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Lessons from America: New York could provide fresh ideas on energy market reform

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The lack of national climate and energy legislation in the United States has long disappointed clean energy supporters on both sides of the Atlantic. But if you look closely enough there are a number of states that have been making important progress in planning for a low carbon energy system, and these experiences could provide valuable lessons learned for the EU’s own energy market reform efforts.

The best example of this is New York, where in 2014 the state government adopted a new Energy Plan that set out ambitious targets for emission reductions, clean energy deployment and energy efficiency. But the government also quickly realized that achieving these objectives would require fundamental changes to the power system, including new business models for utilities, and reform of regulatory ratemaking and electricity market design.

In order to meet this challenge New York has now launched one of the most ambitious electricity market reform efforts underway in the United States, called Renewing the Energy Vision (REV). With the launch of the REV, the New York State Public Service Commission (PSC) has proposed to transform New York’s electric industry to “make energy efficiency and other distributed resources a primary tool in the planning and operation of an interconnected modernized power grid” – an objective which greatly echoes with the EU’s own ‘efficiency first’ principle. The PSC has also pledged to give electricity customers a key role in providing least cost, reliable and renewable energy.

The centerpiece of the REV is a plan to create distributed system platforms (DSPs) which would manage bids from a wide range of distributed energy providers. The DSP will essentially be the local equivalent of an Independent System Operator, acting as a retail-level dispatcher to the distribution and transmission grid. But unlike the old system focusing essentially on power generation, resources provided by the platform providers (DSPPs) are likely to include energy efficiency, demand management, demand response, distributed generation, and microgrids.

One of the most important and controversial decisions that had to be made was whether DSPs should be run by a new, independent entity or by the existing utilities. The decision to allow incumbent distribution utilities to run DSPs was made based on their knowledge of existing distribution systems operation, relationship with the ISO and knowledge of the customer base. As a compromise there will be firm restrictions on the ability of the utilities to own the generation assets.

Working Groups with a wide range of stakeholders were formed early on in the process and white papers have been released with recommendations on reforms to ratemaking and utility business models as well as market design for the distributed system platforms. Utilities are also required to put forward demonstration projects which should provide valuable information to the PSC prior to implementation of the market and regulatory reforms. Projects that have been launched include energy efficiency retrofits, microgrids, and new interconnection technologies for distributed resources.

It is still early days in what will be a lengthy and complex process – utilities are not required to file implementation plans until July 2016. But there is no doubt the REV represents a serious attempt to decarbonize the electricity grid. Critically, REV will be supported by other existing institutions including New York’s Green Bank, which will be providing finance for innovative low carbon solutions from third party energy providers.

For more information, please consult New York State’s Reforming Energy Vision’s website.

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