NYISO presented its final interim staff recommendations for the demand curve reset for 2025-2029 at the Installed Capacity Working Group’s meeting Sept. 10, with minor updates to some metrics.
The recommendations remain largely the same as the draft presented in August, with the two-hour battery energy storage system (BESS) as the representative lowest-cost peaker plant technology. (See NYISO Presents Draft Recommendations for Demand Curve Reset.)
As part of calculating the cost of new entry for a hypothetical peaker plant, Zach Smith, senior manager of capacity and new resource integration for NYISO, said the ISO opted to factor in land lease payments for the construction period for the hypothetical peaker. Interconnection costs were modified downward across all zones outside of Long Island. The new derating factor for the BESS also was discussed.
Smith said the interconnection costs were estimated to be higher because it was assumed peakers would require 345 kV, but 200-MW battery storage systems can connect to lower-voltage lines, which cost less. “And it appears to be better aligned with the actual interconnection requests that we are seeing,” Smith added.
The Analysis Group, NYISO’s consultant on the reset, also updated net energy and ancillary services (EAS) revenues to account for an operator of a BESS plant maintaining their state of charge to meet day-ahead schedules.
“The change here is that we force the battery to charge more before the peak load window,” said Paul Hibbard, principal of Analysis Group.
Hibbard said the change causes negligible differences to net EAS revenue across all zones, aside from Long Island, which saw a 12% drop.
Derating Factor Headaches
Smith said NYISO was recommending a 2.5% derating factor for BESS peakers. The derating factor was calculated as a weighted average of the derating factors that batteries should expect to receive across their 20-year amortization period.
NYISO does not yet have a class average for BESS units. “The ICAP Manual (Section 4.5) currently establishes that the initial derating factor a new BESS would receive upon entering the ICAP market is based on the NERC class average equivalent demand forced outage rate (EFORd) of pumped hydro storage until three energy storage resources are participating in the ICAP market and have sufficient historical operating data to establish a ‘NYISO class average’ EFORd for energy storage resources,” the ISO said.
The 2.5% derating factor is based on the assumption that any new BESS would have an initial 9.19% derating factor — the current class average for pumped hydro — for its first year of operation. The derating factor for the second year would be 5.6%, which is the average of 9.19% and 2%, which is the derating factor estimated by NYISO’s consultants. NYISO then assumes a 2% derating factor for years 3 to 20 of the estimated life of the battery. The average over those 20 years is about 2.5%.
But this prompted questions from stakeholders.
“I don’t understand how you can make this change without making companion changes to the manual,” said Doreen Saia, of Greenberg Traurig. “The unit that comes online next year isn’t going to get 2.5%. It’s going to get 9.19% unless and until we make changes to our actual rules.”
Smith clarified the derating factor would be 9.19% for the first year and the average of the 9.19% and the actual availability of the BESS for the rest of its operating life.
“A unit’s derating factor, once it has sufficient operating experience, is always based on its actual production,” Smith said.
Open Questions, Open Frustrations
Smith went over several questions NYISO still was reviewing, such as how to take into account sales tax for BESS labor, operations and maintenance costs; investment tax credits for the transmission lines to the plants; and costs of debt and equity.
Some stakeholders were unhappy that several longstanding questions were not answered and not addressed in the open questions. They said they wanted to see cost declines for battery units included in the analysis.
“The ISO has recently shown the assumptions that it’s doing in the study with the Department of Public Service and the transmission owners, and it shows an expectation of more than a 50% decline in battery storage costs over the next 10 years,” said Mark Younger of Hudson Energy Economics. This meant a decline in revenues for the battery units; thus, NYISO’s net cost of new entry was about 45% too low.
Another stakeholder was disappointed NYISO was not proposing to include revenues for BESS units that come from outside wholesale markets, which could include incentive programs from the state and utilities.
“I think it severely overstates the net CONE of these facilities and therefore it will impose very high, unnecessary costs on New York consumers,” they said.