New York and the Standby Tariff: A Breakthrough for Clean, Distributed Energy

ny-clean-fallFor New Yorkers wanting more clean, distributed energy, the recent Con Edison rate case offers some good news.

Presented to New York’s Public Service Commission (NYPSC), which regulates utilities in the state, a rate case is a process utilities use to adjust policies and set rates charged to customers. A rate case occurs once every few years and provides an opportunity for state and local governments, along with consumer and environmental advocacy groups, to seek cleaner, cheaper, and more customer-friendly electricity.

The Con Edison rate case is considered a bellwether for similar proceedings involving electric utilities throughout New York State – which is part of why a recent filing with the NYPSC is so important. Along with more than 20 other parties (including Con Edison, the Real Estate Board of New York, the New York Energy Consumers Council, and several environmental advocacy groups), Environmental Defense Fund (EDF) on September 20th filed a joint proposal with NYPSC that (among other recommendations) calls for changes to the current standby tariff that are likely to be approved by the Commission.

The standby tariff is a special rate charged to commercial and industrial customers who produce some of their own electricity, but remain connected to the grid. It has been a significant roadblock to widespread deployment of distributed generation, such as combined heat and power (CHP) systems, because it imposes burdensome costs and complex regulations on businesses and institutions that produce some of their own electricity independently from the utility.

The joint proposal filed by EDF, Con Edison, and others presents several solutions for improving the standby tariff that will make it easier for people, businesses, and institutions to invest in clean, distributed energy resources.

Exemptions for “Efficient CHP”
Together with the Pace Energy and Climate Center (the Pace Center), Environmental Defense Fund (EDF) called for changes to the standby tariff that favor clean, distributed generation, i.e. customer-sited power sources that emit low or zero greenhouse gases and greatly reduce nitrous oxides (NOx), which are harmful pollutants. This is an important distinction, since some distributed generation – like diesel generators – actually contribute to pollution and harm public health. That’s why EDF and the Pace Center recommended that clean distributed energy resources be given preference in qualifying for exemptions from the standby tariff.

The joint proposal recommends a much longer exemption for combined heat and power systems. Known more commonly as CHP, combined heat and power systems are most likely to be installed by businesses, industry, and institutions such as universities and hospitals. CHP systems recapture waste heat from natural gas-fired electricity generators and use it to produce steam or hot water for space heating, domestic hot water, or industrial processes. By recapturing waste heat for useful purposes, CHP can cut fuel costs and simultaneously reduce greenhouse gases and NOx pollution.

As defined in the standby tariff, “Efficient CHP” means CHP systems that meet minimum standards of efficiency (currently 60 percent average annual efficiency) and maximum limits on NOx emissions (currently 4.4 lbs./megawatt hour). Efficient CHP systems are currently exempted from the tariff for four years, which is not long enough to recoup the multimillion dollar investment typically needed to install CHP systems. The joint proposal pushes the exemption to 10 years, which would make for a much more attractive investment and spur greater investment in CHP systems.

Importantly, the new exemption would tie the length (and therefore, financial value) of the exemption to the degree of efficiency achieved by the CHP system: the more efficient the system, the longer the exemption. CHP systems that achieve average annual efficiencies of 63 to 65 percent will be entitled to a 7-year exemption, and systems that achieve average annual efficiencies of 63 percent or greater and achieve peak efficiencies of 65 percent or greater will be entitled to the full 10-year exemption.

The new standby tariff exemption would be available for up to 50 megawatts of new or expanded efficient CHP between now and 2019. A recent report by Sue Tierney of the Analysis Group suggests, based on data showing current deployment of distributed generation , that this new exemption could increase deployment of CHP systems in New York City by at least a third in just the next few years, as CHP developers race to bring their projects within the 50 megawatt cap and meet the 2019 application deadline.

Benefits of expanding Efficient CHP
Stronger efficiency standards are critical for fighting climate change because the more efficient the CHP system, the less fuel that must be burned (and the lower the corresponding greenhouse gas emissions) to produce the same amount of electricity and usable heat energy.

An additional benefit of the new exemption is that it would improve public health because only CHP projects that can reduce NOx emissions to 1.6 lbs. per megawatt hour or less will qualify for the exemption, resulting in a projected reduction of 64 percent in permitted emissions of this pollutant.

The new exemption incorporates several concepts advocated by EDF and the Pace Center and would likely spur rapid growth of clean distributed generation because it recognizes that up to 10 years of freedom from the onerous standby tariff may be needed to spur greater investment in Efficient CHP systems.

New exemptions for batteries
EDF and the Pace Center also proposed a standby tariff exemption for energy storage technology, specifically batteries. Energy storage is a vital part of clean, distributed energy systems because it helps balance the intermittency of renewable energy sources like wind and solar. As a result of our advocacy, the joint proposal contains an exemption from the standby tariff for battery storage systems up to 1 megawatt, and a further exemption for battery storage systems larger than 1 megawatt (available for up to 25 new megawatts in total of this kind of battery storage). 1 megawatt of battery storage is enough capacity to significantly reduce peak electricity demand in commercial buildings, operate emergency lighting and other safety systems in the event of a power outage, or supply the power needs of a few hundred homes.

A Promising Future
New York is in the midst of a promising effort to reinvent its electricity system called Reforming the Energy Vision. The measures outlined in the September 20th joint proposal are integral to its success.

Assuming the Public Service Commission approves our recommendations in the Con Edison rate case, New Yorkers can look forward to a burst of new clean distributed generation that could reduce air pollution, curb climate emissions, and strengthen our 21st century grid.

This is the second installment in a two-part blog series about the standby tariff. Click here for part one.

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