The New York legislation is one of 22 similar laws among US states, referred to as renewables portfolio standards (RPS) and designed to use market mechanisms to ensure that a growing percentage of electricity is produced from renewable sources. "I was among many that wondered if New York's RPS was going to be successful," says Ryan Wiser of Lawrence Berkeley National Laboratory. "New York is not the easiest place to develop projects in the world. But I think what they've done is pretty extraordinary. It's aggressive on a yearly percentage basis and it's happening within a short period of time."
New developments are receiving their central push from contracts for renewable energy credits (RECs) awarded by two state agencies tasked with implementing the RPS. A total of 21 contracts, worth close to $300 million, will be paid out over a ten year period -- predominantly for wind power, but also for two biomass projects and upgrades to ten existing hydroelectric facilities.
The contracts are part of a second round of projects awarded by the two agencies, the New York State Energy Research and Development Authority (NYSERDA) and the New York State Public Service Commission (NYPSC). When the NYPSC implemented the RPS in late 2004, roughly 19% of New York's electricity was generated by renewable sources -- mainly from large-scale hydroelectric facilities. The RPS requires an additional 3700 MW of new renewable energy capacity.
To get there, New York chose a different approach to that of most other RPS states, which typically mandate their utilities to buy or produce renewable energy. New York instead pays generators for RECs associated with a percentage of their generating facilities at an average rate of $15/MWh. Wind developers still sell their power output on the open market, but the state REC contracts add an additional revenue stream.
In what regulators see as a sign of the policy's market-based success, the law is spurring more wind development than it actually pays for. The REC contracts from the latest solicitation cover 583 MW of around 880 MW that developers plan to build, including the nine wind projects. Developers had an opportunity to bid their projects to the state, asking for varying levels of a given project's output to be supported by REC purchases. All nine wind projects succeeded in fetching REC contracts but all are for some level less than 100% of their total installed capacity. Anna Giovinetto, with Noble Environmental Power, says NYSERDA terms do not allow exact disclosure of the contracts, but the varying REC purchase levels explain why as much as 880 MW of renewables are moving forward on only 583 MW of state REC contracts.
Results from the first solicitation were much the same. In the 2004-2005 solicitation, contracts for REC production incentives were granted for 262 MW of renewables capacity, says Kevin Hale of NYSERDA; 352 MW was actually built. "We feel that when project developers bid NYSERDA only a portion of a larger facility it's a good thing. It's a positive sign that project sponsors are willing to explore financial commitments in the private markets and take the risk to build valuable in-state renewable capacity without a REC contract from NYSERDA."
The 21 projects (nine of them wind) were competitively selected based on two evaluation components: price, which was given 70% weight; and the expected economic benefits created by the bid facility. Money for the program comes from the state's ratepayers via their electricity bills. "When the development and construction of this additional capacity occurs, New York ratepayers will be getting more than what they pay for in terms of economic benefits, environmental improvement and, eventually, energy price suppression," says Hale.
Reasons for why wind developers are installing more wind plant than is supported by REC payments are varied. In Noble's case, Giovinetto says the prices it can fetch for power in the Northeast are higher than other areas of the country. Indeed, prices are so good that a handful of other wind projects -- including a 130 MW Noble project -- are proceeding in New York without RPS support. "Our electricity prices are high, so revenues are high on these projects," says Hale. "It seems to be a place where developers want to build. You can build in Iowa for less but your revenues are less. It's not just a function of the best wind resource. It's dependent on the prices you're going to get."
Noble, which is majority owned by a private equity arm of JP Morgan Chase, was the big winner in the recent round of RPS contracts with five of its wind projects selected for 511 MW of capacity. The projects include three in Clinton County: Altona at 100.5 MW, Clinton at 100.5 MW and Ellenburg at 79.5 MW, along with Chateaugay at 129 MW in Franklin County and Bliss, a 100.5 MW project in Wyoming County. At least four of the five are expected online this year and all will use GE 1.5 MW turbines. "New York's RPS program is very strong," says Giovinetto. "It's created a big incentive for Noble. "We've been taking delivery of turbines from summer of last year and we're just trying to get them vertical," she says. "We'll be putting a lot of clean energy online."
Clipper and GE
Three more RPS program projects are in Steuben County and involve UPC Wind of Newton, Massachusetts. Two, Dutch Hill at 40 MW and Cohocton at 90 MW, will be built by UPC under the name of Canandaigua Power Partners. A third, Prattsburgh, at 75 MW, is a shared project between UPC and Global Winds Harvest of Schenectady, New York. The Prattsburgh project will use 1.5 MW GE turbines, while Clipper 2.5 MW machines are lined up for Cohocton and Dutch Hill. "We still have to go out and market the power," says UPC's Paul Gaynor. "And transmission is separate and distinct -- a matter of getting into the transmission queue. Unfortunately there's no shoehorn for projects in New York. But we expect to have all three of the projects operating by the end of this year." The ninth RPS program project, Jordanville in Franklin County, is expected to be between 130-150 MW and was awarded to Pennsylvania-based New Wind Energy.
Total renewable capacity from both rounds of RPS awards should approach 1162 MW, including 1088 MW of wind power at 12 sites, 65 MW of biomass power at three sites and 9 MW of small hydropower at 11 sites. Project developers will invest an estimated $1.4 billion to construct and upgrade these facilities. "With results like this, the progress of the RPS is very encouraging," says NYSERDA's Hale, who adds that his office is planning on doing another round in the next six to eight months.