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NYSERDA Envisions Imposing Offshore Wind Funding Obligation On New York LSEs, Recommends Mechanism

January 30, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In a paper on policy options for developing 2.4 GW of offshore wind for New York, NYSERDA envisions imposing the funding obligation for offshore wind on New York LSEs, and specifically recommends a process similar to the ZEC mechanism for nuclear procurement obligations

In the paper, NYSERDA noted that options for implementing an LSE compliance obligation to deliver suitable funding levels for offshore wind procurement include:

• Mainstreaming offshore wind within the (Renewable Energy Standard) RES Tier 1;

• Applying a Tier 1 REC multiplier; or

• Establishing a separate offshore wind LSE compliance obligation.

NYSERDA has identified two variations within the third alternative: a "market option" in which -- like the RES Tier 1 obligation -- LSEs have the option to buy from NYSERDA, but can also purchase RECs from other eligible sources at market prices or pay an Alternative Compliance Payment (ACP); and an "allocation option" under which -- like in New York’s ZEC program -- LSEs are required to buy their pro-rata share of offshore wind RECs procured at an established price from NYSERDA, a utility procuring offshore wind generation, or via bilateral agreements with offshore wind generators.

"On balance, NYSERDA recommends creating a distinct offshore wind LSE compliance target for Phase I, using an allocation structure similar to that utilized in the ZEC program for disbursement of offshore wind RECs. This option avoids the significant cost recovery risk that NYSERDA (or procuring utilities) would face under an approach where offshore wind would remain within the current RES Tier 1 LSE compliance obligation," NYSERDA said in the paper

"[G]iven the nascent nature of the offshore wind sector, NYSERDA recommends that a standalone obligation similar to the ZEC requirement would be most suitable," NYSERDA said in the paper

While not specifically mentioned by NYSERDA, the current ZEC mechanism places the obligation on LSEs providing generation supply to customers -- that is, ESCOs and default service providers (the utilities) -- as opposed to placing the obligation on distribution LSEs (utilities only) for all delivery service customers.

"An alternative option whereby offshore wind would remain in the RES Tier 1 obligation but would receive a REC multiplier could reduce (but not eliminate) the disbursement risk, but would at the same time introduce a range of implementation challenges, which would not occur under the option of a separate offshore wind compliance obligation. Within the option of a separate offshore wind tier, the ZEC-like disbursement approach would be more suitable to the specific early-stage nature of the offshore wind market than disbursement through a REC trading approach," NYSERDA said in the paper

NYSERDA also set forth various policy options for procuring the offshore wind. While NYSERDA proposed a variety of potential structures, including PPAs and dedicated offshore wind RECs (ORECs), NYSERDA included as one potential option utility ownership of generation (UOG). "Although the Commission has previously declined to advance a UOG option for land-based renewables, there may be a limited role for this structure to reflect the specific early development challenges of the U.S. offshore wind sector," NYSERDA said

Phase I of the target 2.4 GW would consist of two initial annual offshore wind procurement rounds of at least 400 MW each in 2018 and 2019.

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