Market Forces

Nature-based solutions can help New York and New Jersey adapt to rising seas and intensifying storms

Are we prepared?

With peak hurricane season upon us and what seems like daily coverage of record storms, floods, and ice melt, climate adaptation solutions should be top of mind for individuals and governments alike. After all, recent data show billion-dollar disaster events continue to take place with increasing frequency. Here in New York, many are wondering whether we’ll be ready when the next big storm hits. An emerging consensus —even among local elected leaders —seems to be: “Nope.”

The ongoing upward trend in global GHG emissions suggests we are far from experiencing the worst impacts of a changed climate. And while swift decarbonization is a first-best solution, we also need to bolster community resilience to prepare for the climate impacts around the corner.

What to expect?

New York and New Jersey are acutely vulnerable to sea level rise and storm intensification. Roughly 400,000 New York City residents currently live in an area with a 1% annual chance of flooding. The region’s coast has a booming property market, with an estimated $101.5 billion of property value in an area with a 0.5% annual chance of flooding. Like so many coastal communities, a significant number of lives, assets, and locations of priceless social value are at stake.

An intermediate scenario from NOAA anticipates global mean sea level will rise by more than three feet by 2100. The New York City Panel on Climate Change recently introduced a new low-probability, high-impact “Antarctic Rapid Ice Melt” scenario, which considers the triggering of a critical tipping point that would result in 9.5 feet of sea level rise by 2100.

The science is clear: our coastline is going to look very different by the end of the century.

What can we do?

Superstorm Sandy was a wakeup call. It exposed myriad deficiencies with regard to disaster response, electricity systems, and post-disaster recovery. The storm incurred more than $19 billion in damages in New York City alone, and led to the deaths of 24 people from my home borough of Staten Island.

In the wake of the storm, a number of promising policy responses created momentum toward greater resilience in the region. One major effort is the Army Corps of Engineers’ “New York-New Jersey Harbors and Tributaries Study,” a comprehensive regional assessment spanning 900 miles of shoreline and 25 congressional districts  that will prompt the development of large-scale storm risk mitigation infrastructure projects across both states.

This work has massive implications. One of the alternatives includes a five-mile storm surge barrier, stretching from Breezy Point, Queens, to Sandy Hook, New Jersey. The preliminary price tag of the projects in this alternative: $118.8 billion. While this is just one of five alternatives under consideration, it is clear the Corps’ work will be expensive, transformative and serve as the backbone of the region’s storm risk mitigation infrastructure for generations.

Natural infrastructure can play a part

While the vast majority of the infrastructure solutions considered in the NYNJHATS study are grey — i.e., human-engineered structures which often include steel or concrete— nature-based solutions deserve full consideration as well, because they can be economically viable components of our adaptation strategies. For example, earlier this year the Corps released a final report for a smaller civil works project—still expected to cost more than $600 million—in the Rockaways and Jamaica Bay. EDF successfully advocated to include more than nine acres of new and restored wetlands and maritime forests, and they were ultimately included, as they were deemed the most viable and economically justified solutions in those cases.

While by no means a silver bullet, nature-based solutions are sometimes the most cost-effective flood mitigation options at our disposal. Unfortunately, current Corps guidance does not factor certain incidental benefits, including those from ecosystem services, into cost-benefit analyses. This means things like improved water quality, oxygenation, carbon sequestration, and habitat restoration are excluded from the calculation, on the grounds they are difficult to quantify. Even so, the recent release of “Engineering with Nature: An Atlas” suggests the Corps is moving in a direction that will feature natural infrastructure solutions more prominently in future coastal adaptation efforts.

In the face of historic sea level rise and flood risk, natural and nature-based solutions can play a key role to restore ecosystems and serve as additional lines of defense against flooding in New York and New Jersey. Adaptation authorities need to consider the full range of benefits natural and nature-based flood risk mitigation projects can provide, otherwise we run the risk of leaving economic value on the table. Adapting to climate change is going to be a costly endeavor- let’s not make it more expensive than it has to be.


Posted in Climate science, Economics / Leave a comment

How reverse auctions can help scale energy storage

This post is co-authored with Maureen Lackner

Just as reverse auctions have helped increase new renewable energy capacity, our new policy brief for the Review of Environmental Economics and Policy argues they could also be an effective approach for scaling energy storage.

Why we need energy storage

Voters have spoken, and states are moving toward cleaner electricity. Legislatures in Hawaii and California passed mandates for 100 percent clean energy in the electricity sector, and governors in Colorado, Illinois, Nevada, New Jersey, New York, Maine, and Michigan have all made similar 100 percent clean energy promises in recent months. These ambitious targets will require large-scale integration of wind and solar energy, which can be unpredictable and intermittently available. Cost-effective energy storage solutions can play a leading role to provide clean, reliable electricity—even when the sun isn’t shining and wind isn’t blowing.

Energy storage systems—ranging from lithium-ion (Li-ion) batteries to hydroelectric dams—can provide a wide array of valuable grid services. Their ability to bank excess energy for use at a later date makes them particularly well-suited to address the intermittency challenge of wind and solar. In some cases, energy storage systems are also already cost-competitive with natural gas plants.

However, in order to reach ambitious clean energy targets, we’ll likely need to close a large energy storage gap. One recent estimate suggests approximately 10,000 Gigawatt hours (GWh) of energy storage may be needed to support a two-thirds renewables domestic electricity mix. In our policy brief, we estimate the United States currently has no more than 10 percent of this utility-scale energy storage capacity available; the actual quantity is likely much lower. Developing vast levels of energy storage will likely be an important factor toward integrating a greater share of renewables into the energy mix. Smart policy design can help drive energy storage prices even further below current historic lows, while ensuring these technologies are procured cost-effectively.

A path forward: using reverse auctions to scale energy storage

Reverse auctions have already helped scale renewables and, when designed well, may also be an effective tool when applied to energy storage. In a reverse auction, multiple sellers submit bids to a single buyer for the right to provide a good or service. In the case of renewables, developers bid to provide a portion of capacity desired by the buyer, typically a utility. This policy tool is gaining in popularity, because, if designed well, it can drive down bid prices and ensure reliable procurement. Globally, the share of renewables capacity procured through reverse auctions is expected to grow from 20 percent in 2016 to more than 50 percent in 2022. It seems likely that auction-induced competition has triggered a fall in renewable prices that some are calling the “Auctions Revolution.”

While examples in Colorado and Hawaii suggest reverse auctions can be effective in procuring energy storage, there’s little guidance on tailoring them for that purpose. We offer five recommendations:

1: Encourage a Large Number of Auction Participants

The more developers bidding into an auction, the fiercer the competition. How policymakers approach this depends on their end goal. In a 2016 Chilean auction, bidding was open to solar and coal developers, and policymakers were pleased when solar developers offered cheaper bids on a dollar per megawatt-hour basis than coal developers. Another approach: signaling consistent demand through auction schedules. Participation in South African renewable auctions increased after auction organizers took steps to give advance notice and instructions for future regular auctions.

2: Limit the Amount of Auctioned Capacity

If competition still seems tepid, auctioneers can always scale down the amount of capacity auctioned. As witnessed in a South African renewable auction, bidders respond to a supply squeeze by decreasing their bid prices.

3: Leverage Policy Frameworks and Market Structures

Auctions don’t exist in a vacuum. Renewable auctions benefit tremendously from existing market structures and companion policies. Where applicable, auction design should consider the multiple grid services energy storage systems can offer. Even if an auction is only focused on energy arbitrage, it should not preclude storage developers from participating in multiple markets (e.g. frequency regulation), as this may help bidders reduce their bid prices.

4: Earmark a Portion of Auctioned Capacity for Less-mature Technologies

A major criticism of early auctions is that they unintentionally favored the same large players and mature technologies. Policymakers shouldn’t forget that energy storage includes several technological options; they can design auctions to address this by separating procurement for more advanced technologies (Li-ion, for example) from newer technologies (zinc air batteries).

5: Penalize delivery failures without damaging competition

Developers should be incentivized to bid their cheapest possible price, but poor auction design can trigger a race to the bottom with ever more unrealistic bid prices. This is especially true if developers don’t believe they will be punished for delivery failures or poor quality projects. Already, some contract terms for energy storage by auctions include penalties if the developer cannot deliver its promised grid service.

Decarbonizing our energy supply isn’t an easy task. Reverse auctions stand out as a possible tool to quickly and cost-effectively increase our energy storage capacity, which will help integrate intermittent renewables. If this market-based mechanism can be tailored to suit energy storage systems’ capabilities (e.g. offering multiple grid services), it could help shift us to a future where we have access to clean energy at any time of day and year.

Posted in Energy efficiency, Markets 101 / Leave a comment