to its carbon price calculation.

The draft “Reliability and Market Considerations for a Grid in Transition” study comes after New York Gov. Andrew Cuomo in January nearly quadrupled the state’s offshore wind energy goal to 9 GW by 2035, while his proposed Green New Deal would mandate 100% clean power by 2040, increase renewable energy requirements from 50% to 70% by 2030, and require other clean energy benchmarks. (See New York Boosts Zero-carbon, Renewable Goals.)

“What we try to do in the report is to describe the challenges and fill in the gaps,” Mike DeSocio, the ISO’s senior manager for market design, told the Installed Capacity/Market Issues Working Group.

NYISO first presented an outline of the new study, which analyzes the projected Bulk Power System in 2030 and 2040, at the group’s April 15 meeting. (See NYISO Studies Grid Transformation, Fuel Security.)

“The ISO would be better off looking at what the market will be like in five years and not spend too much time preparing for 15 or 20 years down the road,” said Couch White attorney Michael Mager, who represents Multiple Intervenors, a coalition of large industrial, commercial and institutional energy customers.

DeSocio agreed but said some of the needed investments are long-term.

“I think looking at 2030 and 2040 is important, at least to provide reality checks on what people are planning,” said Mark Younger of Hudson Energy Economics. “NYISO needs to go out to 2040 and assume all-renewable generation, then do a multiday analysis of very little wind or solar, which would provide you a good snapshot of what you need for backup if you rely upon fossil generation compared to what you would need if you relied upon storage as backup.”

Noting that the state recognizes a carbon-reduction imperative that the market does not, David Clarke, director of wholesale market policy for Power Supply Long Island, suggested that NYISO’s study consider how to optimize various as-bid resources and other alternatives to achieve the state’s targets. He noted that whether carbon pricing is ratified or not, “sequestration might be a better way to achieve the goals cost-effectively rather than other approaches, including carbon pricing.”

Andrew Antinori, senior director of the New York Power Authority’s Market Issues Group, asked whether it would be more efficient for the ISO to see whether or not a carbon charge will be implemented before expending resources studying different possible futures.

Howard Fromer, director of market policy for PSEG Power New York, asked whether the ISO has looked at using external resources to provide reserves.

“It seems the movement of resources across borders is going to become more important,” Fromer said. “I know we don’t currently have any projects to look at that, but it seems important to look at the whole seam issue and see how to access those resources.” (See NY Carbon Task Force Discusses Seams, ‘Leakage’.)

DeSocio agreed that external resources do fit into the picture.

“We’re probably going to need additional transmission, but it’s got to be strategic, and we’re probably going to need additional capacity, but it’s got to be strategic,” DeSocio said. “We need to get the energy prices right … that’s what it’s about here. … My bias is not to spend a lot of time on expanding new capacity products; that’s a pretty blunt instrument.”

The ISO’s timeline is to get an updated report out by the end of summer and add some quantitative analysis ahead of the Board of Directors’ strategic planning session in September, DeSocio said. By the end of June, the Analysis Group will provide preliminary analyses from a different study examining the market impacts of pricing carbon and will complete its report by the end of July, he said. (See More Details Divulged on New NYISO Carbon Pricing Study.)

Carbon Pricing: Calculating the LBMPc

After considering stakeholder feedback, NYISO has revised its proposed calculation of the carbon component in locational-based marginal prices (LBMPc), now subtracting a variable operations and maintenance (VOM) cost from the LBMP. The resulting value will then be divided by the estimated marginal fuel cost ($/MMBtu) plus the cost of emissions ($/MMBtu).

“Adding the cost of emissions was suggested by a few stakeholders last time to arrive at a more realistic heat rate,” said Ethan Avallone, the ISO’s technical specialist in energy market design who presented the analysis.

As discussed in previous meetings, NYISO will set the LBMPc to zero when the calculated LBMPc is less than zero and set the implied heat rate to zero when the calculated implied heat rate is below the minimum implied heat rate. (See Carbon Pricing Impact on Waste-to-Energy Examined.)

“We will use the LBMPc to allocate the carbon credit to [load-serving entities] and to prevent leakage and distortion of regional flows by charging imports and crediting exports the LBMPc, and also to provide market transparency,” Avallone said.

Internal generators are charged based on their actual emissions — not the LBMPc.

The implied heat rate produced by the calculation should be limited by a minimum and maximum to maintain an appropriate LBMPc, Avallone said. Absent a maximum value, the impact of shortage pricing on the LBMP could result in an inappropriately high implied heat rate; without a minimum, the impact of renewable generation on the LBMP could result in an inappropriately low heat rate.

The implied heat rate should be set to zero when less than the minimum limit and set to the maximum when above the maximum limit, Avallone said. A low implied heat rate indicates that zero-emission energy, which does not bid opportunity cost, is likely marginal.

NYISO would post minimum and maximum heat rates on its website and is considering stakeholder feedback to describe potential future revisions to eligibility criteria, he said.

In addition, the ISO will post the effective social cost of carbon (SCC), as determined by the state’s Public Service Commission.

The net SCC would be the gross SCC, established by the commission, minus the Regional Greenhouse Gas Initiative price.

Avallone also presented a summary of proposed Tariff changes to accommodate a carbon pricing regime, with new sections to describe carbon charges, payments and residual allocation.

NYISO is considering stakeholder feedback to describe potential future revisions to eligibility criteria and plans to review the proposed Tariff changes again at the June 11 ICAP/MIWG meeting, Avallone said. (See “Tariff Terms, Penalties,” NYISO Commissions New Social Cost of Carbon Study.)

Enhanced Fast-start Pricing

In response to a FERC order, NYISO is revising fast-start pricing to apply to all resources that can start up and synchronize to the grid in 30 minutes or less, have a minimum run time of one hour or less, and submit economic offers for evaluation.

The commission on April 18 ordered the ISO to revise its pricing logic to reflect the start-up costs of fast-start resources and relax the economic minimum operating limits of all fast-start resources by up to 100% to allow them to set prices (ER18-33). (See FERC Orders Fast-start Rules for PJM, NYISO.)

Under the proposed changes, “we use special pricing logic to better reflect the true cost of energy,” said Whitney Lesnicki, an ISO manager for energy market design, who presented the enhancements.

The ISO must submit its compliance filing by Dec. 31 and implement the changes by Dec. 31, 2020.