Leave Energy Generation Projects to Private Developers: Here’s Why

By Gavin Donohue | March 22, 2022

There is currently a movement in the Legislature to allow utilities and State authorities back into electric generation development. This effort runs in direct contravention of New York Public Service Commission (PSC) policy, forgets history, and risks future progress in transitioning New York’s electric system to meet our aggressive decarbonization goals. With all the success of private developers over the last 20 years, why would we want to reintroduce public utilities back into generation to complicate things when they have been out of the business since the competitive market was introduced? Independent power producers (IPPs) should continue to handle energy generation, and utilities should continue to manage transmission and distribution.

More than 20 years ago, New York and many other states made the decision to redesign a failing electric utility industry model, transitioning from one where utilities and State authorities built new electric generation, to a system where that function was handled by private IPPS. These IPPs have met the challenge throughout that time and will continue to do so as we work towards reaching the Climate Leadership and Community Protection Act’s (CLCPA) 2030 and 2040 targets. This revolutionary change to the old electric industry model was designed to relieve ratepayers of decades of utility cost overruns and bad decisions, and instead leave decision-making to the newly established competitive electric markets where the best solutions win. Furthermore, private investment over that time has led to dramatically cleaner air to the tune of cutting the power sector’s sulfur dioxide emissions rate by 99 percent, the nitrogen oxide emissions rate by 92 percent, and the rate of carbon dioxide emissions by roughly 55 percent, according to the New York Independent System Operator (NYISO).

There is no shortage of private sector interest when it comes to investing in new projects and energy storage in New York State. IPPs have already built more than 10,000 of megawatts of projects, and there are over 6,000 megawatts of projects currently under contract to be constructed. New York has an incredible list of clean energy goals that need to be met, and the best way to go about meeting these objectives is through private investment in more generation, energy storage, and new technologies – a task which IPPs are more than capable of handling.

To match the interest in investing in new technology and innovation that IPPs have demonstrated, the State should develop a roadmap for these investments to accomplish the CLCPA goals more quickly, efficiently, and reliably. IPPs are also working with labor groups as partners in transitioning to a clean energy future. Together, the two sides are urging the PSC to develop zero-emitting dispatchable energy systems to help hit the CLCPA targets while maintaining reliability. These advancements would not only help lower emissions and reduce costs, but also create more quality in-state jobs that are high-paying and well-trained. Aside from the benefits of creating new jobs, these systems promote domestic manufacturing, help encourage the repurposing of existing facilities, and facilitate further investment in new, zero-carbon emissions technologies that strengthen our local communities.  

This is where the public versus private debate really comes into play. Any notion that public utilities can develop, permit, and construct projects at lower costs or any quicker than IPPs is simply false.  IPPs and public utilities have to play by the same rules, follow the same State regulations, and go through the same permitting procedures, which are complicated and controversial processes that have slowed new technology deployment to date. Furthermore, with public utilities developing generation, ratepayers would be saddled again with additional costs as the utilities can simply ask the PSC to raise rates to cover cost overruns of new projects. On the other hand, IPPs are not reimbursed by ratepayers for all costs, instead relying on competitively awarded renewable energy credits and wholesale market revenues to cover expenses. This ensures that the most cost-effective IPP options are operating in New York. 

The entire reason the PSC decided to restructure the industry more than two decades ago is because the Commission realized that private companies in competition could build and operate generation more efficiently compared to a public ownership model. In fact, this policy has barred state monopoly utilities from constructing and owning generation ever since. High costs and overruns have been a pattern for prior monopoly utility projects, leading to heavy cost burdens that fall onto the ratepayers. The PSC further reiterated its policy in April of last year, supporting competitive procurement from private sector companies to meet State energy goals. Haven’t we already seen enough failures from public and government-owned commodities throughout history? Private investment is the clear answer here. 

No matter how you look at it, New York State has set the bar quite high in terms of the aggressive energy objectives for the future. The fact of the matter is we cannot reach the goals set by the CLCPA any quicker by choosing public utilities for generation. Private investment, ingenuity, and competition have always been and will continue to be the most efficient ways to accomplish our energy benchmarks. Ratepayers do not need to be on the hook again as we continue to advance new projects and lower air emissions en route to a clean energy future.

Gavin Donohue is the President and CEO of the Independent Power Producers of New York, an Albany-based trade association. He is also a member of the New York State Climate Action Council. Prior to IPPNY, Donohue was the former Executive Deputy Commissioner of the New York State Department of Environmental Conservation.