“Hey MWh, what does Cuomo’s State of the State Energy Policy speech mean to me?” – signed, a NY-based commercial building owner.
Good question! How will recent policy announcements impact commercial and industrial customers?
What is happening in energy policy?
First of all, Cuomo started the year with a whole series of commitments on energy in his state-of-the-state speech. Here’s what he committed to:
- Expand Regional Greenhouse Gas Initiative and reduce emissions equitably from the highest-polluting, high demand “peaker” power plants.
- Issue solicitations in 2018 and 2019 to develop at least 800 MW of offshore wind projects and foster offshore Wind Industry and workforce in New York State.
- $200 Million investment to meet unprecedented energy storage target of 1,500 Megawatts by 2025 in order to increase transmission of clean and renewable energy.
- Create the zero cost solar for all program for 10,000 Low-Income New Yorkers
- Reconvene Scientific Advisory Committee on Climate Change disbanded by the Federal Government.
- Governor directs the establishment of energy efficiency target by Earth Day.
- Regulations to close all coal plants to be adopted.
How do these announcements impact commercial & industrial customers?
Potential to increase cost
The Governor already committed to have 50 percent of the state’s power delivered by renewable energy by 2030. Many of these new announcements are an attempt to support and achieve that goal.
Some of the programs announced this year could result in increased costs to customers, including the goal of reducing emissions from the highest-polluting, high demand “peaker” power plants.
The most immediate impact of that decision would be to contribute to volatility in the index energy market during periods of high demand. When demand (and prices) are high, peakers are likely to be called. In those circumstances, customers buying energy in day-ahead or real-time markets may pay more for power.
In addition, the goal of closing all coal plants could impact both forward and index markets for energy.
Potential market impacts of policy decisions
We would expect that the market will have integrated most of these policy decisions into forward pricing already. Markets don’t like big surprises. Most of the announcements mentioned above are not new to NY market players. So the cost of retiring coal plants, and reducing dependence on high-polluting peakers, have probably already been factored into market pricing.
In the last few years, New York state enjoyed relatively calm markets. Capacity has been more than sufficient to supply NY markets during peak periods. In essence, until this month, the index markets have not been “tested” per se. What we don’t know, for certain, is how index markets might respond to restrictions on peak power plant operation, higher demand, more intense weather patterns, etc. The market’s recent volatility may hold some answers as to how it performs during more extreme conditions.
Mitigating cost factors
During this speech, Governor Cuomo made a major commitment to develop energy storage capability and markets in New York State. The implementation of an aggressive energy storage program is designed to dampen the potential impact of these aforementioned closures on energy markets.
Specifically, as reported by Greentech Media in its January 10, 2018 article about NY’s energy storage commitment:
New York will not require its utilities to procure 1,500 megawatts, in the way California compelled its investor-owned utilities. Instead, the target directs the state’s energy bureaucracy to clear out the hurdles that have thwarted the development of a storage market thus far, and signals to industry members that New York wants their business.
The administration is already putting money behind the aspiration: $260 million will flow from NYSERDA to jump-start energy storage activity, which Cuomo hopes will one day produce 30,000 jobs for New York. The state will also take steps to crack down on the local and greenhouse gas pollution caused by fossil-fueled peak power plants, opening a potential role for storage to take their place.
The State’s commitment to energy storage is significant and is meant to clearly signal to the industry and to customers that the time has come to address market barriers and see real implementation of storage programs.
This is where you come in, commercial and industrial customers… This policy commitment to storage will not succeed thanks to a utility-scale implementation. It appears that the vision for this program rests largely on ensuring that energy storage can cost-effectively reduce power costs for large customers. There is a great deal of promise there, certainly. But there is also a great deal of work to be done to ensure that energy storage makes sense for commercial and industrial customers.
There are several other new programs led by NY State and the New York State Energy Research & Development Authority that can assist the transformation of markets in the State. More on those efforts soon…
Bottom line for energy buyers and financial decision makers. As we often say, there are significant opportunities for commercial and industrial customers to lower costs and improve business outcomes. The rate of change in the energy industry is dizzying at times. Make sure you are set up to understand the cost and benefit of new technologies prior to deploying them. Let us know if you want to talk more about how you use energy, and what could be coming your way.