Proposed Indexed Storage Credit mechanism expected to incentivize NY storage development

As New York utilities prepare to try their hand again at soliciting for storage dispatch rights mandated in a 2018 state order, Patrick Verdonck of Rhynland Energy provided some insight as to what bogged down their past RFPs, and why the Index Storage Credit proposed in the state’s 6 GW Energy Storage Roadmap could lead to more robust development.

In 2018, the state Public Service Commission’s Energy Storage Order (attached below) directed utilities in the state to procure for 10 MW of dispatch right, except for ConEdison, which was required to solicit for 300 MW. All but National Grid were unable to reach their intended targets.

The utilities have since sought two modification orders, most recently in November, that have pushed the in-service date from the end of 2022 to 2025 and now 2028, and the contract length from seven years to 10 and now 15.

Verdonck, an energy consultant and Rhynland founder, called the contract structures “terrible.” Developers would get an upfront payment as a capital expenditure (capex) “buy down” and then no payments for years before becoming a merchant project operating on the market after the contract was up, he said.

This leads to two main issues, he said. Projects would essentially be “cash flow negative” over the length of the contract as developers were still on the hook for operating expenditures. And developers bear the risk of interconnection upgrades.

“So if you'd assumed a hundred million dollar build with a USD 10m upgrade cost and it turns out you’d have a USD 40m upgrade, that USD 30m dollars of extra capex, that was on you and was not part of the contract,” he said.

Another developer active in the state said the merchant market in New York for storage “is much less of a certain thing” versus California, where developers can expect a more robust guaranteed amount from state solicitations upfront, or Texas, where big swings in volatility could lead to big upsides in revenue. It is difficult to get a bank to underwrite a project with a seven or 10-year initial contract, especially when merchant revenues beyond that point are not clear, the source told NPM

The RFPs have led to some inked contracts. ConEdison and 174 Power Global were approved in 2021 for a 100 MW battery project in Astoria, Queens, initially expected to be complete by the end of 2022. Though it would represent roughly one third of the utility’s mandated capacity under the 2018 Order, it is now over schedule. Filed in December, a petition to amend the project’s certificate (attached below) said construction would begin in 2Q23.

In reference to the East River ESS’ delays, Verdonck pointed to issues with the contract structure, as well as rising battery costs and high upgrade costs.

The comment window closed this month for the state’s updated Energy Storage Roadmap which, among other incentives and programs, calls for 3 GW of large-scale storage secured via an Index Storage Credit mechanism. That is modeled after the state’s Index REC structure, according to Tyba co-founder Tom Thunell. A blog post from Thunell illustrates in-depth how the mechanism could work, and could provide revenue certainty to projects.

Verdonck put it in simple terms.

“Basically, you say … ‘How much should it have earned (last month)?’ And if it didn't earn enough under that theoretical construct, you get a top up and if you earned more than what you should have earned, you have to give some back,” he said.

Should the Index Storage Credit be made official, Verdonck believes it will lead to more engagement from developers. In the new construct, you wouldn’t get a payment upfront but you’d get a “continuous revenue stream that you can finance against,” he said.

“They’re basically proposing long term … contracts. That's a whole lot better than the existing structure,” Verdonck said.

In the meantime, the solicitations under the existing structure dating to the 2018 order are moving ahead.

New York State Electric and Gas and Rochester Gas & Electric, Avangrid’s New York subsidiary utilities, filed a revised solicitation plan (attached below) for 10 MW of storage each on April 14. NYSEG and RGE will issue a common RFP for storage capacity on July 10, with Phase I bids due September 1. Review will wrap October 13 and the shortlisted winning bidders will be notified by October 20.

Phase II Review documents will be issued to short-listed bidders in early November 3 and final bids in that round are due December 15. That round’s review will wrap February 9, 2024, and the winners will be notified February 16, 2024. Contracts are expected to be executed three to six months from that point.

ConEdison, and its subsidiary Orange and Rockland Utilities — though already in the midst of their common solicitation, which launched in December — filed their own revised solicitation plan (attached below) on April 17. ConEdison, having already secured 100 MW of its mandated 300 MW of capacity, is soliciting for 200 MW and O&R is soliciting for 10 MW. Winners will be notified by July 31.

Central Hudson Gas & Electric was granted an extension until October to file its revised solicitation plan, as it is currently negotiating a dispatch rights contract with a storage developer.

Though more delays and modifications are possible, Verdonck believes the utilities will eventually secure the mandated 350 MW of dispatch rights.

“I think it gets pushed back again. I don't think it ever gets scrapped,” he said. “Because New York has a track record of delivering on their green commitments, whether it's solar, transmission cables, offshore wind, whatever it is, New York kind of, for better or worse, gets it done. But not always in the fastest or best way.”

*This story was originally published exclusively for NPM subscribers last month.


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