By Kartik Amarnath, currently pursuing a career in medicine and formerly the Energy Planner of the NYC Environmental Justice Alliance, Adam Flint, Director of Clean Energy Programs for the Binghamton Regional Sustainability Coalition and Coordinates the Community Owned Shared Renewables Working Group of the Energy Democracy Alliance and Patrick Robbins, the Coordinator of the Energy Democracy Alliance
In a recent speech on the state’s energy system, New York Governor Andrew Cuomo adopted the rhetoric of the Green New Deal, claiming in the press release that his new energy plan will be “a nation-leading clean energy and jobs agenda that will put the state on a path to carbon neutrality across all sectors of New York’s economy.” As the expression goes, it would be pretty to think so. New York, after all, should be a hub for renewable energy. We have a major solar power workforce, enormous offshore wind resources, a Governor who is positioning himself as a climate leader, and a strong grassroots climate movement to hold our leaders accountable.
In reality, there’s a major gap between New York’s potential and its current dismal rate of renewable energy generation. Currently, less than4%of New York’s energy mix is provided by solar or wind power. The story behind this gap is a classic story of free market logic versus the public good. It’s an ongoing battle being fought on economic terrain, and those who are fighting it are in dire need of support from economists who can help change its terms (read the full story below, and email us HERE to join the fight).
To understand why renewable energy hasn’t flourished in New York, it’s important to understand how New York’s electricity system works currently. This system represents an uneasy truce between faith in the capitalist profit motive and a recognition of energy’s centrality to our society. Utility companies, many owned by private investors, control the distribution assets of the state’s energy infrastructure. As a deregulated electricity state, power is sold by independent power producers, and the utilities are prohibited from doing so. The prices that they can charge to the public are regulated by the Public Service Commission (“PSC”), a board appointed directly by the Governor and confirmed by the Senate to oversee New York’s utilities.
The utilities are legally entitled to a guaranteed rate of profit, which they make by investing in infrastructure and passing along expenses plus profit margin to ratepayers via negotiations with the Public Service Commission that occur through formal proceedings called rate cases. The profit motive still dictates the behavior of the utilities as private firms, but their financial model exists in tension with their mandate from the state to provide power in the public interest.
Distributed renewable resources such as rooftop and community shared solar are a stake in the heart of this model. If customers have the ability to provide their own power, either by storing power locally or by selling excess power back to the grid, and a significant percent of them take advantage of that opportunity, then it presents the utilities with a dilemma. From their perspective, they must either increase rates on other customers to maintain rates of return, thereby increasing attrition and setting off a vicious (or virtuous, depending on your attitude) cycle known by some as the “utility death spiral.” Or they allow a steady stream of distributed resources to cut into their profits without recouping fees, losing investment all along the way.
Which brings us to New York’s utility reform effort. In 2014, Governor Cuomo announced his intention to transform the utility system through his REV (Reforming the Energy Vision) program. All eyes in the national energy scene turned to New York, because if New York policymakers were able to find a way out of this problem—some third way that would both increase distributed renewable generation and preserve the functionality and stability of the utilities—it would represent a truly historic development in our energy system, and a model for the rest of the country to follow.
It didn’t turn out that way. As described above, renewable deployment is viewed by investor-owned utilities as a gateway to eventual grid defection. The strategy that utilities have used to push back on this process is a common one in similar battles in different states – the establishment of various highly complex ‘value of solar’ schemes, each with their own specific formula for determining how distributed solar owners can sell their energy back to the grid. Depending on the objectives and economic philosophy on which it is based, the value of solar approach can cut in two diametrically opposed ways. A climate justice-based approach can internalize a variety of currently externalized values, such as mitigation of health and climate impacts, and various social justice goals, resulting in a robust price for renewable electricity that exceeds net metering. Conversely, a neoliberal approach can narrowly define what prices internalize. It is the latter approach which was ordered into existence by New York’s public service commission.
In July 2015, when Governor Cuomo’s PSC gave the initial order allowing community distributed generation in New York for the first time, he promised that this policy would give solar access to all New Yorkers’ “regardless of income of zip code”. A range of stakeholders, including community organizations, environmental justice groups, renewable energy policy advocates and solar developers joined a series of engagement processes. The Department of Public service claimed that these stakeholder processes would solicit input that would then shape policy to facilitate solar access for low-to-moderate income New Yorkers. These proceedings ended in frustration for grassroots groups, culminating with a regulation which failed to realize the Governor’s promise.
As part of Governor Cuomo’s flagship Reforming the Energy Vision initiative, New York State adopted a scheme called the Value of Distributed Energy Resources (VDER) to compensate Distributed Energy Resources (DERs) such as community solar. This new valuation scheme is largely based on the benefits that distributed energy projects provide to utility companies for their management of the grid according to mostly inaccessible and proprietary metrics, with no consideration for important public benefits such as displaced environmental pollution and reduced energy burden.
VDER compensates DER projects by stacking different values associated with a given project’s anticipated influence on a variety of current and projected grid operations. Each stacked value is associated with a particular grid-related impact or activity, with one exception discussed further below. The following explanation of each value that makes up the VDER value stack is intended to illustrate just how complex and inaccessible the community solar market has become due to this new valuation scheme and its components (brace yourself). The Locational-Based Marginal Pricing (LBMP) Value estimates the value of electricity sales and purchases at a given location based on generation, load patterns, and transmission constraints. The Installed Capacity (ICAP) value aims to account for a given project’s role in offsetting costs of purchasing future capacity from energy producers based on anticipated load changes. The Demand-Response Value (DRV) accounts for a project’s ability to offset peak energy demand. The Locational System Relief Value (LSRV) values projects based on their ability to offset projected utility infrastructure investments in high-need areas with anticipated capacity constraints. The Environmental Value (E Value) is the notable exception to the rule, where projects are compensated for non-grid environmental impacts. However, this value only accounts for carbon and is calculated by utilizing methodologies from a mix of existing and interrelated renewable energy and carbon trading regulations (the Renewable Energy Standard, Clean Energy Standard, and Regional Greenhouse Gas Initiative). Finally, the temporary Market Transition Credit (MTC) adds an interim value to projects with the intention of providing a smoother transition from net metering to VDER, and this value is supposed to depreciate over time according to the amount of DER uptake in each utility service territory.
To make matters worse, each of these values and the methodologies used to calculate them fluctuate in different ways. In fact, the PSC ruled to change how the DRV, LSRV, and ICAP are calculated and replaced the MTC with a new “community credit” in select utility service territories barely two weeks ago. With all these moving and changing parts even energy sector experts and experienced project developers are unable to establish sound financial modeling for projects on the ground, thereby dissuading investors from participating in New York’s nascent renewable energy economy. The State’s energy agency, NYSERDA, has had to contract with a consultant to produce a VDER calculator that is so large and complex that it must be downloaded to operate and has a reputation of malfunctioning.
During the stakeholder engagement processes, a multisector coalition of activists known as the ‘Aligned Parties’ had formally demanded that if VDER was a foregone conclusion, at the very least DERs should also be compensated for non-utility benefits, particularly benefits that promote energy projects which economically and environmentally benefit the most vulnerable New Yorkers through low-income and environmental justice incentives. Furthermore, projects should be valued using straightforward and accessible methodologies with room for iterative review and alterations to be made as societal, environmental, and market conditions change. However, despite the Aligned Parties formally submitting over 100 pages of analysis and recommendations on how to reform VDER partnered with several in-person presentations, for State officials, their involvement and demands were hardly even mentioned in the State’s official record of the VDER proceedings. The State’s current iteration of VDER has unsurprisingly remained needlessly complex and overly partial to utility interests. By failing to integrate the environmental and economic benefits of DERs, the State is actively de-incentivizing clean energy projects, making it too challenging for all but mostly out-of-state corporate developers with the deepest pockets, and – most importantly – leaving behind New Yorkers who stand to benefit the most from an equitable renewable energy transition.
The inability of the state to internalize these values raises a question that grassroots groups have wrestled with since the beginning. In theory, it should be possible to quantify the benefits of healthier air, a safer climate, and economic benefits from renewable energy that address age-old racial and economic injustices in our society. But are these values that can – or should – have a price? To meet a basic standard of justice, there’s really only two options for the state – to accurately quantify and internalize the myriad impacts of our energy system in its larger context in our society, or to declare that certain goals – such as healthy communities and a safe climate – are beyond the purview of a capitalist cost-benefit analysis, and craft innovative policy mechanisms to reflect this. So far, grassroots groups have not had the resources to argue forcefully enough for either approach (which is where we are hoping you will come in!), and the state has not demonstrated a willingness to do so. These more ambitious (and ultimately more accurate) approaches have therefore been neglected, and as a result, the VDER policy has not only had the effect of minimizing benefits of solar power to working class and Environmental Justice communities, but it has also, as of this writing, dramatically slowed the development of community distributed renewable generation across the state.
This brings us to the current moment. As part of Cuomo’s proposed Climate Leadership Act, the Governor has proposed to bring New York’s energy sector completely onto carbon neutral energy by 2040. But simply making commitments – to be met twenty years from now – is easy. This latest initiative includes no word of the incentive structures or ramping targets that would need to be in place for the solar industry to actually get us there. And the Public Service Commission has, as of this writing, proposed a “solution” to the VDER problem that divides the state into separate tranches, with time-limited “credits” applied differently for projects in different tranches, creating further complications for would-be investors to unpack. Why won’t the PSC adopt a value scheme that actually works for investors, solar businesses, and low-income New Yorkers? Based on the extensive input from community groups, economists, policy advocates, scholars, and solar developers across the state over the last several years, they cannot arguethat they don’t know any better. Ultimately, the real problem is that the task of providing renewable energy to all New Yorkers is beyond what the private utilities or even the PSC are structurally designed to do. What we need is a radical rethinking of why and how energy is produced and distributed, centering electricity as a common right for all people, and a broad social movement that can apply enough pressure to make this vision a reality.
Fortunately, some pieces of this movement are beginning to emerge. As part of their work with the Con Edison rate case, New York City’s Democratic Socialists of America are embracing an “energy rights” campaign that contests the fundamental existence of private utilities to begin with. And in the last two months, two State Assembly members (Englebright, from Long Island, and Steck, from Schenectady) have proposed legislation that would fix the worst problems with VDER by guaranteeing a minimum value for distributed renewable energy projects and changing the metrics by which these projects are valued in the market. Groups such as the Energy Democracy Alliance and their allies have been pivotal to making this progress. Between the minutiae of implementation and the sweeping visions of an energy commons, however, lies the considerable task of economic modeling and strategizing with policymakers to make the truly transformative changes that this moment demands. We need economists with the skills and expertise to argue successfully in the policy arena for the changes we need, and the vision to understand the necessity of these fundamental changes to our energy system. In other words, we need the people reading this blog. If you want to join a crew of economists for the audacious task of monkeywrenching New York’s energy system into something that serves people over profit, join us at https://energydemocracyny.org/ or contact our coordinator Patrick Robbins at firstname.lastname@example.org