N.Y. grid operator floats carbon price

Source: Saqib Rahim, E&E News reporter • Posted: Thursday, May 3, 2018

New York grid authorities released a framework this week for pricing carbon in the Empire State without putting the state’s own generators at a disadvantage to neighboring regions.

The “straw proposal” released by the New York Independent System Operator would apply a per-ton carbon charge to generators in the state, then allow them to compete on power prices as they already do. Other mechanisms would aim to blunt the impact on power bills and keep in-state generators on a level playing field with neighboring grids.

The document is meant to get power-sector stakeholders down to brass tacks on how, in practical terms, New York can put a price on carbon if the U.S. government won’t.

Parties are digesting the proposal as they prepare for a May 14 meeting. The minute details will be heavily debated, but so far, many just seem glad the process is underway.

“NYISO’s draft proposal for a carbon adder would send an important and overdue price signal to the market necessary for New York to achieve its ambitious carbon reduction policies in place to meet long-term greenhouse gas reduction targets,” said Deborah Donovan, Massachusetts director for the Acadia Center, an advocacy organization focused on clean-energy issues in the Northeast.

New York has seen some of the most advanced work by any grid operator to integrate a carbon price into everyday wholesale power markets. While New York is part of the multistate Regional Greenhouse Gas Initiative, the state’s policy aims may require a stiffer carbon charge than RGGI delivers.

NYISO is looking for practical ways to link the wholesale power market it manages with policy goals set by Gov. Andrew Cuomo (D). New York’s official target is 40 percent lower greenhouse gas emissions, relative to 2005, by 2030. Regulators are also implementing a plan to get half of the state’s electricity from renewable energy by 2030.

Under the straw proposal, authored by NYISO and state staff, power generators in the state would have to factor in the carbon price for every ton of CO2 they create. The price, the “social cost of carbon,” would be set by the New York Public Service Commission through its standard rulemaking processes.

Once the PSC came up with that charge, power generators would have to add it to their bids in power auctions. Solar, wind and hydro generators would face no charge. Fossil, biomass and cogeneration resources would be among those having to calculate their emissions signature and multiply it by the carbon price.

Generators that are subject to RGGI could deduct the carbon price they’re supposed to pay in that system. Generators that aren’t under RGGI would face the full price as set by the New York PSC.

The idea is to recruit the market’s invisible hand to reward low-carbon generation — ideally without stiffing ratepayers or causing other regions to burn more fossil fuel.

“Low-emitting New York resources, including efficient fossil units, renewables, hydropower, and nuclear generators, would benefit from higher net revenues,” the straw proposal said.

While the specifics will need to be hammered out in the NYISO-led process, some in the power industry are broadly supportive so far. They include Gavin Donohue, president and CEO of the Independent Power Producers of New York Inc., whose board includes representatives from Calpine Corp. and NRG Energy Inc.

“IPPNY believes pricing carbon in the marketplace is paramount to addressing the price-suppressive impacts of public policies while achieving cost-effective emissions reductions,” he said in a statement. “It is encouraging to see the release of the Straw Proposal and to see the state remains supportive of the process.”

The proposal also includes measures to keep the state from simply buying more carbon-intensive power from other grids.

For the purposes of electricity trade with other grids, the document said, NYISO would add a carbon charge for power that it imports from other regions, but subtract the carbon charge if the power is being exported to other regions. The goal would be to maintain the basic competitive dynamics between in-state and out-of-state generators that exist today.