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NYISO Further Explores Carbon Pricing in Wholesale Power Markets

The New York Independent System Operator (NYISO) has released an array of options that it plans to explore to respond to changes in the state’s wholesale electricity markets, including slapping a price on carbon emissions to better incentivize more environmentally friendly options, according to its Power Trends 2018 report released earlier this month.

The report notes that grid operations are becoming increasingly complex, as low natural gas prices continue to undercut the competitive edge of coal and nuclear resources, more subsidized renewables are added and customers grow more savvy about the energy they use. Public policy is also necessitating changes. Under Gov. Andrew Cuomo’s Reforming the Energy Vision, 50% of the state’s power would be generated by renewables by 2030.

“New technologies are pushing the boundaries of what consumers expect from the grid, while the growth of renewable and distributed energy resources is changing the dynamics of energy consumption,” NYISO CEO Brad Jones said. “The NYISO sees these challenges clearly and embraces the work and change necessary to meet them. We understand that these new expectations for the grid require an examination of the markets and planning processes that shape it.”

Across the state line, Pennsylvania-based PJM Interconnection, the nation’s largest gird operator, has already filed proposals at FERC to address state subsidies for coal and nuclear facilities that have been affected by low-cost gas. As gas-fired generation proliferates in that system and renewables also continue to gain market share there, PJM also released an analysis of its fuel diversity, system resilience and reliability.

NYISO said it would do much the same, adding that it views open markets as essential to the grid’s operation. The operator said it would evaluate opportunities to leverage competitive wholesale products and services to “bolster the resiliency of New York’s bulk power system.”

The challenges in New York, however, are different. The Cuomo administration has waged a war of sorts against fossil fuels, particularly natural gas produced from shale using fracturing (fracking), and made firm commitments to support an alternative energy economy. The state has so far denied crucial permits for several gas pipelines, and Cuomo pledged in his state-of-the-state address last year to “double down by investing in the fight against dirty fossil fuels and fracked gas from neighboring states.”

Reflecting economic and public policy investment signals, NYISO said recent generation additions in the state have primarily been natural gas-fueled in downstate, the region in and around New York City, and wind-powered in the more rural upstate. Currently, fossil fuels, including gas, oil and coal, account for 66% of New York’s generating capacity and for 39% of its production.

Over the next decade, NYISO said price signals that reward supply flexibility would become instrumental as the entry of variable-output renewable generation  will need to be balanced with complementary backup resources such as storage and resources like natural gas that can ramp up quickly when renewables are down.

The operator said, however, that integrating the cost of carbon dioxide emissions into wholesale market prices would incentivize competition from low-cost sources of carbon abatement “to support decarbonizing the grid.”

Late last month, NYISO unveiled a draft plan to price carbon as a way to handle state subsidies for both nuclear and renewable power sources. Under the plan, the cost of carbon would be established by state regulators and tacked on to energy prices in the region.

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