NYSERDA Fields Wide-Ranging Proposals from Industry on the Future of Distributed Energy

On May 7, 2021, New York State Energy Research and Development Authority (“NYSERDA”) held Part 2 of its Community Distributed Generation (“CDG”) Successor Policy Options Technical Conference with presentations from industry stakeholders outlining various perspectives on the successor to New York’s sunsetting distributed energy incentive program. Part 1 of the Conference provided insight into NYSERDA’s perspective on the role of distributed renewables, particularly community solar, in reaching New York’s renewable energy goals. NYSERDA emphasized that the state is close to reaching its initial goal of 6MW of distributed energy by 2025 based largely on the fact that distributed energy, particularly community solar projects, have been brought online quite quickly. While the sunsetting program has helped the state make great strides towards its goals, NYSERDA acknowledged that, without incentives, solar projects still cost developers more than they earn  and without a replacement program, distributed solar development in the state would likely grind to a halt. Given the social, technical, and environmental benefits of distributed energy, NYSERDA made a broad appeal to stakeholders to suggest changes to, or a replacement for, the sunsetting program. 

Part 2 of the Conference comprised of presentations by three stakeholders: the “Clean Energy Parties” (a coalition of industry and public organizations focused on solar and renewable energy development), Borrego Solar (the premier community/distributed solar developer in New York), and the “Joint Utilities” (providers of electric service to over 13 million households, businesses, and government facilities across New York State). The Clean Energy Parties and Borrego Solar offered similar perspectives and suggestions for attendees to consider. First, they pointed out that the 6GW goal initially set by the state for distributed energy in its renewable portfolio is too small given that demand for electricity will continue to increase due in no small part to the electrification of transportation. Next, they advocated for maintaining the current value stack model while replacing the “E-value” with an incentive calculated more consistently with recent New York State Department of Environmental Conservation methods. This move was seen by both the Parties and Borrego as more accurately reflecting the value renewables bring to state residents while maintaining the familiarity and certainty of the value stack model preferred by developers and avoiding market-cooling delays in constructing a replacement program that would in turn delay the state from reaching its goals. Finally, they advocated against a competitive, auction-style program similar to what is used with large-scale renewables because, it was argued, that process was no more accurate in finding the value of the benefits renewables bring and solicitations carry potential for significant inaccuracies and costs—sometimes even resulting in auction failure.

On the other hand, the Joint Utilities advocated for substantial changes to the state’s approach to distributed renewables. First, they suggested that the subscriber-based model of community solar is problematic as the subscriber solicitation process is becoming a substantial burden for developers. Instead, they advocated for a “direct compensation” model where the utility or the state would pay developers directly for the value of the electricity produced by a project according to a model similar to the value stack, valuing the location and other unique aspects of that project. Second, the Joint Utilities pointed out that some aspects of the state’s current programs have led to counterproductive outcomes. As an example, they explained how the 5MW cap on community solar projects has led some developers to subdivide parcels to create multiple projects which require multiple interconnections that may actually prevent future efficient development. Finally, the Joint Utilities observed that incentives offered only to solar projects may unfairly support that technology, and they advocated instead for a base incentive across all renewables tied to the Tier 1 REC value. They then suggested that any remaining cost gap that could prevent progress towards the state’s renewables goals would be bridged by an incentive model tied to state policy objectives and funded by customer surcharges. This last incentive, they suggested, could take the place of a new “community adder” and would provide greater transparency around the state’s means of reaching its renewable energy goals.

The proposal by the Joint Utilities clearly garnered a lot of attention and, if adopted, would mean substantial changes for New York’s renewable energy landscape, both literally and figuratively. Concern was expressed about the speed in which the program, particularly the new incentives, could be developed and implemented and if delay would result in the same market-cooling effects feared by developers. On the other hand, the Clean Energy Parties and Borrego had already alluded to the continued and increased burden presented by the subscription-based model of community solar, so there was some alignment on an alternative to that aspect of the program being necessary. In addition, NYSERDA and the Joint Utilities appeared interested in implementing an incentive model tied to the value of Tier 1 RECs as potentially more efficient to administer. By the end of the discussion, it was clear that all parties had much to think about, and that marks the Conference as a success since the stated goal was to garner input that would help guide the state towards the next best steps for all stakeholders. NYSERDA intends to issue a report on the Conference later this month, followed by a white paper towards the end of this summer.

The state has already begun to see a slowdown in distributed energy development as developers wait to see what is next. NYSERDA appears to be signaling that it is not if the state will offer additional incentives, but what incentives will be offered and how. While developers prefer the certainty delivered by an incentive structure similar to the current model and would feel most comfortable with a signal from the state that no major changes are forthcoming, as the Joint Utilities point out, that structure is also impeding development and perpetuating inefficiency. While the roles of the social cost of carbon and the Tier 1 REC value in the future of New York’s renewable energy programs appear quite up in the air at this moment, it is intriguing to consider what a more technology-agnostic, less opaque incentive structure may look like as state policy makers confront significant social questions as well.

If you would like more information on NYSERDA programs, please contact a member of our Renewable Energy practice group at 585.232.6500 or 716.853.1616.

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