Last Friday, March 13, New York State announced the winners of its third round of “Tier-1” solicitations for large-scale renewables (RESRFP19-1) under the Clean Energy Standard (CES), with 21 projects selected totaling 1,278 megawatts (MW) of new clean energy capacity. This 2019 award group includes 17 new solar facilities – the largest 2 paired with 20 MW energy storage projects – and 1 new wind facility. In addition, 3 existing wind facilities were selected for “repowering” (we note the 1,278 MW of new capacity appears to reflect just the incremental capacity of the three repowered projects). The Governor’s press release states that all projects are expected to be operational by 2024, with several projects expected to commence construction by the end of this year.
The selections award contracts to 8 bidders – Boralex (4 solar projects, 180 MW), Suneast Development (8 solar projects, 220 MW), NextEra Energy Resources (2 solar projects, 380 MW), ConnectGen (1 solar project, 270 MW), East Light Partners (1 solar project, 19.99 MW), Empire Renewables, LLC (1 solar project, 19.99 MW), Terra-Gen (1 wind project, 145 MW), and TerraForm Power (3 repowered wind projects, 43.2 MW increase in capacity).
Pace, Scale and Cost of Procurement
Over 2.5 million megawatt-hours (MWh) of annual energy generation is expected from the 2019 awarded wind and solar projects. This marks the third consecutive year that New York Energy Research and Development Authority (NYSERDA) has exceeded its CES procurement targets.
In summary, NYSERDA has procured over 3.2 million MWh in 2017 (220%+ of target), over 3.8 million MWh in 2018 (256%+ of target), and now over 2.5 million MWh in 2019 (164%+ of target). This totals more than 9.5 million MWh of new land-based annual renewable energy generation that is projected to generate 12% of the state’s electricity demand in 2030, and constitutes about one-third of the 2030 incremental statewide procurement target established by the 50% CES Order.
These clean energy generators are not only expected to bring significant reductions in greenhouse gas emissions, but also a host of substantial economic benefits to New York State. The 2019 awards total almost $1 billion in State investment that is expected to return $2.5 billion in direct, private investments toward project development, construction and operation. This compares to a reported $1.5 billion in competitive awards in 2018 expected to generate $4 billion in direct investment in the clean energy sector, and a $1.4 billion State investment in 2017 expected to spur over $3 billion in direct investment over the life of the projects.
Not only are these projects expected to bring significant value to New York’s economy, the cost of procuring renewable energy projects has declined over time, with developers in the 2019 solicitation offering bids that were 23% lower than the bids NYSERDA received three years ago. The weighted average renewable energy credit (REC) award price for the 2019 solicitation was $18.59/MWh over the 20-year term of the awarded contracts, marking the lowest average large-scale solicitation award price in over a decade. However, the rate of decline slowed in 2019, with just a 1% decrease from the 2018 weighted average award price of $18.77/MWh (we note that our NY-REMO forecast of this figure was within about 5.5% of this figure). This compares to a 14% decrease in 2018 from the weighted average award price of $21.71/MWh in 2017, which constituted an 11% decrease from the price awarded through 2015-16.
In our assessment, reasons for the continued award price decline relate to scale economies, increased competition, and cost declines; reasons for the rate of price decline tailing off relate to a drop-off of new wind projects in the award group compared to past rounds, and the phasing down of Federal tax credits. Other factors impacting the award pricing trajectory include changes over time in how NYISO’s proposed but not yet adopted carbon pricing has factored into the over-the-counter energy hedge forward price curve, and evolving views on the ability for renewable energy projects to monetize capacity revenues.
Despite NYSERDA’s well-structed, consistent, and predictable solicitation process, it is worth noting that many hurdles remain for these contracted projects. Specifically, permitting and interconnection delays, transmission constraints, and mounting local opposition has delayed the development of contracted projects (see more about NY’s permitting process in this previous SEA blog post). When the first CES awards were announced in early 2018, NYSERDA stated that the first of these renewable energy projects was expected to break ground as early as April 2018. However, to this day, no CES Tier-1 projects are operational. Furthermore, 5 projects from the 2017 solicitation totaling 63.58 MW of capacity and 1 project from the 2018 solicitation totaling 290 MW of capacity have had their REC contracts cancelled, including the lone hydropower project that was selected in 2017 for redevelopment.
Sustainable Energy Advantage, LLC provides a comprehensive look at the market fundamentals of New York’s renewable energy market as part of its New York Renewable Energy Market Outlook (NY-REMO) service. The last NY-REMO Market Fundamentals Briefing 2019#2 included assumptions for results of this procurement which were similar in scale and composition to NYSERDA’s ultimate selection, and our projected average award price was within approximately 5.6% of the ultimate award price. Therefore, its results represent a solid starting point for understanding the market outlook. SEA will be further developing sensitivity scenarios for our market fundamentals briefings that align with the announced project selections for RESRFP19-1 and other recent clean energy developments and announcements. For more information on NY-REMO, please reach out to Bob Grace.
Inclusion of Vintage Generation Facilities
Steel Winds I – existing wind project in Lackawanna, NY as seen from Lake Erie
This award group is unique for the inclusion of 3 existing wind power projects, or Vintage Generation Facilities (VGFs), that were selected for “repowering” to add incremental capacity to already operational renewable generation sites.
While the full production of a repowered facility is not Tier-1 eligible under current rules, the incremental production of a repowered facility is eligible. A VGF can qualify for Tier-1 REC if it has made or will make a material capital investment on or after January 1, 2015 that directly results in an increase in annual energy production of at least 5%, or, an increase to a generator’s nameplate capacity of at least 10% also resulting in a minimum 5% increase in annual energy production.[1]
The facilities selected in the 2019 solicitation that meet the repowering criteria include: 20 MW Steel Winds Wind Farm (increasing capacity by 4.8 MW); 15 MW Steel Winds Wind Farm 2 (increasing capacity by 2.6 MW); and 125 MW Cohocton Wind Project (increasing capacity by 35.8 MW).
All three of these VGFs were originally owned and operated by First Wind and were acquired by SunEdison and its yieldco TerraForm Power in 2014, and all three projects currently use turbines manufactured by Clipper Wind (C96 2.5 MW turbine generators). According to the bid proposals submitted by TerraForm Power, these projects have become increasingly challenged due to Clipper Wind’s 2012 decision to cease manufacturing new equipment. The contemplated upgrades for these facilities include the replacement of existing Clipper Wind turbines with newer equipment such as General Electric or Vestas turbines.
The repowering of existing clean energy facilities has long been a topic of debate in New York State, especially regarding Tier-1 eligibility and permitting requirements, and NYSERDA has already announced that the topic of repowering will be taken up again in the upcoming proceeding to establish a new 70% clean energy program as required by the Climate Leadership and Community Protection Act (CLCPA).
[1] CES Final Phase 1 Implementation Plan, https://www.nyserda.ny.gov/-/media/Files/Programs/Clean-Energy-Standard/2017-03-24-Phase-1-Implementation-Plan.pdf.