On March 11, the New York State Energy Research and Development Authority (“NYSERDA”) filed its proposed Implementation Plan to administer its Energy Storage Market Acceleration Bridge Incentive Program and support the ambitious New York Public Service Commission (“PSC”) order issued in December 2018 requiring 1.5 GW of energy storage in New York by 2025 and 3 GW by 2030 (the “Storage Order”). The Implementation Plan breaks down the state’s incentive strategy primarily between “Retail Storage Incentives” and “Bulk Storage Incentives,” and provides essential preliminary details for sponsors, investors, and lenders considering energy storage projects in the state. Both programs will officially launch in Q2 2019. This article summarizes the key attributes of the Bulk Storage Incentives program (the “Bulk Storage Program”) and associated NYSERDA Bulk Storage Incentive Program Manual (the “Program Manual”). A prior article focuses on New York’s incentive strategy more generally and Retail Storage Incentives (see NYSERDA Unveils $350/kWh Retail Energy Storage Incentive in Implementation Plan and Program Manual).
Bulk Storage Funding and Scope
The Storage Order authorized a $310 million investment in energy storage deployment to be administered by NYSERDA, in addition to $40 million previously made available solely to energy storage paired with solar projects. The Implementation Plan preliminarily allocates $150 million to Bulk Storage Incentives. The Implementation Plan notes that an additional $53 million in Regional Greenhouse Gas Initiative (“RGGI”) funds will later be made available for Retail and Bulk Storage projects specifically located on Long Island.
The Retail Storage Incentive will be a fixed amount per usable kilowatt-hour (“kWh”) of installed storage capacity for projects greater than five megawatts (“MW”) of alternating current (“AC”) capacity that “primarily” provide wholesale market energy, ancillary services, and/or capacity services. For projects less than 20 MW in size, the incentive level is determined by the year in which a project application is submitted to NYSERDA. For projects greater than 20 MW, the incentive level is determined by the applicable New York Independent System Operator (“NYISO”) Class Year in which the project will be examined. Projects that only provide energy arbitrage or ancillary services will receive 75% of the incentive rate. The Program Manual provides the following incentive levels:
The Implementation Plan states that the Program Manual will set forth a maximum incentive per project, but the first version of the Program Manual includes no cap. NYSERDA staff have indicated a cap will be included in the next version of the Bulk Storage Program Manual.
The following projects are not eligible for the Bulk Storage Incentive:
NYSERDA reserves the right to adjust the final incentive levels based on “market factors” and as necessary to “optimize the…ability to achieve overall program goals.” However, any such changes will not reduce the size of incentive amounts for projects that have already received awards.
Initial Award Reservation and Staggered Payments
An applicant will initially receive an award notice and issued contract reserving incentive funds for the given project. Thereafter, the “Participating Contractor” of record must demonstrate progress on various major project milestones outlined in the Program Manual, including interconnection, permits, construction, and financing. Contractors must submit progress updates every 90 days. A project size may not increase without re-applying at the current incentive level. Projects up to 20 MW have 18 months to achieve commercial operation. Projects greater than 20 MW have 24 months from completion of the NYISCO Class Year process to achieve commercial operation. Otherwise, an award will be canceled unless NYSERDA approves an extension.
Generally, the incentive amount will be paid in four equal amounts, with the first payment occurring after the system receives utility permission to operate and achieves commercial operation, and, thereafter, on the first, second, and third annual anniversaries of the commercial operation date. In the case of projects seeking capacity rights, the third and fourth payments will not be issued until the project receives and begins providing capacity services.
Prospective applicants should strongly consider project characteristics emphasized in the Implementation Plan that are likely to be viewed favorably by reviewers. The Implementation Plan is intended to pursue various specific grid benefits: reducing peak demand, increasing grid flexibility and resiliency, and time-shifting cleaner generation to displace higher-emitting generation sources. The Implementation Plan also makes clear that an overarching goal is market acceleration to encourage a flourishing, self-sustaining market that ultimately operates without incentives. Finally, the Implementation Plan reflects an eagerness for the developers to invest in establishing or growing New York business operations, as well as target projects to benefit low-to-moderate income (“LMI”) communities. All prospective projects should be evaluated through the prism of these desired energy, market, and economic outcomes.
Coordination with Utility Bulk Storage Dispatch Rights RFPs
Developers should take special note that projects entering into utility contracts pursuant to bulk storage dispatch rights RFPs will not be eligible for the Bulk Storage Program. NYSERDA states in the Implementation Plan that such contracts’ fixed revenue streams for terms of up to seven years will result in a comparatively lower cost of capital for projects. Accordingly, NYSERDA intends to conduct an economic evaluation of RFP proposals and work with each IOU to determine an appropriate incentive for such contracted projects. This approach may cause concerns for developers whose financing parties generally rely on up-front transparency with respect to project economics and incentives more specifically.
System Eligibility and Application Requirements
Eligible systems must be operated to serve New York’s electrical system. Systems may be interconnected at transmission, sub-transmission, or distribution levels in all investor-owned utility service territories and associated NYISO Zones, as well as on Long Island in NYISO Zone K. The Bulk Storage Program excludes Con Edison’s service territory, as incentives will be exclusively administered through Con Edison’s Bulk Storage Dispatch Rights RFP.
Each project must satisfy the following requirements:
Project Development Milestones and Verification
Once fully launched, the NYSERDA website will contain a portal for online applications. Application submissions must include the following information, among other materials identified in the Program Manual:
NYSERDA will conduct pre- and post-commissioning field or photo inspections for every awarded project, along with a 90-day measurement and verification period following installation.
All projects must use a NYISO or electric distribution utility revenue grade meter to record charge and discharge activity. Applicants must provide 15-minute interval data to NYSERDA through automated data transfer, for a period of at least five years.
Contractor Eligibility and Assignments
Participating Contractors are fully responsible for all aspects of a project, much like the Retail Program. However, the Bulk Storage Program does not require a separate contractor certification process aside from requiring that the Contractor is registered to do business in New York State. Rather, in its first application to NYSERDA, the Participating Contractor must provide key personnel and organizational material, as well as evidence of experience developing bulk energy storage or similar utility-scale energy installations. NYSERDA will also consider an applicant’s prior track record with NYSERDA initiatives, if applicable.
Contractors are free to assign a project or its incentive payments to another party at any stage of the Bulk Storage Program, provided the Contractor provides NYSERDA with documentation that the assignee otherwise meets Program Manual eligibility and the Contractor and assignee sign the project application agreeing to the assignment. If the assigned project has not commenced commercial operation, the Contractor shall provide evidence of the assignee’s experience developing bulk storage or other energy projects.
Unlike the Retail Program, the Bulk Storage Program Manual provides specific Clawback provisions subjecting incentive payments to recapture. NYSERDA may seek reimbursement if any of the following occur at any time: