Month: May 2023

Highlights

• Annual Procurement Targets: in 2021, NYSERDA procured the greatest number of RECs in a given year, at 4.5 million Tier 1 RECs;
• Contract Attrition: About 14% of awarded contracts have been cancelled, representing 2.7 million MWh of Tier 1 RECs or just over 1GW of projects;
• Bid prices: Bid prices have come down from 2017 to 2020. Additionally, we see lower bid prices associated with larger projects, likely due to economies of scale. Bid prices from the 2021 solicitation have not yet been made public;
• Bid Price Structure: Since the introduction of the Index REC price structure in 2020, all awarded contracts have employed the Index REC. Currently only 5% of contracts awarded up to 2020 employ the Fixed REC price structure;
• Increase and Addition of Minimum Threshold Requirements: Interconnection and Permitting Viability categories saw an increase in the minimum requirements in 2021, while Energy Deliverability and Peak Coincidence categories were added; and
• Economic Benefits Priorities: A third category was introduced, Investments/Commitments to Local Economic and Workforce Development, and economic benefits that could be directed, in whole or in part, to Disadvantaged Communities would continue to be prioritized.

Introduction

Bid Price Trends

The 2021 Tier 1 procurement bid prices have not yet been made publicly available for the twenty-two projects awarded contracts. However, it is expected that they will be made available in Q2/Q3 2023. 

The chart below displays the Index REC pricing by procurement year from 2017 to 2020. As expected with economies of scale, we tend to see an inverse relationship between bid price and project size (MW), where the bid price decreases as the project size increases. A popular project size of 19.99 MW is noted across the four procurements, as this project size minimizes the bid fee (20 MW threshold) and environmental permitting obligations (25 MW threshold), while maintaining adequate economies of scale. Currently almost 50% of contracted projects are 19.99 MW or less in size.

Contract Attrition

NYSERDA has seen a significant amount of attrition in awarded Tier 1 projects. Procurements in 2017, 2018, and 2020 saw 50%-60% attrition of those years’ procurement targets. The current contract attrition rate from 2017 to 2021 dropped to 14% with the addition of the newly awarded contracts in 2021. However, it is too early to tell what percentage of 2021 contracts may be cancelled.

Continuing NYSERDA’s efforts to pre-emptively screen for unviable projects, NYSERDA once again increased certain Minimum Threshold Requirements, which would ultimately prevent an immature or unproven project from receiving a contract award. Further to this, in 2021, NYSERDA introduced the Non-Viability Determination, which would authorize the Technical Evaluation Panel (“TEP”) to reject a Bid Proposal based upon a unanimous determination by the TEP that the project is not presently viable. Reasons for a determination of non-viability may include:

• The Bid Proposal is immature to such an extent that it would be impossible to ascertain whether it is viable;
• The Bid Proposal is predicated on unrealistic economic or regulatory assumptions; or
• The Bid Proposal is subject to serious economic or regulatory risks without a sufficient mitigation plan.

As noted in the 2020 White Paper, a project that offers a very low, perhaps an unrealistically low REC price could score well enough on the price criterion to be selected, despite receiving the lowest possible score on the project viability criterion. Selecting such projects for award would have a high likelihood for contract attrition and could jeopardize NYSERDA’s 70 by 30 Target. It is the intention of the Non-Viability Determination to avoid this situation.

Adjustments to the Scoring Matrix

The 2020 White Paper recommended that the Project Viability category and Operational Flexibility and Peak Coincidence category, each worth 10%, be combined into a single category worth 20% of the total score. The reason for the proposed change is that considerations in the Operational Flexibility and Peak Coincidence category will be increasingly intertwined with Project Viability as the penetration of renewable energy increases. Projects that are operationally flexible (dispatchable) and peak coincident will also be those most likely to avoid curtailment, local reliability constraints, and burdensome interconnection requirements. Consolidating these categories will allow evaluators to better reward projects that are truly exceptional across these metrics. The 2021 Tier 1 procurement incorporated this adjustment to the scoring matrix.

Increase in Minimum Threshold Requirements

In 2021, the Minimum Threshold Requirements were updated across two of the Project Viability categories: Interconnection and Permitting. Two additional categories were added: Energy Deliverability and Peak Coincidence.

The Interconnection Minimum Threshold Requirement appears to have been maintained at NYISO Interconnection Stage 5, that a System Reliability Impact Study (“SRIS”) or System Impact Study (“SIS”) is in progress, however the required minimum evidence was updated to include evidence of deposit and fees paid to commence the SRIS/SIS.

With the updated scoring matrix, which combines the Operational Flexibility and Peak Coincidence categories within the Project Viability categories, Energy Deliverability became a new Minimum Threshold Requirement category.

In the previous procurement the Proposer had the opportunity to score points by “demonstrating with currently available knowledge, that their proposed point of delivery into the NYCA, along with their proposed interconnection and transmission and/or distribution upgrades, is sufficient to ensure full energy dispatch of the Bid Facility’s expected generation output.” (RESRFP20-1) In 2021, the scoring opportunity was maintained with an increased focus on the importance of “the benefits afforded to the electric grid in light of the CES goals to expand the share of renewable energy as a portion of total energy consumed in New York State to 70 percent by the year 2030 (“70 by 30 Target”), including benefits to address grid congestion and delivery constraints, and the extent to which a Proposer can demonstrate that the Bid Facility can deliver firm power (e.g., Bid Quantity as proposed to NYSERDA) to the electrical system without adversely impacting the generation output profile of both existing and planned renewable generators.” (RESRFP21-1)

In addition to the robust Permitting Plan requirement introduced in the previous solicitation, the Permitting Minimum Threshold Requirement increased in 2021 to require a minimum level of permitting studies based on the expected permitting process of the proposed Bid Facility. Bid Facilities proceeding through the Office of Renewable Energy Siting (“ORES”) must provide evidence that the following studies have been completed: 1) Wildlife Characterization Report, 2) Draft Desktop Wetlands and Water Resources Delineation, and 3) Phase IA Archeological Desktop Survey.

Peak Coincidence was also named as a new Minimum Threshold category in 2021, however the inputs required by a Proposer are quite minimal and appear to be covered by the Interconnection and Energy Deliverability categories. In this category, NYSERDA will evaluate how closely the Bid Facility’s expected generation profile matches future estimates of NYISO load, and how the Bid Facility completements other renewable generation already under contract to New York State.

Incremental Economic Benefits to New York State

Incremental Economic Benefits to New York State, representing 1/3^rd of the 30 non-price points, ranks bid submissions on the extent of eligible expenditures committed to. Eligibility begins from RFP Release Date through the life of the contract. NYSERDA continued their prioritization of Disadvantaged Communities and stated that “NYSERDA will more favorably evaluate economic benefits to New York State that will be realized in part or in full by Disadvantaged Communities as part of the proposed projects’ development.” New York’s Climate Act recognizes that climate change does not affect all communities equally. The Climate Act charged the Climate Justice Working Group (“CJWG”) with the development of criteria to identify disadvantaged communities to ensure that frontline and otherwise underserved communities benefit from the state’s historic transition to cleaner, greener sources of energy, reduced pollution and cleaner air, and economic opportunities. NYSERDA offers a map tool online, which can help to identify Disadvantaged Communities.

NYSERDA introduced a third category of economic benefits, Investments/Commitments to Local Economic and Workforce Development. This category is evaluated based on firmness, credibility, and maturity of the commitments. Commitments under this category include apprenticeships, internships, training, etc. Proposers are encouraged to work with the host community or Authority Having Jurisdiction (AHJ) to determine if there are economic benefit opportunities that could be uniquely afforded to one or more local organizations or groups.

Economic Benefits in category 1 (long-term) and category 2 (short-term) committed to, up to Contract Year 3, form part of the contract and as such must be verified by an independent certified public accountant (“CPA”). If the Economic Benefits Report evaluated by the independent CPA cannot verify that at least 85% of the committed spending occurred in NYS and as stated, then NYSERDA has the right to adjust the monthly REC price payable for the remainder of the contract term by a percentage equal to the deficit noted in through the verification process. Due to the above, Economic Benefits that occur prior to the end of Contract Year 3 are prioritized over commitments that may occur further in the future.

Compass’ Support

Compass has managed the submission of nearly 1.5 GW of awarded projects in the Tier 1 procurements over the last five years. For more insights on NYSERDA’s Tier 1 procurements, reach out directly to myself at rachelle@compassenergyconsulting.ca to see where we can best support your goals in New York.

Rachelle Lynne-Davies, P.Eng.
Associate Director
Compass Energy Consulting

rachelle@compassenergyconsulting.ca

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Highlights

• Annual Procurement Targets: From 2017 to 2020, NYSERDA has procured on average 250% of their annual procurement targets;
• Contract Attrition: About 1/5th of awarded contracts over the 2017 to 2020 time period have been canceled, representing 2.7 million MWh of Tier 1 RECs or just over 1GW of projects;
• Bid prices: Bid prices have come down from 2017 to 2020. Additionally, we see lower bid prices associated with larger projects, likely due to economies of scale;
• Bid Price Structure: Since the introduction of the Index REC price structure in 2020, all awarded contracts have employed the Index REC. Currently, only 5% of contracts awarded up to 2020 employ the Fixed REC price structure;
• Increase and Addition of Minimum Threshold Requirements: Interconnection, Permitting, and Financing Project Viability categories all saw an increase in the minimum requirements in 2020, in an attempt to weed out non-viable projects and reduce contract attrition. A new category, Embodied Carbon and Carbon Emissions, was added; and
• Economic Benefits Priorities: The concept of Disadvantaged Communities was introduced, where economic benefits that could be direct in whole or in part to these communities would be prioritized.

New York State Energy Research and Development Authority (“NYSERDA”) has procured large-scale renewables through the Renewable Energy Standard Tier 1 program since 2017. The 4^th annual Tier 1 procurement in 2020 resulted in awards for twenty-one solar projects, including three with energy storage, and one hydroelectric facility, to develop 2,111 megawatts (“MW”) of new, renewable energy capacity throughout New York State. The awarded contracts support the development of 30 megawatts, or 120 megawatt-hours (“MWh”), of utility-scale energy storage.

Annual Procurement Targets & Timelines

Due to delays mainly caused by COVID-19, the typical timeline for the issuance of the Tier 1 procurement was pushed back from late April to late July 2020, causing about a 3-month delay. NYSERDA surveyed developers to understand whether or not delaying the procurement further would be helpful or harmful. Bid packages were ultimately submitted in late October 2020. This initial delay led to further delays in the review of bid packages and contract award notifications and ultimately caused contract negotiations to bleed into 2021.

Bid Price Structures

The 2020 Tier 1 procurement saw the introduction of the Index REC price structure. The Index REC price structure offers a variable monthly payment depending on the reference energy and reference capacity prices calculated for that month. The Proponent bids a fixed strike price that gets adjusted by the Index REC price formula over the Contract Term. While NYSERDA still allows Proponent’s to bid a Fixed REC, since the introduction of the Index REC price structure, all contracted projects have been Index REC proposals. In early 2021, previously contracted projects with a Fixed REC price structure were offered an opportunity to convert to an Index REC price structure. Currently, only four Tier 1 projects with active contracts from 2017 to 2020 remain under the Fixed REC price structure, or 5%.

Bid Price Trends

The chart below displays the Index REC pricing by procurement year from 2017 to 2020. As expected with economies of scale, we tend to see an inverse relationship between bid price and project size (MW), where the bid price decreases as the project size increases. A popular project size of 19.99 MW is noted across the four procurements, as this project size minimizes the bid fee (20 MW threshold) and environmental permitting obligations (25 MW threshold), while maintaining adequate economies of scale. Currently almost 50% of contracted projects are 19.99 MW or less in size.

Contract Attrition

NYSERDA has seen a significant amount of attrition in awarded Tier 1 projects. Procurements in 2017, 2018, and 2020 saw 50%-60% attrition of those years’ procurement targets. However, due to the substantial over-procurement across those years, this translates to just under 20% contract attrition from 2017 to 2020. Included in the canceled 2020 contracts, was 20 MW of energy storage or 80 MWh of storage capacity.

In an effort to pre-emptively screen for unviable projects, NYSERDA began their trend of increasing certain Minimum Threshold Requirements, which would ultimately prevent an immature or unproven project from receiving a contract award.

Increase in Minimum Threshold Requirements

In 2020, the Minimum Threshold Requirements were increased across three of the Project Viability categories: Interconnection, Permitting, and Financing.

The Interconnection Minimum Threshold Requirement increased from simply having submitted a valid interconnection request and providing evidence of initial fee payment, to requiring that a System Reliability Impact Study (“SRIS”) or System Impact Study (“SIS”) is in progress. In terms of New York Interconnection System Operator’s (“NYISO”) interconnection status key, that is an increase from Stage 1 all the way to Stage 5. This drastic escalation in minimum required interconnection progress set the bar high and eliminated immature projects from being eligible to submit in the 2020 Tier 1 procurement.

The Permitting Minimum Threshold Requirement increased in 2020 to require a robust Permitting Plan document following NYSERDA’s detailed guidance provided in an appendix. The guidance document details a hierarchal mitigation approach as well as the potential requirement to make mitigation payments where projects overlapped with Mineral Soil Groups 1-4. The Permitting Plan must demonstrate a full understanding of the potential environmental and agricultural impacts of the project and feasible plans to mitigate such impacts.

The Project Development Minimum Threshold Requirement category was expanded to include Project Financing and Proposer Creditworthiness. A requirement for a detailed financing plan, that demonstrates the financial capability to complete construction by the proposed commercial operation date was added. Organizational charts, management charts, and audited financial statements are a few of the required attachments to the newly required financial plan.

The 2020 Tier 1 procurement introduced a new Project Viability category, which added another Minimum Threshold Requirement to the bid submissions. The Carbon Emissions and Embodied Carbon category required Proposers to describe efforts that have or can be undertaken to minimize the project’s embodied carbon intensity, as well as provide an explanation of any available process to account for embodied carbon on an ongoing basis through development, construction, and operation of the project.

Incremental Economic Benefits to New York State

Incremental Economic Benefits to New York State, representing 1/3^rd of the 30 non-price points, ranks bid submissions on the extent of eligible expenditures committed to, eligibility begins from RFP Release Date through the life of the contract. NYSERDA introduced the concept of a Disadvantaged Community and stated that “NYSERDA will more favorably evaluate economic benefits to New York State that will be realized in part or in full by Disadvantaged Communities as part of the proposed projects’ development.” New York’s Climate Act recognizes that climate change does not affect all communities equally.

The Climate Act charged the Climate Justice Working Group (“CJWG”) with the development of criteria to identify disadvantaged communities to ensure that frontline and otherwise underserved communities benefit from the state’s historic transition to cleaner, greener sources of energy, reduced pollution and cleaner air, and economic opportunities. NYSERDA offers a map tool online, which can help to identify Disadvantaged Communities.

Economic Benefits committed to, up to Contract Year 3, form part of the contract and as such must be verified by an independent certified public accountant (“CPA”). If the Economic Benefits Report evaluated by the independent CPA cannot verify that at least 85% of the committed spending occurred in NYS and as stated, then NYSERDA has the right to adjust the monthly REC price payable for the remainder of the contract term by a percentage equal to the deficit noted in through the verification process. Due to the above, Economic Benefits that occur prior to the end of Contract Year 3 are prioritized over commitments that may occur further in the future.

Compass’ Support

Compass has managed the submission of nearly 1.5 GW of awarded projects in the Tier 1 procurements over the last five years. For more insights on NYSERDA’s Tier 1 procurements, reach out directly to myself at rachelle@compassenergyconsulting.ca to see where we can best support your goals in New York.

Rachelle Lynne-Davies, P.Eng.
Associate Director
Compass Energy Consulting

rachelle@compassenergyconsulting.ca

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