In response to President Trump’s decision to withdraw from the Paris Climate Agreement, Governor Cuomo recently issued an Executive Order reaffirming the state policy to reduce greenhouse gas emissions by forty percent by 2030, and eighty percent by 2050 from 1990 levels, across all emitting activities of the New York economy. I believe it is appropriate to ask how much is this plan to mitigate climate change going to cost and how much will the plan actually reduce global warming. In order to make this post more manageable I am going to address only a portion of the plans proposed to implement these goals.
The Executive Order states that “New York has already committed to aggressive investments and initiatives to turn the State Energy Plan goals into action through its Clean Energy Standard (CES) program, the $5 Billion Clean Energy Fund (CEF), the $1 Billion NY-Sun solar program, the nation’s largest Green Bank, and unprecedented reforms to make the electricity grid more resilient, reliable, and affordable.” This post addresses each the first four components. The “unprecedented reforms” comment refers to the Reforming the Energy Vision component. The final post will summarize the costs and estimate how much global warming would be prevented by the proposed reductions.
Disclaimer: I am writing this series of posts on New York State energy policy because I am concerned that this whole thing is going to end as an expensive boondoggle and drive electricity prices in particular and energy prices in general significantly higher. Before retirement from the electric generating industry, I was actively analyzing energy and air quality regulations that could affect company operations. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.
Clean Energy Standard
The CES creates two mechanisms to implement the clean energy goal. The Renewable Energy Standard (RES) requires every load serving entity to procure renewable energy for their customers. It has three parts: Tier 1 obligation for utilities and other Load Serving Entities (LSEs); Tier 2 obligation for older generators in financial risk; and a third, new program focused on offshore wind resources.
In Tier 1, those companies are required to procure renewable energy credits (RECs) associated with new renewable energy resources for their retail customers. If LSEs cannot demonstrate they are meeting the Tier 1 obligation through the possession of RECs, they may make alternative compliance payments.
In order to estimate the ten year cost of the program I had to make some assumptions. The Tier 1 obligation renewable energy credit cost in 2017 ($1.3 million) equals the 2015 EIA residential load (51,013,000 MWhrs) times the LSE annual RES requirement of 0.60% times the difference between the EIA March 2017 residential cost ($17.02 per MWhr) and the 2017 Tier 1 RECs purchased from NYSERDA costs of $21.16 per megawatt-hour. The LSE annual RES requirement increases from 0.6% in 2017 to 4.8% in 2021. I assumed that the RSE requirement increased at half the 2020 to 2021 increase of 1.4% so that in 2026 the LSE annual RES requirement would be 8.3%. I used the 2015 EIA residential load and the 2017 differential price for all years to estimate the total cost of Tier 1 to 2026 to be 98 million dollars.
In order to determine the effectiveness of these programs relative to the goal of reducing global warming, I also estimated CO2 reductions resulting from this program. Over ten years. I estimate that the LSE Tier 1 requirement will subsidize 23,670,000 MWhr of renewable generation. Assuming that were it not for this program that this load would be replaced by natural gas generation at 1200 lb of CO2 per MWhr (an older combustion turbine rate) this displaces 1,420,202 tons of CO2 per year at a cost of $6.90 per ton of CO2.
Tier 2 of the RES provides support for existing run-of-the-river hydroelectric facilities of 5 MW or less, wind facilities, and biomass direct combustion facilities through maintenance contracts approved by the PSC and administered by NYSERDA. Resources in this tier must demonstrate that but for the maintenance contracts, the facility would cease operation and no longer produce positive emissions attributes. I was not able to find any cost estimates so for the purposes of this evaluation assumed no significant costs or CO2 reductions over ten years.
The third and final component of the RES is offshore wind. The PSC did not set forth any specific plans for the development of offshore wind resources. Instead, the PSC requested that NYSERDA identify appropriate mechanisms the PSC and State should consider to develop offshore wind resources. NYSERDA recently issued its Blueprint for the New York State Offshore Wind Master Plan, outlining the process, steps and timeline for developing the Master Plan, which is ultimately expected to be released later in 2017. That press release notes that “In the 2017 State of the State, Governor Andrew M. Cuomo proposed an unprecedented commitment: to develop up to 2.4 gigawatts of offshore wind by 2030, enough to power 1.25 million homes.” In order to estimate the costs of Tier 3 I assumed that 2 gigawatts are developed. The current lower bound estimate of land-based wind development capital expenditure is $1300 (2014 $/KW). For off shore wind I assumed a capital expenditure cost of $2400 per KW installed and estimate a Tier 3 cost of $4,800 million.
For Tier 3, I assumed that the 2 gigawatts of off-shore wind capacity have a 40% capacity factor so in a year they would generate 7,008 gigawatt hours of energy. If that displaces natural gas generation then the annual CO2 reduction would be 4,204,800 tons per year and the cost per ton of reduction would be $114.
The second component of the Clean Energy Standard is the Zero Emissions Credit (ZEC). A ZEC is a credit for generating one megawatt-hour (MWh) of electricity with zero-emissions (no carbon) attributes that is consumed by a retail customer in New York State. The ZEC requirement mandates the LSEs procure ZECs from NYSERDA. The number of ZECs is based on each LSE’s proportionate amount of statewide load, or energy demanded, in a given compliance year. I estimate the zero emission credit cost in 2017 ($463 million) equals the five year average MWh output from Fitzpatrick, Ginna, Nine Mile 1, and Nine Mile 2 nuclear units (26,400,000) times the 2017 NYSERDA ZEC Price of $17.5394/MWh. Assuming those rates for the next ten years the cost is $4,630 million and $5,556 million over the complete 12 year life of the program. Note, however, that others estimate the 12-year term cost to be $7,800 to $10,000 million.
Clean Energy Fund
This program has a ten year $5 billion commitment from 2016 through 2025. The latest quarterly Clean Energy Fund Performance Report has summary data listing budgets and spending and a summary of committed benefits progress to date. For the quarter ending March 31, 2017 the Market Development and Innovation & Research Portfolio Level expended funds to date were $62,979,562. The Market Development and Innovation & Research Portfolio Committed Benefits Progress to Date lists the grand total completed and pipeline projects benefits and claims 482,451 tons of CO2 reductions will be saved as the result of these investments. Based on their numbers this program is spending $131 for every ton of CO2 saved.
NY-Sun aims to invest $1 billion to add more than 3 gigawatts of installed solar capacity in the State by 2023. At a 15 % capacity factor the total generation of 3,942,000 MWhr. Assuming 1200 lbs of CO2 per MW that amount of generation would save 2,365,200 tons of CO2 at a cost of $1 billion for a rate of $423 dollars per ton.
New York Green Bank
According to the New York Green Bank 2016 Business Plan “The $1.0 billion NY Green Bank was established to attract private sector capital to accelerate clean energy deployment in New York State.” As a key component of New York’s Clean Energy Fund, NY Green Bank is structured to be self-sustaining in that it must ultimately cover its own costs of operation.
As of June 17, 2016, Green Bank investments supported clean energy projects with a total project cost of $518.3 million in aggregate, based on an overall portfolio size of $121.0 million. Current portfolio estimated gross lifetime GHG emissions reductions as of June 17, 2016 of up to 2.9 million metric tons. Assuming the GHG emissions are all CO2 the aggregate total project $ per ton of CO2 rate is $162 albeit for New York’s investment the rate is $38 per ton.
Summary of Costs of Cuomo Executive Order 166
The Summary of Costs of Cuomo Executive Order 166 (Table 1) consolidates all these estimates in one place. The Renewable Energy Standard will cost just under $4.9 billion if it includes the massive buildout of offshore wind proposed by Cuomo. The Zero Emissions Credit program to support Upstate nuclear units I estimate at $4.6 billion. The clean energy fund is supposed to be $5 billion and NY-Sun another billion. The grand total is $15.5 billion over ten years. Importantly, note that this does not include any costs for the REV demonstration projects which will be discussed in a future post.
There are several estimates on the impact of some of these programs on ratepayer costs. Public Utility Law Project (PULP) has estimated the bill impact on residential ratepayers of the Zero Emissions Credit component. The estimated average monthly cost over all tranches (04/17 ‐ 03/29) was $2.48 compared to the Governor’s cost estimate of a $2 monthly increase in average homeowner rates. The Megawatt Hour blog estimates eventual costs from $4.56 to $5.70. The Empire Center published an Issue Brief also prepared a cost estimate of $3.40 per month in 2021. However the PULP cost was only for the Zero Emissions Credits and the Megawatt Hour blog and Empire Center Issue Brief costs only for the Clean Energy Standard. The costs for the Clean Energy Fund, NY-Sun and REV are not included and it is not clear that all of those programs will be sufficient to meet the Executive Order target so there are even more costs lurking in the background.
 Only two facilities still burn coal in NYS and the Governor has a program in place to eliminate them and oil-fired generation is as low as it is going to go without retirements.