The Impact of New York’s Recently Announced Nuclear Subsidy

The background

NY nuclear plants

Low energy prices driven by a natural gas supply glut have made it more difficult for nuclear power plants to be commercially viable. Three nuclear plants in upstate New York—Ginna, FitzPatrick, and Nine Mile Point—which generated over 28 million MWh of electricity in 2015, 17.4% of the state’s load, are struggling to remain open under current market conditions. The closure of these plants could render New York’s emission reduction goal—a 40% reduction in carbon dioxide emissions from 1990 levels—nearly impossible to attain. To protect the carbon-free attributes of these plants as well as the highly-skilled jobs and reliable base load power they provide, New York’s Public Service Commission (PSC) has included a provision in its Clean Energy Standard (CES) to subsidize the plants with zero-emission credit (ZEC) payments. The PSC voted to approve both the CES and the nuclear subsidy on August 1, 2016 marking the first time a state program has explicitly credited nuclear power plants for providing carbon-free generation.
 

ZEC price

The ZECs will be paid to the nuclear plants for producing carbon-free energy, starting at $17.48/MWh on April 1, 2017 and rising every 2 years through March 31, 2029. New York’s downstate nuclear plants, Indian Point 2 and Indian Point 3 are commercially viable without subsidy; ZEC payments will only be made available to the Indian Point plants if shifting market conditions make the subsidy necessary to keep the plants open. Under the CES each load serving entity (LSE) is required to purchase ZECs in proportion to the share of electric load it serves. LSEs are permitted to recover costs from their rate payers.

 

Estimating the impact on rate payers

When evaluating the cost of the subsidy, it is important to understand that any plausible alternative would also carry a price tag. Without a subsidy the nuclear plants would likely close and other resources would be needed to fill the resulting gap. The most likely alternative would involve constructing new gas-fired power plants. In either case, rate payers would eventually bear the cost.

That being said, now that the New York PSC has approved the nuclear subsidy, it is worth asking how it will affect your electricity bill. With some fairly simple calculations and a few plausible assumptions, you can make a good first approximation of the policy’s impact on rates.

Net generation

In 2015, the three upstate nuclear plants generated 28.2 million MWh of electricity. Paying those plants $17.48/MWh implies an overall program cost of $492.6 million for one year. New York consumed 161.6 million MWh of electricity in 2015. So distributing this cost of the program across all electricity consumers suggests an impact of about 3 mills per kWh ($0.003/kWh).

Most supplier contracts have a provision to pass through regulatory adjustments as a line item on your invoice. This rate increase is likely to appear in April 2017 when the program comes into effect. Understanding the nature and scale of this incentive program arms you with the information you need to avoid being over-charged. SourceOne can help you remain vigilant and negotiate a supply contract that is both fair and minimizes your exposure to additional costs.

 

If you have further questions, please contact SourceOne’s strategic Energy Markets Advisory Team at commodity@s1inc.com.