Concurrent with the release of the master plan, the New York State Energy Research & Development Authority (NYSERDA) also filed with state regulators options for cost-effective contracts for the offshore wind projects that will drive development of the state’s first 800-MW procurement round.
According to the master plan, New York is considering seven procurement options as filed in an offshore wind policy options paper with the New York State Public Service Commission (PSC).
The seven procurement options outlined in the paper are:
Fixed Renewable Energy Credits (REC): Winning large-scale renewables projects receive a fixed, as-bid REC price throughout the contract lifetime, but no hedge is provided against changes in commodity electricity (energy and/or capacity) prices.
Bundled Power Purchase Agreement (PPA): A utility competitively procures offshore wind projects and makes an all-in, fully-hedged revenue stream for commodity value and RECs available to winning projects.
Utility-Owned Generation (UOG): Offshore wind developers would develop, design, build, and potentially operate offshore wind facilities; and once completed, project ownership would be transferred to the utility or utilities.
Split PPA: NYSERDA fixed-price REC procurement is paired with fixed-price commodity energy and capacity procurement by a utility.
Market Offshore Wind REC (OREC): NYSERDA provides a premium payment to projects based on the net difference, from time to time, between the project’s winning bid price (expressed as an all-in revenue amount) and the actual revenue the project was able to achieve from its commodity sales (whether in the regulated wholesale markets or through other transactions).
Index OREC: NYSERDA provides a premium payment to projects under an OREC contract based on the net difference, from time to time, between the project’s winning bid price (expressed as an all-in revenue amount) and the average commodity market price as expressed in a market index or composite of indices, whether the project sold its commodities into the regulated wholesale markets or not.
Forward OREC: Payment is given to winning projects that would adjust every two years, allowing for both upward and downward adjustment of payments—the OREC premium level of each two-year period would be calculated prior to the beginning of the tranche according to two-year energy and capacity price forecasts or forward indices and would remain fixed for the duration of the tranche.
NYSERDA’s filing concluded that the Fixed REC and Market OREC options were not as beneficial as the other options. The master plan said the Fixed REC results in relatively high projects costs, and the Market OREC raises jurisdictional concerns regarding the link to the project’s actual commodity sales transactions.
NYSERDA recommended in the paper that the PSC focus on one or more of the remaining five options, and select an approach based on the following considerations:
- Evaluation of the Split PPA option to determine feasibility, due to the limited scale of deployment, implementation complexities, and uncertainties around costs
- Evaluation of the ability of the UOG structure to reflect the specific early development challenges of the U.S. offshore wind sector
- Securing market participant validation of Forward OREC’s feasibility, due to its novel nature and uncertainty on funders’ assessment of this structure and resulting costs of finance
- Addressing uncertainties of Bundled PPA, Split PPA and UOG in order to use these options as the sole procurement option
- Weighing utility-led options as alternative bid options in a solicitation by utilities
New York took two years to develop the Offshore Wind Master Plan based on research and industry stakeholder input. According to the master plan, the state will continue outreach and public engagement about offshore wind development and convene technical working groups focused on fishing, maritime commerce, the environment, jobs, and the supply chain.
Lead image credit: CC0 Creative Commons | Pixabay