New York wants to spend $5 billion over the next decade to transition from a regime based on soon-to-expire renewable-energy and efficiency mandates into a new regulatory and economic model that brings distributed, customer-owned energy assets into account.

In a Tuesday filing with state regulators (PDF), the New York State Energy Research and Development Agency (NYSERDA) proposed raising $5 billion from electric bill surcharges over the next ten years to create a Clean Energy Fund (CEF), one that would essentially take over responsibility to “ensure the delivery and continuity of clean energy programs” statewide.

NYSERDA, which has collected about $5 billion from the surcharge since 2008, says the additional funding is needed to replace the state’s current System Benefits Charge (SBC), Energy Efficiency Portfolio Standard (EEPS), and Renewable Portfolio Standard (RPS), set to expire in 2015, with a new, more market-driven form of support.

“First, the CEF seeks to achieve greater levels of scale for clean energy in the state economy,” the filing notes. The $5 billion will be directed toward market development and “technology and business innovation” meant to support private investment to meet the state’s broader greenhouse gas reduction targets.

“Second, the CEF will be oriented to achieve scale, not only through the investment of public funds, but to foster new investment opportunities to attract private capital to invest in clean energy in New York,” the filing states. The fund will also support the state’s Green Bank, which is directing $1 billion in investment to in-state green energy projects, and NY-Sun, a $150-million-per-year incentive program which has just lured SolarCity to scale up solar panel manufacturing in the state.

Finally, “initiatives oriented for scale and private capital attraction will then result in the third desired outcome: significant reduction in greenhouse gas emissions from New York’s energy sector,” according to the filing. In other words, rather than mandating a certain share of renewable energy or better efficiency, the Clean Energy Fund will create a market for making this investment worthwhile.

Wednesday’s filing is part of New York’s Reforming the Energy Vision (REV) initiative, launched by Gov. Andrew Cuomo in February to transform the state’s energy regulations and markets to allow distributed resources to play a part in long-term energy planning. That means incorporating both utility-owned and third-party-owned rooftop solar, on-site generation, plug-in EVs, energystoragesystems, smart home or building energy controls, and a panoply of other grid-edge devices and systems into how utilities and grid operators plan for the state’s needs for years to come.

In a straw proposal released this month, New York’s Public Services Commission (PSC) asked the state’s utilities to lay out just how distributed energy resources can mitigate the costs of maintaining and expanding the grid. The proposal also laid out plans for utilities to create distributed system platforms that can track, trade and forecast these assets in real time.

While a few other states are taking on similar energy policy issues -- California is a good example -- none have taken the overarching approach that New York has. Indeed, the state’s REV initiative is just getting underway, meaning that this week’s Clean Energy Fund proposal leaves much of its nitty-gritty plans open in order to see how the REV process plays out.

“For the CEF to capture emerging opportunities, NYSERDA will require and requests that the Commission grant greater levels of flexibility to move funds within each of the CEF portfolios,” this week’s filing notes. It’s also asking for the potentially controversial freedom to be “fuel-neutral,” including natural gas, heating oil and other fossil-fuel-fired, distributed energy resources as potential recipients of investment, if they help meet broader greenhouse-gas reduction goals.

Finally, the Clean Energy Fund is promising to return the value of these investments to state energy consumers. First, it’s offering to slowly reduce its annual take from the state energy bill surcharge from $925 million at present to no more than $400 million per year in the last five years of the program. Second, it’s hoping that “private market investment will incrementally take the place of ratepayer funding,” leading to overall reductions in consumer bills over time.

Want to learn more about the thinking behind these decisions in New York? Listen to the Energy Gang below, featuring Audrey Zibelman, chair of the NY Public Service Commission and Sergej Mahnovski, director of Con Edison's utility of the future team.