Challenges in Meeting New York's Power Demand

The New York Independent System Operator (NYISO) is one of seven ISOs serving the US and the sole operator of New York's power industry markets. It's the NYISO's responsibility to ensure the safe and reliable operation of the state's high-voltage transmission lines and power generators, as well as administer the state's bulk power markets.

In its 2016 Comprehensive Reliability Plan (CRP), the NYISO concludes that existing facilities will meet all reliability criteria through 2026, assuming over 1 GW of capacity additions during that time and 3.1 GW of asset retirements. However, the NYISO's assessment may be overly optimistic, and the CRP may not properly consider key factors like differing demands across the state, the preponderance of older equipment and New York's environmental targets. Here's a look at some of these challenges that the NYISO is likely to face down the road.

Are Existing Resources Really Enough?

According to a recent market report conducted by Potomac Economics for the NYISO, gas-fired generation accounts for the largest share of New York's power mix, with a 44 percent share in 2016. Nuclear power is next, with a 31 percent share, followed by hydropower at 19 percent, wind power at 3 percent, "other" at 2 percent, and coal at 1 percent.

But the NYISO covers 11 different load zones, which differ greatly with respect to demand and resource availability. For example, Zone A in the west and Zone D in the north both generate a large fraction of their respective electricity from hydropower. The high-demand zones around New York City, however, are powered primarily by natural gas—illustrated in Figure A-7 of the NYISO's recent report.

While the resources exist to cover these varying needs, the CRP identified certain risks to reliability, including generator unavailability, delays in proposed additions, and higher-than-expected load levels.

Issues With Aging Infrastructure

About 30 percent of New York City's peak demand is met by aging natural gas turbines, says Utility Drive. Half of New York City's energy and 80 percent of its peak demand comes from assets that are at least 45 years old.

A September 2017 Strategen Consulting report, New York City's Aging Power Plants: Risks, Replacement Options, and the Role of Energy Storage, argues that as early as 2021 a 642-MW shortfall could occur in the New York City area as a result of the aging assets.

The report notes that within five years, 2.9 GW of New York City's peak load of 11.6 GW will be provided by gas turbines that are beyond the normal retirement age for 95 percent of plants.

According to the Strategen report's co-author, Edward Burgess, these aging peakers are also "receiving capacity payments far exceeding their operating costs."

Battery Storage as a Solution

As the aging steam and combustion plants reach retirement age, Strategen argues that battery storage would be a better option for meeting New York's peak load. Battery storage could reduce greenhouse gas emissions by an estimated 75 percent relative to the aging fossil-fuel-powered units. Such a solution would be in line with New York's clean-energy goals of obtaining 50 percent renewable energy by 2030 and reducing greenhouse gas emissions by 80 percent by 2050.

But under the current system of compensation for peak power, battery storage solutions aren't yet economically competitive. Proponents of battery storage have argued for payments that take into consideration the positive environmental impact of batteries versus fossil-fueled generation. In any case, additional incentives may be required to advance battery storage as a grid-scale solution.

Concerns have also been raised over the lack of consensus on fire safety standards for grid-scale battery storage. In some locales, this hasn't been a huge concern, but New York City's space and regulatory constraints are sure to push this issue to the forefront.

Risk Management Moving Forward

The NYISO acknowledges the inherent risks in the CRP and adopts a market-based philosophy, preferring that the risks are addressed with market-based solutions. If such solutions fail to materialize, the NYISO designates the Responsible Transmission Operator (TO) to proceed with a regulated solution. Further, if a market failure is identified to be the reason a solution doesn't materialize in the event of a reliability need, the NYISO will consider changes to its market rules.

Ultimately, the NYISO's forecast may be correct, but incomplete. Current and planned infrastructure may very well meet the needs of New York's power industry markets, while failing to meet the state's aggressive environmental goals. In addition, different zones will likely require different approaches, due to the differing dynamics of demand and available (or potentially available) power supplies.

The NYISO may also need to implement new compensation mechanisms for peak power supplies that take environmental performance into consideration. Further, utility-scale battery storage may require multibillion-dollar investments, which could require longer-term revenue certainty to properly incentivize adoption of this technology.