New York’s Climate Leadership and Community Protection Act

Clean energy goals and Scoping Plan

The Climate Leadership and Community Protection Act (the “Climate Act”) was passed in July 2019 to address climate change and reach net zero emissions in New York State (the “State”). The Climate Act’s targets are among the most rigorous of any major economy in the world. The Climate Act requires that 70% of state-wide electricity come from renewable energy sources by 2030, and that the State achieve a zero-emission electricity system by 2040, a 40% reduction in state-wide greenhouse gas (GHG) emissions from 1990 levels by 2030, an 85% reduction in state-wide GHG emissions from 1990 levels by 2050, and net zero emissions state-wide by 2050. These goals are ambitious as compared to the State’s existing sources of electricity generation, given that in 2021, renewable resources accounted for approximately 27% of the State’s electricity generation, nuclear resources accounted for approximately 24% of the State’s electricity generation, and fossil fuels accounted for approximately 47% of the State’s electricity generation.

The Climate Act created the Climate Action Council (the “Council”), which was tasked with developing a Scoping Plan that establishes the initial framework for how the State will meet the Climate Act’s various requirements. The Council modified the Scoping Plan based on public comments received and released a final Scoping Plan on 1 January 2023.

Solar, wind, hydroelectric and other renewable energy will power New York

According to the Scoping Plan, to achieve the Climate Act’s requirements and goals, New York must deploy clean energy resources, such as land-based wind and solar, offshore wind, hydropower, fuel cells that use renewable fuels, and energy storage. The Climate Act requires that the State install 6,000 megawatts (MW) of distributed solar by 2025 (and 10,000 MW of distributed solar by 2030), and 9,000 MW of offshore wind by 2035. The plan finds that by 2050, the State will install over 60 gigawatts (GW) of solar capacity (both utility-scale and distributed resources), between 16-17 GW of new land-based wind capacity (including imported wind from neighbouring independent system operators), and 16-19 GW of offshore wind resources. The development of offshore wind in the State will be further discussed below.

On fuel cells, the Scoping Plan recommends that the State should replace existing vehicles that run on gasoline or diesel fuel with battery electric, hydrogen fuel cell, or other future zero-emission propulsion technologies. In addition, the State should place an emphasis on fuel cells in the use of biogas in the waste transportation sector, electric co-location, and cogeneration opportunities for energy and heat-intensive industries and challenging-to-electrify users.

Green hydrogen and energy storage will ensure grid reliability

The Scoping Plan recognises that, given the large amount of renewable energy that must be procured and developed, the State will need to incorporate load flexibility to create a more manageable system. This will be achieved by investing in other zero-emission resources, such as green hydrogen and energy storage. According to the Scoping Plan, the US Department of Energy has released the Funding Opportunity Announcement for the establishment of multiple “Hydrogen Hubs” across the country, with up to USD1 billion in funding to ultimately be available to each winning hub. The State is leading a coalition of northeast states and partners to compete for one of these Hydrogen Hubs, with the intent of securing a hub award and cementing a durable hydrogen ecosystem in the northeast.

As for energy storage, the Climate Act requires that the State install 6,000 MW of energy storage by 2030. This goal is currently being revised, as a 2021 study by the New York State Department of Public Service and the New York State Energy Research & Development (NYSERDA) identified a need for more than 15 GW of energy storage. Accordingly, the Scoping Plan finds that “one technology focus is long duration energy storage”, and that the State should leverage federal resources in commercialising long-duration storage solutions and focus programmes and funding on research and demonstrations for the development of large-scale and longer-duration storage.

Geothermal and nuclear energy as emerging resources

The Scoping Plan further recognises the potential of developing utility thermal energy networks across the State’s utility service territories and enhanced geothermal systems (EGS). In this respect, the drafters note that the State will be able to benefit from progress made at a national level, including through the US Department of Energy’s Enhanced Geothermal Shot, a department-wide effort to dramatically reduce the cost of EGS by 90%, to USD45 per megawatt hour by 2035. The drafters find that, as commercial geothermal installations and thermal energy storage systems gain benefit from federal tax credits (discussed in detail below), such emerging resources have the potential to help establish a major transition strategy for gas utilities.

On nuclear energy, although the drafters of the Scoping Plan accept advanced small modular reactors as another emerging resource that could contribute to the State’s achievement of 100% zero-emissions electricity by 2040, they find that key issues pertaining to waste management and storage will still need to be addressed and resolved before advanced nuclear can be adopted at scale. Nonetheless, the drafters appreciate that nuclear generation provides a significant amount of baseload resources and is zero-emission and, therefore, analysis should be conducted prior to the end of 2029 to determine whether subsidising any of the State’s remaining nuclear reactors will be necessary to achieve the State’s goal of having a zero-emission electricity system by 2040. They further note that with considerable new federal tax credit incentives, along with other federal funding, the prospects of economically competitive advanced nuclear energy have grown substantially.

Transmission infrastructure investments

New York has taken significant steps toward the transmission system investments that are expected to be required to deliver energy from facilities upstate and offshore to where load demand exists and to facilitate the Climate Act’s goals.

In implementing the Climate Act, the New York State Public Service Commission (the “New York PSC”) established a new tier of renewable energy certificates to increase the role of renewable resources and decrease the reliance on fossil-fuelled generation within New York City. Following a competitive solicitation administered by NYSERDA, two proposals were selected in 2021.

One of the selected projects, Clean Path New York, includes a planned 1,300 MW transmission line from a withdrawal point in Delaware County, New York to an injection point in Queens, New York. The other selected project, Champlain Hudson Power Express, includes a planned 1,250 MW transmission line from a withdrawal point in Quebec, Canada to an injection point in Queens, New York. The Champlain Hudson Power Express and Clean Path New York projects each entered into contracts with NYSERDA, which were approved by the New York PSC in April 2022. Champlain Hudson Power Express announced financial close in November 2022, has started construction and is targeting commercial operation in 2026. The Clean Path New York transmission line is currently pursuing the necessary permits and interconnection and is targeting commercial operation in 2027.

In addition, the State has taken steps to develop transmission necessary to deliver offshore generation. The New York Independent System Operator, Inc. (NYISO) Public Policy Transmission Planning Process is the primary mechanism that ensures the high-voltage transmission grid can support the State’s climate policies. The New York PSC recently identified several public policy transmission needs through this process: one of these projects (Empire State Line) completed construction in 2022, a second project (A/C Transmission) is currently under construction. With respect to the third project, on 20 June 2023, NYISO announced that its board had selected a proposal from Propel NY called Propel Alternate Solution 5 to meet the identified need to deliver at least 3,000 MW of energy from offshore wind projects connected to Long Island. Propel Alternate Solution 5 will add three new underground cables connecting Long Island to the rest of the State and a 345 kV transmission line across western and central Long Island. It is expected to provide access to at least 3,000 MW of expected offshore wind generation, estimated to cost USD3.26 billion, and required to be in service by May 2030.

Anticipating significant additional offshore wind generation in the coming years, the New York PSC announced on 22 June 2023 the additional public policy transmission need to interconnect and deliver at least 4.77 GW of offshore wind energy into New York City, including interconnection facilities and necessary local system upgrades. It is expected that NYISO will now undertake a similar solicitation and selection process for transmission projects to meet this identified need.

Offshore Wind

As noted, offshore wind will be one of the State’s main sources of electricity as the State progresses towards its goal of having at least 70% of state-wide electricity come from renewable energy resources by 2030. NYSERDA is the State authority charged with implementing the State’s goal of 9,000 MW of offshore wind energy by 2035. According to NYSERDA, there is vast wind energy potential off the Atlantic coast, particularly an area south of Long Island and southeast of New York City called the New York Bight. At the time of writing this article (July 2023), the State has five offshore wind projects in active development: Empire Wind Project (816 MW), Sunrise Wind (924 MW), Empire Wind 2 Project (1,260 MW), Beacon Wind Project (1,230 MW), and South Fork Wind Farm (130 MW), for a total of approximately 4,300 MW of wind energy. One of them (South Fork Wind Farm) is currently under construction.

In addition, on 23 February 2022, the Bureau of Ocean Energy Management (BOEM) held a competitive auction for six areas within the New York Bight lease area. The lease sale drew competitive winning bids from six companies totalling approximately USD4.37 billion. BOEM executed the leases with the six companies around April 2022.

NYSERDA manages the delivery of offshore wind energy to the State through competitive solicitations. As explained by NYSERDA, competitively selected projects will enter into contracts to sell Offshore Wind Renewable Energy Certificates (ORECs) to NYSERDA on behalf of the State’s electricity ratepayers state-wide. To be eligible to bid, developers must agree to and meet certain requirements, including obtaining an offshore lease from the federal government, committing to deliver the offshore wind energy to the State’s electricity grid, and committing to certain economic benefit initiatives and programmes that benefit the people of New York and its workforce.

ORECs represent the positive environmental attributes associated with one megawatt-hour (MWh) of electricity generated by offshore wind resources and consumed in the State. ORECs constitute an important source of revenue to enable offshore wind development, as the State’s electricity markets do not directly value such attributes associated with clean electricity generation. In NYSERDA’s contracts with offshore wind developers, NYSERDA will purchase ORECs from project developers as renewable energy is delivered to the grid. Accordingly, the price of the OREC is an important consideration for NYSERDA as it evaluates bids from project developers. NYSERDA will then sell ORECs to utilities and other load-serving entities that are required to purchase clean energy credits to meet the State’s clean energy goals.

On 26 January 2023, the State’s third competitive offshore wind solicitation closed, receiving more than 100 proposals for eight new projects from six offshore wind developers. The six offshore wind developers competing for the award are Attentive Energy (comprised of TotalEnergies Renewables USA and Rise Light and Power); Ørsted NA and Eversource Investment LLC; Equinor and bp; RWE Offshore Renewables and National Grid Ventures; Invenergy and energyRe; and Vineyard Offshore (owned by Copenhagen Infrastructure Partners). An award from NYSERDA is expected in Q3 or Q4 2023.

The Inflation Reduction Act – Key Incentive in Meeting the Climate Act’s Clean Energy Goals

With respect to financing the Climate Act’s clean energy goals, the Scoping Plan makes several recommendations in providing targeted financial assistance to businesses and local governments with respect to energy efficiency. The Scoping Plan also recognises that the new and expanded federal tax credits will do the heavy lifting in attracting investment to the State. It is expected that the State should leverage federal tax credits, grants, and financing for infrastructure reuse to deploy clean energy options that support the State’s future energy mix and that federal resources should be prioritised to assist the State in making needed grid infrastructure investments. According to the Scoping Plan, the Inflation Reduction Act (IRA), signed into law in August 2022, could provide USD41–69 billion to reduce the costs to New York of meeting the Climate Act’s goals.

The IRA has extended and expanded the federal income tax incentives for a wide range of alternative energy projects. The existing investment tax credit (ITC) or production tax credit (PTC) for wind projects, the existing ITC or newly available PTC for solar and geothermal projects, and the new ITC for standalone energy storage can now be claimed for projects beginning construction by 31 December 2024. For projects placed in service after 31 December 2024 with a GHG emissions rate of zero or less, a technology-neutral ITC/PTC is available that phases down beginning in the later of 2032 or the year in which annual GHG emissions from US electricity production drop to 25% of 2022 emissions. In both cases, the ITC is based on 30% of the basis of the energy property and the PTC generally is based on 1.5 cents per kilowatt hour of electricity produced by the taxpayer and sold to an unrelated party, as adjusted for inflation and subject to a phase-out for reference prices above 8 cents per kilowatt hour.

The full ITC/PTC is available only if the following wage and apprenticeship requirements are met:

• labourers and mechanics employed by the taxpayer or any contractor or subcontractor are paid a prevailing wage for the locality and character of work, as determined by the Secretary of Labor, for constructing the facility or energy property, as well as for altering or repairing the facility or energy property during the first ten years (for PTC) or five years (for ITC) post-completion and
• 10–15% (depending on when the project began construction) of the labour hours of construction, alteration or repair work (including work performed by a contractor or subcontractor) are performed by qualified apprentices from a registered apprenticeship programme, and each taxpayer, contractor or subcontractor employing four or more individuals to perform such work employs at least one qualified apprentice to perform such work, subject to an exception for good faith efforts by the taxpayer to obtain apprentices.

The ITC/PTC can increase for projects that are located in certain “energy communities” (ie, specified areas associated with the fossil fuel industry or brownfield sites), meet certain US-manufactured content thresholds, and/or are located in specified low-income communities.

The Inflation Reduction Act also institutes a new ITC/PTC for hydrogen production, a new PTC for zero-emission nuclear power production from certain existing nuclear facilities, and a significant rate increase for the existing carbon capture credit, all of which incentives are also subject to prevailing wage and apprenticeship requirements noted above.

Next Steps

Pursuant to the Scoping Plan, the following actions are required to implement the Climate Act:

• The New York Department of Environmental Conservation (DEC) has until 1 January 2024 to draft and promulgate enforceable regulations to ensure the State meets the Climate Act’s state-wide GHG emission limits outlined the Scoping Plan (ie, 40% reduction in state-wide GHG emissions by 2030 and 85% reduction by 2050, both from 1990 levels). In June 2023, the DEC and NYSERDA held the first in a series of stakeholder information sessions on the development of the State’s economy-wide Cap-and-Invest programme. Under this programme, the State will set a cap on the total amount of GHG emissions allowed across the economy (which will decrease each year), and businesses will be required to purchase allowances at auction based on their greenhouse gas emissions. A second round of pre-proposal stakeholder outreach is expected to be held later in 2023.
• The DEC is required to publish a report on the implementation of the GHG-emission-reduction measures every four years.
• By 1 July 2024 and every two years thereafter, the New York PSC will issue a comprehensive review of the renewable energy programme, including progress in meeting the overall targets for 70% renewable electricity by 2030 and 100% zero-emission electricity by 2040. This review will also include a progress update on the programmes the PSC has established to require procurement of 9 GW of offshore wind by 2035, 6 GW of solar by 2025, and 3 GW of energy storage by 2030.
• Every five years, the Council will update the Scoping Plan as part of the ongoing process to meet the Climate Act targets and GHG emission reduction limits.