How NYSERDA's Contracts Might Reduce Electricity Costs

With skyrocketing electricity load growth, ongoing electrification of U.S. transportation and heating sectors and a new conflict in the Middle East roiling energy markets, the prospect of rising electricity prices is top of mind for policymakers, politicians, market participants and ratepayers around the country.

New York is no exception. However, underdiscussed in the State's "affordability" discourse is the fact that the New York State Energy Research and Development Authority's (NYSERDA) renewable energy contracts could play a new and important role in protecting consumers if electricity prices rise. This is because these long-term, fixed-price agreements operate as economic hedges against electricity price inflation. By locking in a firm price for 20 or 25 years, they put sustained downward pressure on any general market-driven rise in electricity prices in the coming decades.

Under NYSERDA's Renewable Energy Certificate (REC) contracts with utility-scale solar and wind projects, its Index Storage Credit (ISC) agreements with utility-scale energy storage projects, and its Tier 4 contract for renewable energy delivered into New York City via the Champlain Power Hudson Express transmission line, these resource sellers contract for a fixed "strike price." That strike price approximates the total revenue generators expect to receive from selling the project's electricity and capacity into the wholesale markets and selling RECs (the project's environmental attributes) to NYSERDA. The REC payments themselves vary from month to month in relation to indices of wholesale market prices. If wholesale market prices go up, NYSERDA payments are likewise reduced. If such prices go up far enough, the generator will actually pay NYSERDA.

This common feature, though not exactly hidden, has been underappreciated during the past decade when electricity prices have been relatively low and stable. During that low-price period, NYSERDA's solicitations attracted pricing higher than the then-current market prices, and it has been generally assumed that NYSERDA will always be paying developers for RECs throughout the 20- to 25-year terms of their contracts.

But in an era of high electricity prices, that may not be true.

Consumer refunds in other similarly designed state clean energy programs may be a harbinger of things to come. Due to higher market pricing, Illinois's Carbon Mitigation Credit Program – a program designed to support that State's nuclear fleet – has returned over $1 billion in utility bill credits to northern Illinois ratepayers since 2022. Similar to NYSERDA's contracts, that program "requires the operators to pay a credit back to the utility buyer (and ultimately ratepayers) when energy prices are high." Because Illinois prices are high, Illinois consumers are getting a refund. Note: New York's zero-emission credit (ZEC) payments supporting the existing upstate nuclear fleet, recently extended through 2049, similarly decrease down to $0 as prices rise but unlike the REC contracts, do not require refunds.

In addition to securing firm pricing, NYSERDA's contracts also lower wholesale market electricity prices more generally by bringing in new resources online. Because the NYISO (the state's wholesale market grid operator) generally dispatches generation in merit order, the influx of low-marginal-cost energy (e.g., wind, solar, hydro) and of dispatchable energy storage displaces more expensive fossil fuel-based, marginal resources. Since the NYISO sets a uniform clearing price based on the last, most expensive unit needed to meet demand, the displacement of high-cost, fossil-fueled peaker plants, for instance, directly reduces the market-clearing price, and thereby reduces wholesale market pricing across the board.

NYSERDA's contracts, particularly in the energy storage program, also act as a bulwark against price volatility in the short and medium term. Wholesale electricity prices in New York are primarily set by the price of natural gas generation – a resource whose input fuels are subject to regional, seasonal, and increasingly global commodity supply fluctuations. In 2025, U.S. exports comprised roughly 23% of its dry natural gas production, and in absolute terms, were the highest amount of annual natural gas exports ever recorded by the U.S. Energy Information Administration. With liquified natural gas export capacity continuing to expand, domestic natural gas supply could become increasingly integrated with global markets, and, like oil, subject to those markets' swings in supply and demand. By securing a diverse portfolio of fixed-price clean generation and storage – resources that in many cases would not otherwise have been built, NYSERDA's contracts effectively mitigate short-term and medium-term volatility in fossil fuel pricing.

With coordinated efforts to suspend or modify New York's renewable energy targets underway in the name of purported cost concerns, it would be ironic if NYSERDA's renewable energy and storage contracts end up primarily functioning as prudent, farsighted anti-inflation measures, in addition to supporting New York's climate and energy system goals. Policymakers should not assume that NYSERDA's contracts will be out of the money in the next five, ten or twenty years, or that they inherently run counter to the important policy goal of keeping prices low. To the contrary, these hedging mechanisms may well play a key role in New York's affordability fight for decades to come.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.