By Michael Kuser
ALBANY, N.Y. — New York power industry stakeholders on Monday debated the merits of a draft work plan designed to guide the implementation of carbon pricing in the state’s wholesale electricity market.
Devised by the Integrating Public Policy Task Force (IPPTF) late last month, the plan consists of six “issue tracks” designed to generate stakeholder recommendations for pricing carbon into the market. The task force, which held its first technical conference Dec. 11, will next month begin meeting nearly every Monday over the course of the year to work through each track. (See New York Hashes out Details of Carbon Policy.)
The objective is to develop a firm proposal by December 2018 — if possible.
The issue tracks include the following: 1) straw proposal development; 2) wholesale energy market mechanics (including “carbon leakage” and how to measure emissions); 3) policy mechanics; 4) interaction with other wholesale market processes (such as the capacity market); 5) interaction with other state policies (such as RGGI); and 6) impacts.
The task force will issue a final work plan by the end of January, said IPPTF co-chair Nicole Bouchez, a NYISO market design economist.
During the Jan. 8 meeting, attorney Kevin Lang of Couch White, representing New York City, quickly questioned the premise of the task force, contending that pricing carbon seemed to be a conclusion built in to the process.
“When will we talk about whether we will price carbon?” Lang said. “It’s not just about how to do it, but whether this is the right way to go.”
IPPTF co-chair Marco Padula, deputy director for market structure at the state’s Department of Public Service (DPS), said Lang was moving too fast and the whole point of a deeper analysis of the issue is to determine whether a carbon charge would work in New York.
Defining the Challenge
The first hour of Monday’s meeting was devoted to discussing Track 1 — developing a straw proposal for carbon pricing, which the IPPTF wants to complete by March.
“What is the rationale, what is the end goal for carbon pricing as means to some end?” asked Benjamin Mandel, renewable energy policy advisor to the New York City mayor’s Office of Sustainability. “We broadly suspect it relates to decarbonizing the energy supply, but as has been brought up multiple times by colleagues, there are concerns about whether this one policy instrument in isolation is sufficient to actually achieve that objective in certain locations within New York state.”
NYISO Senior Vice President for Market Structures Rana Mukerji said he thinks the goal is for the state to get 50% of its power from renewable resources by 2030, which the status quo would attempt to achieve solely with renewable energy credits and zero-emissions credits.
“What we asked Brattle to do was to see, if we use carbon pricing in addition to REC and ZEC, whether you could get the same outcome in a more efficient manner,” Mukerji said. “And you have the result of the Brattle analysis, which included impacts on a zonal basis. For Track 1 we’ll have to see more questions on that, whether carbon pricing is indeed more efficient and cost effective when the [Brattle] study shows it was in the range of being cost-neutral.”
Kelli Joseph, NRG Energy’s director of market and regulatory affairs, said she was surprised by Mukerji’s assessment “because if the goal is really [50% emissions reductions] by [2030], there are fundamental assumptions in that [Brattle] report that need to be challenged, including the marginal emission rate that is assumed over time. The state’s goal of getting renewables on by 2030 will have much less carbon emission in the market and [Brattle is] assuming a 2015 system, and even in 2025 the system is not going to look like that.”
Mark Reeder, an economist representing the Alliance for Clean Energy New York, said a much more detailed economic analysis would be needed: “We don’t know what the price impacts are because we lack the analysis.”
Sanity Check
Bouchez hit the pause button, reminding meeting participants that “what started this was not the Brattle report [on carbon pricing], it was stakeholders asking if there was a better way of harmonizing wholesale electricity markets with state policy … the fundamental question is, how do our wholesale markets interact with state policy and is there a way of making that a better interaction,” said Bouchez.
Greenberg Traurig attorney Doreen Saia said the Brattle report’s limited review of the issues produced a favorable enough answer to compel NYISO and DPS to develop a proposal showing the benefits of carbon pricing.
“Is it fair to assume, to address the consternation of [stakeholders], that [when Track 1 is ready] you would start to look at the impacts associated with what the proposal does or does not produce, does or not provide, so that by June … you can take a test — a sanity check — to see if where you’re headed seems to be sufficient?” Saia asked.
Three Criteria and Transmission Need
Meeting participants also heard an evaluation of possible pricing mechanisms commissioned by the Department of Public Service’s Utility Intervention Unit (UIU).
Speaking on behalf of the UIU, Marc Montalvo of Daymark Energy Advisors, who conducted the study, said the group determined three criteria for measuring the success of carbon pricing: strategic alignment, technical feasibility, and cost effectiveness.
According to Montalvo, strategic alignment would ensure that a chosen approach furthers the overall public policy aims of reducing greenhouse gases and deploying new renewable energy resources. Technical feasibility would mean meeting minimum grid reliability standards, while cost effectiveness would yield the most benefit at the lowest cost.
The three criteria “allow you to whittle down through the potentially long menu of options in a very systematic way,” Montalvo said.
The Brattle report wanted “to get a sense of [the] magnitude and direction if one were to implement a carbon charge with a certain structure, what would that mean for rate trajectory for consumers inside New York generally, as an aggregate,” Montalvo said.
But now the exercise is to understand all the factors that actually contribute to the evolution of New York’s power sector, the necessary investments in generation and transmission, the response of consumers to changing rates “and what … that [means] for the broader economic issues inside the state, and ultimately for the goals that we have around carbon dioxide emissions and renewable buildout,” Montalvo said.
As a starting point, the UIU study ran a few sensitivities and hypothesized several scenarios in the years 2020, 2025, and 2030.
“One of the interesting things in looking at 2020 is that a lot of the dynamics that are built in to the model for 2025 don’t show up by 2020 because it’s two years away, so a lot of the market response is not yet motivated because there’s not enough time for things to happen,” Montalvo said.
Similarly, some of the issues around demand elasticity are a little different, depending on the year chosen, he said.
Under the model, 2020 is the year when prices tend to be highest and the impacts are greatest because the market has not had time to adjust to carbon pricing, Montalvo said.
“If one is to impose a carbon charge of this sort, is it appropriate and should one consider some kind of mechanism to transition the marketplace into it so you don’t have a great disruption among certain sectors of the economy?” Montalvo asked.
“All other things being equal, there’s a lot of economic interest in constructing a new plant, but there’s really no way to connect that plant to load in the model,” he said. “That’s something to be aware of, that you can’t just add generation to New York’s power system without ever accommodating it with additional transmission and expect prices to go down uniformly across the region.”
[Editor’s Note: An earlier version of this story incorrectly attributed Doreen Saia’s comments to Doreen Harris, director of large-scale renewables at the New York State Energy Research and Development Authority.]