FAQ: Reforming Buyer-Side Mitigation for a Reliable, Greener Grid
The New York State Climate Leadership & Community Protection Act (CLCPA) sets the stage for aggressive state action to reduce greenhouse gas emissions and promote expansion of renewable, distributed energy, and energy storage resources.
To support grid reliability and maintain the benefits to consumers from New York’s wholesale electricity markets, it is imperative that we develop market rules that harmonize markets with state public policy goals.
To further prepare for the increasing entry of clean energy resources, we have developed a proposal, with broad stakeholder support, to reform capacity market Buyer-Side Mitigation (BSM) and capacity market accreditation rules. BSM rules were initially developed to make sure capacity market prices stay competitive. With the CLCPA focused on transitioning the grid to clean energy technologies, the time has come to reform the mitigation framework to bring competitive electric markets in line with state renewable and decarbonization policies.
The Installed Capacity Market is undergoing significant change since BSM measures were first implemented in 2008. BSM rules were developed to evaluate the competitiveness of traditional generators, but new resource types, such as battery storage, weather-dependent and distributed resources, are fundamentally different in design and operation.
Here are the key details:
What is Buyer-Side Mitigation (BSM) and how does it work?
The purpose of the capacity market is to help make sure the grid has enough generation at all times to meet energy demand. Capacity markets promote reliability on the grid, especially on high-demand days such as in the summer when increased air conditioning pushes load to higher levels, or in winter when heating and holiday lighting require additional generation to be on standby.
While certain other market rules work to make sure no one market participant can unduly drive prices higher, BSM rules guard against market participants’ potential to drive capacity prices lower than what the competitive market should bear.
Maintaining competitive prices provides market participants with the proper economic signals for investment. Attracting investment in new or upgraded supply resources, where and when needed, helps maintain grid reliability so our lights stay on during even the most challenging conditions.
Why does BSM need to change?
New York’s grid is evolving to meet the needs of a changing climate. The CLCPA requires an economy-wide approach to addressing climate change and decarbonization. The CLCPA calls for a 70% renewable energy grid by 2030 and an emissions-free grid by 2040, as well as significant milestones for solar, offshore wind, and energy storage growth. BSM rules were developed at a time when “lowest cost” was the key consideration in evaluating the competitiveness of generators regardless of where that power came from, be it gas, oil, nuclear, or hydro.
Many of the new resources entering the markets in response to environmental policies receive out-of-market payments (such as state or federal incentives) for their clean-energy attributes. Other resources in the market may not qualify for such subsidies.
The current rules do not recognize the state clean energy policy objectives. It’s important that NYISO market rules do not hamper the development of new, cleaner resources as we pursue state CLCPA mandates.
What are we doing to improve the Capacity Market and BSM?
Throughout 2021, the NYISO engaged stakeholders and policymakers regarding a broad set of BSM and capacity accreditation rules in what was referred to as a Comprehensive Mitigation Reform project. The result of that engagement was a broad proposal of reforms that our stakeholders overwhelmingly approved, with more than 80% in favor. Support came from all sectors of shared governance, and included support from New York State, New York City, municipalities, suppliers, and transmission owners. The proposed changes are currently before the Federal Energy Regulatory Commission (FERC) for acceptance.
These stakeholders agreed with the NYISO that the proposal supports just and reasonable capacity market rates, will continue to attract and retain resources to maintain reliability, and will withstand any legal challenges.
To that end, we are proposing the following changes to the capacity market:
- Create an exclusion from the BSM rules for resource types that align with New York State’s CLCPA mandates, including wind, solar, energy storage, and demand response resources that are entering the market in response to the CLCPA. This will allow for the growth of CLCPA-driven investment while still protecting the markets. It will also allow the market to continue to produce just and reasonable prices needed to meet resource adequacy needs while avoiding conflict with CLCPA mandates.
- Reform capacity accreditation rules to align capacity market compensation with the reliability contribution of specific technologies. We’re modifying the process for determining how much capacity resources are eligible to offer into our competitive markets to reflect the reliability value that all energy resources bring to the energy grid as a whole. In order to maintain reliability as the resource mix quickly evolves, it is essential to align a resource’s reliability contribution with its capacity value.
In order to maintain reliability, it is important that all manner of energy resources are available to meet demand as we move to a grid of the future.
To learn more, read our press release.