New York’s Microgrid Plans Depend on Sound Policies

New York is pioneering new energy models called microgrids that aim to make the electricity grid more reliable and provide power to certain assets during blackouts. These self-contained electricity distribution systems offer numerous advantages, such as vastly improved resiliency at a reduced cost, as well as the flexibility to incorporate renewable energy sources such as wind or solar power. As this new power strategy takes shape, questions remain concerning how to govern and pay for microgrids.

New York is becoming a regional and national leader in developing updated energy systems, especially as Governor Andrew Cuomo has prioritized the construction of more robust energy infrastructure.

Public utilities providing energy are subject to stringent rules and processes. The task of monitoring projects and shaping policy falls mostly to state utility regulators. The New York State Public Service Commission (NYPSC) is charged with “the responsibility to set rates and ensure that adequate service is provided by New York’s utility.”

The NYPSC recently turned its attention to the New York Department of Public Service’s Reforming the Energy Vision (REV), a proposal that seeks to reshape the state’s energy industry and regulatory practices. The project will “create a grid operator that manages distributed energy much the way independent system operators now manage bulk power markets in the U.S.” called a Distributed System Platform Provider (DSPP). This would act as a competitive platform where distributed energy players could buy and sell, creating a market dynamic that could determine rates, direct systems, and address distribution grid needs. This hearing is forcing the NYPSC to tackle policy questions head on, including deciding who would take on the DSPP role.

One prime concern is developing the optimal ownership structure. There are a number of key players to consider, including utility companies like Consolidated Edison (Con Edison), which have to make changes to their business models, and consumers who would be empowered to control their consumption behavior. Currently, the PSC is considering a competitive landscape between utilities and other distributed energy resource developers, as opposed to the alternative of a monopoly framework ensuring utilities exclusive ownership of distributed energy resources.

Agreeing on rules for cost recovery and rates for consumers will be critical. The viability of these energy initiatives will rely on the development of an appropriate pricing system.

Traditionally, utilities and investors rely on consumer rates to recover the cost of investment and allow for an acceptable level of profit. In the wake of the destruction from superstorm Sandy, the New York States PSC rejected utility Consolidated Edison’s (Con Edison) request to increase rates in order to implement resiliency measures, requiring that consumer rates should remain essentially flat over the course of rate plans. Thus, the financing for many new projects must be gathered from other sources.

The state of New York is taking steps to supply these projects with adequate funding. For example, Governor Cuomo recently launched a competition that would award $40 million to launch around ten community-based microgrids; this is just one of the many funding programs at different levels of government. Nonetheless, while there is some taxpayer money behind implementing microgrids, it will be critical to attract long-term investors to create a sustainable infrastructure. Garnering this private support will require both transparency and profitability within the industry.

Advancements like these could establish New York as a groundbreaker in energy policy, but their success will depend on finding the right answers to these essential questions.