May you Live in Interesting Times…..
- Chinese Proverb
Carbon Pricing in New York State shook up the market for wholesale power since the original discussions started. Last Tuesday the New York ISO provided a bit more clarity on how this pricing mechanism would work. This mechanism would allow for a calculation of a Location Based Marginal Price for Carbon or as the NYISO has termed it an LBMPc. The LBMPc will be calculated after the real-time LBMP in a transparent manner to assess the societal cost of carbon to the users of electricity on the grid. The calculation of the LBMPc is straight forward and transparent (but still pretty complicated an beyond the scope of discussion in this article.
What are likely to be the impacts? Well the NYISO included a few examples which they have deemed for “discussion purposes only” in their presentation. The low end of the range provided was $0/MWh for a trivial case, and a gas case provided an LBMPc of $20.00/MWh. The high end of the range was $52/MWh with a typical oil case coming in at $39/MWh.
The market is trading with a premium of around $10 per MWh higher for power supplied after implementation vs. before implementation (NYISO has reported that the earliest date for implementation would be Spring of 2021). With all this said, the markets have not moved much at all since the presentation on Tuesday.
What should the retail electric customer do when facing a potential increase in the second quarter of 2021 of close to $10 per MWh. Our advice in this market is to continue to watch developments carefully, but make no commitment to energy prices beyond Q2 2021. We also advocate that customers do long term deals to lock in capacity prices nowso that when an opportunity comes where there is more clarity on carbon pricing, the customer has a vehicle to transact quickly and efficiently.