Six months after the legislature adopted an Energy Storage Deployment Program (“Storage Program”), Governor Andrew Cuomo signed the bill into law on November 29, 2017, signaling continued support for energy storage development in New York. The Storage Program − which will be subject to further modifications as described below − would amend the Public Service Law by requiring the New York Public Service Commission (“PSC” or “Commission”) and the New York State Energy Research and Development Authority (“NYSERDA”) to develop an energy storage deployment program to encourage the installation of qualified energy storage systems. These systems are broadly defined to include any cost-effective, commercially available energy storage technology that either (1) assists with integrating variable energy resources like wind and solar; (2) reduces greenhouse gas emissions; (3) reduces peak demand; (4) defers or avoids investment in generation, transmission or distribution assets; or (5) improves grid reliability. In its current form, the Storage Program would require the PSC to establish a 2030 energy storage “target” by January 1, 2018, along with a series of programs designed to empower utilities, private industry and consumers to meet the storage deployment goal.
Although the Governor signed the Storage Program bill into law , the Governor’s Approval Memorandum indicates that the legislature and executive chamber have agreed to amend certain portions of the storage bill that appear to be “inconsistent” with the State’s Reforming the Energy Vision (“REV”) initiative. While not explicitly identifying what those inconsistencies could be, the Governor appears to be referring to the fundamental tension between State mandates and competitive markets, which lies at the heart of the REV initiative. The essence of REV is to transition away from the century-old, top-down centralized planning regime, which created design inefficiencies and perverse utility incentives. The REV initiative is New York’s attempt to realign energy industry incentives by creating bottom-up market forces that will determine the optimum quantity and quality of various assets with different attributes at different locations on the grid. The storage bill, by contrast, appears to impose a top-down legislative mandate for a particular category of resource (i.e., storage), which appears to be the root of its friction with the Governor’s office and the larger REV agenda. Curiously, the Approval Memorandum also lists “fiscal burdens on State entities that should be addressed through the annual budget negotiations.” This has been reported as “boilerplate” language typical of legislative negotiations.
Ultimately, the State should find a proper balance between mandates and markets to ensure that utilities, agencies and the private sector are in proper alignment to make prudent investments that will achieve the State’s ambitious clean energy goals. Energy storage plays a unique role in that effort as the “Swiss Army knife” of the power grid, capable of serving load, regulating voltage and frequency, empowering customers to shift demand and providing increased resiliency and reliability.
Storage is especially critical in New York given the State’s upcoming generation fleet retirements and aging transmission infrastructure. A significant portion of New York City’s generation fleet was built between 1950 and 1970 and New York Independent System Operator (“NYISO”) data indicates that in the next five years 2,860 MW of generation resources (30 percent of the New York City generation fleet) will be past retirement age. Meanwhile, many of New York City’s peaker plants operate at less than 10 percent capacity factors, which has required customers to foot the bill for expensive capacity payments – $268 million in 2016 alone – to keep those resources online despite their infrequent use. New York’s transmission infrastructure is similarly aged, with the NYISO estimating that nearly half of the State’s 11,000 miles of transmission lines will require replacement over the next three decades at an estimated $25 billion price tag.
It is those values, among others, that will ultimately inform the State’s Value Stack methodology and set the market price for energy storage and other technologies to compete with traditional generation and transmission solutions. As the Commission rolls out the Storage Program, it also continues to refine the Value Stack compensation mechanism. The Commission’s Phase Two Value of Distributed Energy Resources (“VDER Phase Two Order”) is expected to be issued by December 2018, which will likely include further consideration of how energy storage is compensated. In the meantime, the Commission has directed NYSERDA, utilities, developers and other stakeholders to develop a proposal for integrating storage into the interconnection process and addressing technical and procedural questions, such as how to compensate the dispatch of nonrenewable storage injections. Based on stakeholder input and per the law, PSC Staff will be filing its proposed recommendations on those issues by December 20, 2017, for public review and comment prior to Commission action. Ultimately, the Storage Program, in conjunction with the upcoming VDER Phase Two Order, should provide storage developers with more concrete value propositions for their products and services at various locations on the grid. And on the wholesale market side, a recently released NYISO report sets forth a plan to integrate energy storage and aggregation into wholesale markets by 2020.
As demonstrated in other states, storage can be rapidly deployed when markets provide clear development signals. In California, developers earlier this year installed 70 MW of storage in six months to address severe energy shortages in the electric grid as the result of the Aliso Canyon gas leak. In Australia, in response to a storm-related energy crisis, Tesla installed the world’s largest grid-scale battery in record time – 100 MW in 60 days – to assist with integrating variable wind generation and providing peak capacity as needed.
In its current form, the Storage Program bill imposes a 2017 year-end deadline for the PSC to establish a target – a goal which will need to be adjusted in the amended legislation. Along with that procedural adjustment, the assembly and senate will likely reintroduce the bills with modified language consistent with the Governor’s overarching REV objectives. Following completion of the amendment process, the PSC is expected to open a regulatory proceeding in 2018 in conjunction with the NYSERDA Energy Storage Roadmap, to be completed in the first quarter of 2018, which is reported as quantifying the grid value of energy storage. NYSERDA President, Alicia Barton, has described the roadmap as “the analytic statement for kicking off PSC deliberation.” Ultimately, the Commission will seek input from stakeholders on the methods and goals of the Storage Program in order to establish an energy storage goal. Once finalized, New York will join the ranks of Massachusetts, California and Oregon, which aim to procure 200 MWh, 1.3 GW, and 5MWh of energy storage by 2020, respectively. Regardless of how the Storage Program is structured, it will be a critical “fourth” goal in conjunction with the existing goal of 50 percent renewables by 2030 (50/30); 40 percent reduction in greenhouse gas emissions by 2030 (40/30); and 23 percent reduction in energy consumption in buildings by 2030.
Phillips Lytle’s Energy Practice Team has extensive expertise in Public Service Commission/Utility regulatory matters, including all aspects of retail energy regulation in New York and formal petitions to the Public Service Commission. For more information about Phillips Lytle’s Public Service Commission expertise, please contact Thomas F. Puchner, Partner, at (518) 618-1214, email@example.com, or Kevin C. Blake, Associate, at (716) 847-7082, firstname.lastname@example.org.