June 10, 2011 - Idaho restricts wind/solar incentive

Friday, June 10, 2011

Regulators in Idaho have restricted an incentive for certain small wind and solar projects, but renewable projects can still qualify for the right to sell their power to utilities.  At its heart, the issue is an old one: who should pay for renewable development, and how much should they pay.

The federal Public Utilities Regulatory Policy Act of 1978 (PURPA) authorizes FERC to require utilities to purchase power from renewable “qualifying facilities”.  Under PURPA, utilities must sign contracts  with qualifying facilities to buy their output at a rate capped at the utility's "avoided cost", or marginal cost to produce the next incremental kilowatt-hour.

Because utilities’ avoided costs are typically set based on the default fleet of generators, a qualifying facility cannot use PURPA to receive a price premium over the marginal conventional resource.  However, having the right to require a utility to buy your power is a valuable incentive for developing a renewable project. 

Each state sets the avoided cost rates for its own qualifying facilities.  In Idaho, large generators have to negotiate individual avoided cost rates with utilities.  To help smaller qualifying facilities, projects smaller than a specified threshold don’t have to negotiate, but can sell power to utilities at “published” avoided cost rates which are generally more favorable for project developers.

Where that threshold is set affects who can qualify for those published rates.  Originally, facilities whose average output was 10 MW or smaller qualified for the published rates.   However, utilities complained to the Idaho Public Utilities Commission, asking for the threshold to be lowered to 100 kW.  Utilities complained that ratepayers should not have to bear above-market costs, particularly not costs in excess of the actual avoided cost limit set by PURPA.  Commenters also complained about large projects trying to circumvent the threshold by characterizing themselves as a series of smaller projects in order to qualify for the incentive.  At the end of 2010, the Commission temporarily reduced the threshold to 100 kW for wind and solar resources, leaving it at 10 aMW for other resources. 

This week, the Idaho Public Utilities Commission has issued an order (Order No. 23362, 10 page PDF) leaving the lowered 100 kW threshold for wind and solar in place.  The Commission noted that it would be "illegal pursuant to PURPA" to allow large projects to obtain a rate that does not accurately reflect the utility's avoided cost.  As a result, Idaho wind and solar projects' right to sell power at the more favorable published avoided cost rates is now limited to projects smaller than 100 kW.  Larger projects can still avail themselves of negotiated avoided cost rates.

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