New York’s Big Clean Energy Purchase Announcement
10 Fast Takes from SEA’s Bob Grace
Written by: Bob Grace, President and Managing Director
Publish Date: October 25, 2023
Estimated Reading Time: 10 minutes
It’s a dynamic moment in the evolving New York clean energy landscape, and we’re here to help you make sense of it. On the heels of the Public Service Commission’s October 12, 2023, denial of repricing petitions for over 12 GW of offshore wind and land-based renewables comprising the majority of the state’s contracted project development pipeline, on October 24, Governor Hochul announced the selection of proposals for contracting under two renewable energy procurements. New York State Energy Research and Development Authority (NYSERDA) selected for purchase of Offshore Wind Renewable Energy Credits (ORECs) three offshore wind projects totaling 4 GW resulting from ORECRFP22-1, plus the purchase of Renewable Energy Credits from 2,410 MW of new solar and new and repowered wind capacity (plus one hydro project) resulting from RESRFP22-1. The ORECs procured through the former will comprise the supply of ORECs paid for by NY ratepayers through the Clean Energy Standard’s OREC Tier; the RECs that ultimately materialize from the latter will correspond with demand for the Renewable Energy Standard (RES) Tier 1 as a result of the Commission’s April 2023 Order Modifying Clean Energy Standard Tier 1 Obligations.
Looking beyond the headlines, Sustainable Energy Advantage (SEA) offers some instant analysis and takeaways—our fast takes.
1. Pricing was higher than prior rounds – no surprise – but lower than many expected.
Under the offshore wind selections announced, the average nominal weighted average strike price was $145.07/MWh. No surprise, given recent inflation and interest rate increases, this level is materially higher than the initial contracted prices offered by previously contract projects (strike prices in the $100-120/MWhrange) but lower than the prices requested by these projects previously contracted by NYSERDA in the recent repricing petitions (roughly $140-190/MWh), for less mature projects. The NYSERDA announcement noted that prices are subject to adjustment (an inflation index option was offered in ORECRFP22-1, that was not available under prior solicitations). It appears that the combination of inflation indices being offered and increased competition helped reduce prices (relative to our modeling assumptions) without the inflation index. NYSERDA appears to have done its job to move the needle towards catching up on climate goals as best possible, given the impact of global drivers over which it has no control. With respect to the 22 land-based solar, wind, and hydro projects selected under RESRFP22-1, NYSERDA announced a nominal weighted average strike price of $80.96/MWh. This level is predictably higher than the comparable metric from the last RESRFP21-1 (around $60/MWh) but also lower than the implicit repricing requests rejected by the PSC earlier this month (in the $100/MWh range).
2. We anticipate that not all of the selected projects may ultimately be financially viable.
We would not be at all surprised if some fraction of the projects awarded under RESRFP22-1 decline their awards because their bids are no longer viable, and others may not ultimately reach fruition despite more advanced maturity (more on this below). Why? For the same reasons most of the previously-contracted projects sought pricing adjustments. While the bids under this solicitation were offered later (April 2023), after some of the impacts of upward pressure of inflation, interest rates and supply chain constraints stemming from the double-hit of COVID-19 and the war in Ukraine were apparent, the full brunt of these impacts was not fully transparent over the preceding months when bidders were doing their costing and bid development. Our assessment of the NYSERDA-published weighted average nominal strike price from the award group suggests that some projects may have bid in prices still too low to be viable—although it is difficult to tell definitively given the preponderance of wind repowering in the award mix, the lack of public information yet on project bid prices, and the adjustments projects using inflation index option – which could be upward or downward – would ultimately receive.
3. Project maturity was a priority, but expect later commercial operation dates nonetheless.
Of the awarded land-based projects, the majority are advanced in their interconnection status. With one exception, all have approved SIS/SRIS, and are in progress with their Facility Studies or further along. NYSERDA’s last procurement demanded more maturity, and its technical evaluation panel clearly favored maturity as a proxy for viability. In addition, the selection of six repowered wind projects (where permitting should be relatively straightforward since the sites currently host wind projects) should boost the success rate. Nonetheless, the deployment profile of the onshore and offshore wind projects (the latter of which ‘anticipate’ commercial operation ‘by 2030’) is still well behind the pace and trajectory necessary to meet the state’s climate and clean energy targets given the expected reset and rebidding of the majority of the state’s development pipeline. How quickly the state can catch up will depend heavily on how much is procured under the anticipated rebid opportunity (see New York’s 10-Point Action Plan), and will be limited by economic, interconnection, and permitting challenges.
4. The scale of project selection is historic.
Collectively, purchasing 6.4 GW of renewable capacity at once represents the largest state purchase action in the country’s history, as noted in Governor Hochul’s announcement. This trend is consistent with ever-larger procurement announcements, particularly for offshore wind—although the combined quantity sought by coordinated offshore wind requests for proposal underway by Massachusetts, Connecticut, and Rhode Island, if fully contracted, could leapfrog New York’s purchase next year.
5. The technology mix shows us something old and new.
Substantial solar participation has been a constant, but the announced repowering by AES of six projects totaling over 612 MW of previously contracted but aging wind from its Valcour portfolio is also historic; although recent filings from the projects’ permitting docket suggest that the repowering would represent only a moderate (roughly 50 MW) increase over the capacity it will replace, the energy production should increase materially. Meanwhile, the trend of larger solar projects continues, with eight projects of between 100 MW and over 400 MW in AC capacity (along with six 20 MW projects whose ability to bypass the large generator interconnection process may have offset their lack of scale economies when it came to non-price evaluation points).
6. One big winner.
While the three offshore wind awards were roughly evenly distributed among three developers and lease areas, and the 22 RESRFP22-1 projects were distributed over eight unique bidders, AES was by far the big winner, securing 10 awarded projects representing 1,178 MW (560 MW of solar, 612 MW of repowered wind). Notably, AES was an outlier in vocally opposing the Alliance for Clean Energy New York repricing petition. Have they built a better development mousetrap than the competition? Only time will tell.
7. Past repeat winners offering large volumes from a few select projects were not selected.
Invenergy (700 MW wind), EDF Renewables (450 MW solar), NextEra (200 MW solar), and to a lesser extent Boralex (260 MW solar) have been in the winners circle many times under past RESRFPs, but were each shut out in RESRFP22-1. This raises some interesting questions: Does the award pattern suggest a broad spectrum of differing bidder outlooks on development costs? Are the losers pricing in a more realistic (viable) manner? Are the winners bringing something new to the table? Or do the winners just have a more optimistic outlook on development cost and Inflation Reduction Act impact (and would they be ultimately more difficult to finance if the bidders’ view doesn’t come to fruition)?
8. Do a slew of new-to-New York players portend further fresh faces and new money players?
In the offshore wind award group, National Grid and RWE (the Community Offshore Wind joint venture) secured their first contract, while TotalEnergies secured their first while announcing new partners/investors Rise Light & Power and Corio. Onshore, Cordelio Power entered the New York market through a project pipeline purchased from earlier frequent awardee Suneast, and Swift Current and Delaware River Solar secured their first New York offtake. With the recent repricing rejection, developers of thousands of MW of onshore projects may be considering whether to rebid or reset, potentially heralding a new M&A wave as developers and investors see new opportunities to get a foothold in a market previously viewed by many as saturating if not saturated.
9. Project locations are evolving.
While the offshore projects necessarily color within the lines of BOEM leases, onshore projects select locations based on optimizing cost, scale, interconnection feasibility and cost, permitting, and market value of production. This has led in prior procurements to increasing attention, where feasible, to development in the Capital and Hudson Valley – NYISO Zones F and G – where previously development was dominated by projects in NYISO Zones A through E. In RESRFP22-1, the pendulum swung back to Zones A through E dominance. This result was not driven by NYSERDA selection, however—no project were bid in Zones F and G. One out-of-state project was selected, with Swift Current’s 401 MW Mineral Basin Solar project located in northeastern PA but electrically delivering to NYISO Zone C. Is this pattern reflective of a changing trajectory, driven by cost, interconnection and siting factors outweighing higher downstate electric market prices, or did bidders consider the then-anticipated 2020s development of Tier 4 transmission projects to NYC and offshore wind, and capacity accreditation reforms, as sufficiently flattening the upstate-downstate marker price differential to undermine the attraction of previously high-priced zones? Did anticipated qualification for federal tax incentives for energy communities play a role in project competitiveness, and will such qualification disproportionately tilt future bids and awards?
10. Rate impacts are going to get lumpier and less predictable.
In the Commission’s original vision, the Tier 1 RES was a target obligation on retail sellers of electricity, known in advance, that would ramp up smoothly and predictably over time subject to a price cap (the Alternative Compliance Payment, determined as a multiple of the cost of RECs procured). With the Commission’s April 2023 Order, predictable obligation will sunset in 2025. In its place, the obligation will be replaced by allocation of NYSERDA-procured RECs to retail sellers of electricity (ESCOs in New York parlance), for which ESCOs will collect from their customers. Effectively, ‘demand’ will equal supply, matching the approach taken for the Clean Energy Standard’s Offshore Wind Standard and Tier 4. This means that the relatively smooth and predictable rate impact over time initially envisioned will instead now follow the rate at which procured projects come online and the associated weighted average cost of procured RECs and ORECs. New York has fallen behind pace towards its targets due to challenges of interconnection, siting and COVID/Ukraine-driven cost increases, and the state has made the difficult choice to respect the sanctity of competitive procurement and not offer price adjustments, and therefore with yesterday’s announcements has started its efforts to play catchup. The large purchases now announced, and the forthcoming ‘reset’ procurement event to create an opportunity for competitive selection of projects formerly contracted but no longer viable, set in place a timeframe in the coming years of rapidly accelerating REC and OREC deliveries on a lumpy and less predictable schedule. ESCOs looking to price multi-year electricity offerings to their commercial, industrial, and institutional customers seeking to manage predictable budgets, Community Choice Aggregators seeking to procure and price supply for their residential customers, and retail customers trying to manage predictable budgets will face a future in which RES/CES compliance costs and corresponding rate increases will be lumpier and less predictable.
Sustainable Energy Advantage can help you stay abreast of the latest landscape-changing trends and development and probe the impact of emerging opportunities and challenges to better manage risk and make well-grounded decisions in this complex New York clean energy policy and market landscape. Hear more in-depth analysis of upcoming procurements – particularly the onshore Tier 1 RES procurement – in our upcoming New York’s Big Reset: Implications of NY PSC’s Repricing Denial to the State’s Renewable Market Landscape webinar on November 9 at 1:00 – 2:15 PM ET, where we will examine the implications of the Commission’s repricing denial for what comes next – new potentially massive ‘reset’ procurements with new parameters, a shake-up in renewable supply timing and NYSERDA contract pricing, potential changes in projects and players – for the development sector and the retail market sector.
Follow the blow-by-blow each week with SEA’s New York Eyes & Ears Renewable Energy Regulatory, Policy, Legislative and Wholesale Market Tracking & Analysis Service—contact us about a No-Obligation Trial
And dive into our detailed New York Renewable Energy Market Outlook (NY-REMO) Clean Energy Standard market fundamentals analysis of the New York Clean Energy Standard with our upcoming winter market briefing—stay tuned for how to register.
Our suite of analytical and strategic advisory services can help the development community navigate the opportunities and challenges in the fast-changing New York large-scale renewable energy market and policy landscape, reinforcing a well-founded view that optimizes development, investment, and bid strategies, and sheds light on the drivers and compounding uncertainties of the New York Clean Energy Standard compliance volume and costs to help the ESCOs, CCAs, and retail customers better interpret market fundamentals and project costs with a sharp pencil.