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NY Hydro Faces Changes to Capacity-Factor Valuation in CDG Program

Nov 14 Update: Hydro Coalition Submits Comments in reply to HCF Whitepaper

On May 10, 2019 the Joint Utilities filed a petition seeking clarification on compensation for high-capacity factor resources that participate in New York State’s CDG program. [1]  Their concerns related to the PSC’s requirement that the capacity-based allocations under the VDER Phase One tariff must limit the impacts on non-participating customers to an incremental net annual revenue impact of 2% for each utility. Under the CDG program, the capacity allocations for the Market Transition Credit (MTC) and Community Credit (CC)[2] were sized using the load factor for photovoltaic solar generation (14% capacity factor). However, in their petition the Joint Utilities asserted that using the solar generation profile to apply the MTC and CC to high capacity factor resources such as fuel cells would result in a revenue shift and impacts to non-participating customers. They explain:

“Simply put, a fuel cell operating at a 90-percent capacity factor will produce six times the kilowatt-hours (“kWh”) each year, receive six times the financial benefit from the MTC and Community Credit constructs and therefore impose six times the revenue shift to other customers as compared to a similarly sized solar installation. As such, either the MW cap for each capacity allocation must be reduced when higher load factor technologies are included, or the compensation levels must be reduced for higher load factor technologies. Otherwise, the two percent revenue impact cap will be exceeded.”[3]

On August 13, 2019 the DPS staff responded to the Joint Utilities petition with a white paper that proposes changes to the valuation of high capacity factor resources in the Value Stack for Community Distributed Generation (CDG). [4] The proposal recommends that MTC and CC compensation to high capacity factor CDG resources be adjusted based on the ratio of the 14% average solar capacity factor to that resource’s estimated average capacity factor (see table below).

  Average capacity factor Adjustment factor for CC
Solar PV 0.14 1.00
Wind 0.23 0.61
Small Hydro 0.50 0.28
Fuel Cells 8.87 0.16

These adjustments would reduce hydro’s load factor so that hydro will only receive MTC or CC credit as if it were a PV site – a reduction in MTC/CC value of almost 75%. Most hydros who are contemplating the CDG program are located outside Con Edison’s territory where the CC rate is $0.12/kWh, and instead receive a CC of $0.0225/kWh.[5] Under the proposal, the amount of CC credit for hydros located within NYSEG, National Grid, and RG&E territories will be reduced to roughly $0.006/kWh. Further, as many small hydro owners could attest, their small plant capacity factor generally doesn’t reach 50%, and since the CDG program is for 5 MW and under, the 50% capacity factor used by the PSC could potentially be challenged by interested parties.

Only a handful of hydro operators in New York state are participating or seeking to participate in CDG, as program adoption for hydro resources has been slow. The challenges faced by hydro to set up a CDG are numerous and the anticipated revenue from the MTC/CC are essential for the model to work. A 75% reduction in that MTC/CC would likely be a deal breaker for many considering the program.

In the proposal, the PSC appears to have adopted the second recommendation of the Joint Utilities – to reduce the compensation level for higher load factor technologies, rather than to adjust the total MW cap for the capacity allocations. Under the former approach, the system receives a better energy effect from local higher capacity factor hydro, while participating hydro resources are penalized with reduced compensation for that corresponding local capacity increase.

Instead, if the PSC adjusted the total amount of tranche capacity to accommodate higher capacity factor resources it would be less harmful for hydropower. The result would be less total less MW of capacity participating in VDER, yet the amount of qualifying production going into New York’s grid would be the same as before, without unduly burdening small older hydro that doesn’t receive the E-value benefit in the Value Stack.

New York has suggested that existing hydro resources who do not qualify for Tier 1 RECs under the RES should look to the voluntary market programs under VDER for market relief, yet this proposal stands to hinder that participation.

If you are interested in this issue, or are a small hydro in NY considering CDG, please reach out to me with your concerns. Comments are due October 28, 2019.

[1] Case 15-E-0751, In the Matter of the Value of Distributed Energy Resources (“VDER Proceeding”), Order Regarding Value Stack Compensation (issued April 18, 2019) (“Value Stack Order”). (download PDF)

[2] The MTC applies to CDG projects in Tranches 1-4 in all electric utility territories. The CC applies to CDG projects in the CC tranche established by the VDER Compensation Order of April 18, 2019 for Con Edison, NYSEG, National Grid, RG&E.

[3] Case 15-E-0751, VDER Proceeding, Joint Utilities Petition Seeking Clarification of the Treatment of High-Capacity-Factor Resources Eligible for Community Distributed Generation, (filed May 10, 2019) (download PDF)

[4] Case 15-E-0751, VDER Proceeding, Whitepaper Regarding High-Capacity-Factor Resources, (filed August 13, 2019) (download PDF)

[5] In the April 18, 2019 Value Stack Order the PSC adopted Staff’s recommended Community Credit value of $0.0225/kWh for projects in NYSEG, National Grid, and RG&E for projects that qualify after July 26, 2018. (download PDF)