What’s in a Supply Price? Explaining NYISO pricing components
There are five competitive Independent System Operator (ISO) markets in the U.S, which coordinate and control the operation of the electrical system in one or multiple states. NYISO is the ISO for New York State. Within an ISO, there are different utilities that deliver and supply energy to the end user and your total electricity bill will have a delivery portion and a supply portion. If a state is deregulated, like New York, then there is a competitive market for the supply portion of your bill. In New York City, Con Edison is the sponsored monopoly distribution utility, but you can choose a supplier to strategically purchase energy and manage energy risk.
There are currently five NYISO pricing components in an electricity supply price: energy, capacity, ancillaries, regulatory charges (currently CES), and line losses.
Energy – 52%
Energy is the actual commodity consumed by customers that is generated by power plants. In New York, the majority of energy comes from natural gas but other fuels include hydropower, nuclear, and renewables.
98% of energy is scheduled in the day-ahead energy market and the remaining 2% is the real-time market to make up for any immediate discrepancies in supply and demand from the prior day.
Two-thirds of New York’s electricity is used on Long Island (Zone K), NYC (Zone J), and the Lower Hudson Valley (Zones GHI). Because of the high demand for electricity in these areas, it is required that a certain percentage of electricity generation be physically located in those areas. The capacity market exists to ensure there is enough generation available to reach the grid’s peak load and prevent brown and black outs.
The cost associated with ensuring grid reliability for the few peak hours out of the year is spread out over the rest of the year’s hours. For example, a shopping mall parking lot needs enough spaces for its peak shopping day, most likely Black Friday. However, those spots are available every other day of the year even if they are not used. This is the same with the capacity market. It must be able to support the grid’s peak throughout all hours of the year, even though that peak only occurs for one hour.
The NYISO administers competitive markets for key ancillary services that support and power the electricity system. These ancillary services include reserve sources that provide fast ramping power in the event of a unit or line trip and regulation services, which keep load and generation in constant balance.
Regulatory Charges- 5%
Clean Energy Standard:
Renewable Energy Standard (RES) – Every energy load-serving entity, LSE, in New York is required to procure renewable energy credits, RECs, for their retail customers
Zero Emission Credits (ZECs) – Every LSE is required to procure ZECs from NYSERDA. Read on to learn more about CES in New York State.
New York’s Governor Cuomo just announced a new goal of generating 100% clean energy by 2040. Learn how Carbon Pricing will help make this happen!
Line Losses- 3%
Electricity is transmitted from large power plants to the end-user via transmission and distribution networks. From the generation site to the end user, energy is lost through heat dissipation along the way.
There are essentially three variations of energy supply products available to an end user: fixed, indexed, or block and index (whether wholesale or load following). Continue reading the Fixed vs. Indexed Electricity Pricing article for more detailed information on the different electricity supply products.
For a more in depth review of electricity markets in NYISO, or any of the other ISOs, download our Electricity Markets Explained reports here.
January 31, 2019
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