Small Hydropower as a Community Distributed Generation Resource in New York State

In 2015, the New York Public Service Commission (PSC) issued orders in July and October under Case 15-E-0082 that established the conditions, requirements, and criteria for implementing New York’s Community Distributed Generation (CDG) Program, designed to expand customer options for accessing clean DG and to promote New York’s aggressive clean energy programs and objectives. Eligible resources for CDG include solar, wind, biogas, fuel cells and hydroelectric, among others. When first implemented, the CDG program utilized net energy metering (NEM) as the means to provide access to DG by retail electricity customers.

The CDG program involves a CDG sponsor, (the project developer, a private company, or other entity), who owns or operates the renewable source and interacts with the utility; and the CDG subscribers, who accept NEM credits on their electric bill.  The program is facilitated by the utility, which receives a list of subscribers and their percent allocation of the project’s NEM credits for each subscriber from the sponsor.  The utility allocates the credits to each subscriber bill, and then the sponsor sends the subscribers an invoice for the energy that was allocated the prior month.

In 2017, in the Value of Distributed Energy Resources (VDER) proceeding (Case 15-E-0751), the PSC announced a transition from traditional NEM to an entirely new valuation methodology. VDER factors include the price of the energy, the avoided carbon emissions, the cost savings to customers and utilities, and other savings from avoiding expensive capital investments. In a March 9, 2017 order, the PSC directed an immediate transition from NEM to a new tariff with two separate components: the VDER Phase One tariff; and the Value Stack tariff. This new method is also in place for the CDG program.

The VDER Phase One tariff was for net metering applications that interconnect or made a financial commitment within 90 days of the March order, or through July 17, 2017.[1] Applications that did not qualify for Phase One were evaluated under the Value Stack tariff, which is based on monetary crediting for net hourly injections to the grid, for a 25-year period. Similar to NEM, under the Value Stack, excess credits will be eligible for carry-over to subsequent billing and annual periods.

The Value Stack is calculated based on: (1) energy value based on Day Ahead hourly zonal locational-based marginal price (LBMP); (2) capacity value based on retail capacity rates for intermittent/dispatchable technologies using performance during the peak hour in the previous year, (3) environmental value based on the higher of the Clean Energy Standard Tier 1 Renewable Energy Credit (REC) price or the Social Cost of Carbon (SCC); and (4) Demand Reduction Value (DRV) and Locational System Relief Value (LSRV) based on de-averaging of utility marginal cost of service studies. CDG projects on the Phase One Value Stack Tariff will also receive Market Transition Credit (MTC) equal to the difference between the retail rate and the value stack.[2]

What does this mean for hydro?

Small hydroelectric plants up to 5MW installed capacity which are free from exclusive utility contracts can explore new opportunities to sell power direct to retail customers through the CDG program. Existing resources that do not qualify for Tier 1 under the Clean Energy Standard will not get environmental value from the CDG program, however the other components in the stack (energy, capacity, DRV and LSRV) could result in an attractive rate, depending on the utility and locations.

Natural Power Group, a Wallkill NY company is an early adopter of this new program, by currently enrolling subscribers for the Wallkill hydroelectric facility, which generates 2 million kWh annually.  The Town of Rosendale NY is considering subscribing Natural Power Group’s Community DG offering.

So, what does a NY hydro owner need to do to become a CDG Host?

  • You cannot participate if you are currently locked in a contract.
  • You must own or operate electric generating equipment eligible for net metering under Public Service Law, section 66-j or 66-l. The PSC raised the installed capacity limit from 2 MW to 5 MW in a February 2018 Order.
  • Find subscribers who are electric customers willing to accept your generation in the form of net metering credits on their electricity bill.
  • Register with the DPS and contact the utility that your generation facility is located within to ensure you meet interconnection requirements.
  • Complete the CDG Allocation Form and follow all guidance and operating procedures of the relevant utility.
  • Organize your subscriptions and interface with your utility to provide a list of subscribers and the percentage of your production to appear as a credit on their monthly utility bill.
  • Any utility customer may be a subscriber of a project in the same utility and NYISO zone.
  • Each subscriber must be allocated at least 1,000kWh per year and no more than 40% of the facility’s production may serve subscribers with an average monthly peak demand of 25kW or greater. You must allocate between 60 and 80 percent of your generation before the utility will begin the allocations.

How Dana Hall can help:  The terms of subscription, including payment structure and provisions for exiting subscriptions are set by the agreement between the subscribers and the sponsor. The Law Offices of Dana Hall, LLC are familiar with the CDG program rules and utility points of contact. We also have experience drafting subscription agreements and can help you set up your CDG project. If you are interested in exploring some of these options for your small hydroelectric plants, please contact the Law Offices of Dana Hall today!  Just email dana@danahallfirm.com.

 

[1] Phase One is effectively identical to the previous net energy metering under PSL §66-j, except the term limit of the contract is set to 20 years. Projects that don’t qualify for the Phase One NEM will be compensated based on Phase One Value Stack tariff.

[2] The MTC capacity for CDG is allocated into three Tranche buckets with decreasing values from the base rate. In January 2018 the PSC added a fourth Tranche. NYSERDA offers a Value Stack calculator on their VDER Resources page which is designed for photovoltaic installations and not hydroelectric.

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