​Developers have built 300% more distributed battery energy storage systems (BESS) across New York than utility-scale projects. These projects were prioritized because the Value of Distributed Energy Resources (VDER) program offered bankable revenue. However, in 2024, that pathway weakened as lucrative locational incentives became exhausted. Meanwhile, the Index Storage Credit (ISC) shifted prospective investment in the coming years toward grid-scale energy storage.

What does the distributed buildout signal for grid-scale developers?

VDER payments revealed which regions required higher compensation to attract capital. Con Edison, New York City’s utility, offered $284/kilowatt-year (kW-year), which was over 4x higher than upstate's $18-70/kW-year. Therefore, 110 MW (36% of deployment) was deployed in the Con Edison territory despite the state’s highest build costs.

Key takeaways

• Con Edison's VDER incentives reached $284/kW-year for 2-hour BESS. In contrast, upstate utilities offered $18-70/kW-year, leaving BESS revenue 44-86% below the upstate Gross Cost of New Entry of $126/kW-year.
• As of November 2025, Con Edison's locational incentives hit 93% exhaustion. Only 7 MW remains across three Manhattan networks.
• The ISC’s initial solicitation is redirecting capital toward 15-year contracts, larger project sizes, and transmission network connections.
• The first cluster study of the reformed interconnection process holds 19 GW of battery energy storage projects. Modo Energy estimates 2-4 GW of viable capacity by 2030, limited by contractable revenue under the ISC.

How VDER and the ISC structure revenue for BESS

Projects participating in VDER cannot simultaneously participate in NYISO wholesale markets. VDER compensates storage projects through utility tariffs with two components that underpin BESS revenue. The Location-Based System Relief Value (LSRV) provides fixed payments in dollars per kilowatt-year for deferring distribution system upgrades. The Demand Reduction Value (DRV) provides variable payments in dollars per kilowatt-hour during utility-defined peak windows.

Unlike VDER, the ISC allows projects to participate in NYISO's energy and ancillary services markets, providing a contracted floor plus merchant upside. The ISC offers 15-year capacity payments determined through competitive solicitations.

Both programs provide a long-term contracted revenue floor that lenders tend to prefer.

Con Edison’s VDER incentives were 400% higher than competing utilities

Con Edison's state-leading compensation for 2-hour BESS reached $284/kW-year, exceeding the $183/kW-year Gross Cost of New Entry (CONE) by $101/kW-year. The utility is the only region in New York where the value earned through VDER alone exceeded CONE.

​Meanwhile, upstate utilities left significant revenue gaps:

• NYSEG: $70/kW-year (56% of $126/kW-year CONE)
• National Grid: $28/kW-year (22% of $126/kW-year CONE)

Con Edison's advantage reflects Zone J constraints

Subsidy differences explain deployment trends. Con Edison offered $0.85/kilowatt-hour (kWh) during demand response call periods (4 windows per day between June 24-Sept 15). Meanwhile upstate utilities offered $0.09-0.22/kWh through their demand response programs. The 4-10x spread reflects Zone J's transmission constraints.

Developers built where financing cleared hurdle rates. Con Edison captured 110.5 MW (36% of statewide deployment) despite the highest Gross Cost of New Entry. In comparison, National Grid captured 118.4 MW (38%) but spread this across six NYISO zones. On a per-zone basis, Con Edison's Zone J concentration was far higher.

​High LSRV payments in Con Edison territory reflect two factors. First, the transmission bottleneck creates high congestion costs. Con Edison operates in Zone J, the most transmission-constrained zone in NYISO. Second, NYISO identified Zone J reliability needs starting in summer 2025 and sized LSRV payments accordingly.

VDER has reached its viable end for New York BESS

Con Edison's VDER saturation closed the distributed pathway. Con Edison's hosting capacity reached 93% exhaustion as of November 2025. Only 7 MW of LSRV eligibility remains across three Manhattan nodes. Consequently, LSRV budgets no longer apply to new projects in most NYC-based locations.

Long Island's pathway closed earlier. Its Phase One LSRV initially offered $55/kW-year. However, Phase Two LSRV fell 90% to $5.49/kW-year. As a result, Long Island's utilities only incentivized 10.0 MW (3% of statewide deployment) despite high congestion need.

​VDER's fixed LSRV provided a floor in Con Edison until exhaustion, which reduced competitive revenues by 50% in Con Edison (not including variable capacity revenues):

• Pre-exhaustion: $284/kW-year
• Post-exhaustion: $140/kW-year

The $140/kW-year drop removed the fixed floor lenders used to size debt, hindering distributed battery buildout in New York City.

Aggregation of Distributed Energy Resources (DERs) could theoretically stack DRV with wholesale revenues. In practice, there has not be demonstrable widespread participation despite a new aggregation program offered by NYISO.

​​In addition, no other revenue source could replace those two VDER incentives. Even combined energy sales, capacity payments, and ancillary services revenues remain below subsidy levels.

However, the Index Storage Credit is driving BESS development in the state. The ISC's 15-year contracts now provide bankability for grid-scale BESS where there is currently a revenue gap. Wholesale revenues add upside but can't replace certainty of contracts for leverage.

​The ISC opened $1.42B for potential grid-scale BESS

The ISC provides $700 million to $1.42 billion in funding exclusively for grid-scale projects larger than 5 MW across three annual solicitations (2025-2027). The program requires projects larger than 5 MW, with 20% allocated for 8-hour batteries and 10% capped for 2-hour systems. This structure favors larger projects with economies of scale.

The cluster study contains 19 GW of grid-scale BESS applications pursuing contractable revenue at scale. In comparison, Con Edison's entire LSRV capacity was 88 MW. Reference prices, which drive ISC strike price bids, are highest in Con Edison territory, mirroring LSRV revenue patterns.

​Utility-scale projects have structural advantages in capturing ISC value. Larger projects spread fixed development costs across more capacity, reducing per-kW costs by 15-25% compared to distributed projects. Additionally, utility-scale projects avoid the 5-10% aggregation fees that distributed projects pay. Lower costs and higher revenue capture enable more competitive strike price bids.

The cluster study holds 19 GW while analysis projects 2-4 GW of capacity by 2030. Both figures reflect the same constraint: limited contractable revenue under ISC's 1 GW initial allocation.

​Distributed deployment history informs where grid-scale can build. Some nodes can only accommodate distributed storage due to physical or capacity limitations. At these nodes, grid-scale and distributed serve different technical requirements. However, there will be viable nodal connections for both distributed and utility-scale bess.

At these overlapping nodes, utility-scale projects will target locations that minimize building complexity. Potential sites include retired peaker plant locations with existing grid connections, substation-adjacent parcels with known interconnection points, and urban industrial land with established permitting paths.

What this means for future projects

The shift from distributed VDER to grid-scale ISC reflects consistent fundamentals. Zone J and Con Edison territory still require storage. The delivery mechanism changed from utility tariffs to competitive contracts.

However, the 19 GW cluster study far exceeds ISC's initial 1 GW allocation. This oversupply creates selection risk. Developers need exceptionally competitive strike price bids to secure contracts. Projects without cost advantages will struggle to clear.

The first ISC solicitation won't eliminate Zone J's capacity needs. Transmission constraints persist beyond any single procurement. If the initial program demonstrates bankability and projects achieve commercial operation, NYSERDA will likely authorize additional capacity rounds. Developers should monitor contract execution rates and interconnection timelines to anticipate future allocations.