On July 16th, the Federal Energy Regulatory Commission (FERC) finalized a long-awaited overhaul of the Public Utility Regulatory Policies Act of 1978 (PURPA), which will almost certainly bring about the most significant changes in decades for solar energy producers that have been labeled as qualifying facilities (QFs).
Before we dive into the ramifications of overhauling PURPA, it’s important to understand its history and what it has meant for the solar industry.
History of PURPA
PURPA was signed into law in 1978 as part of the National Energy Act under the administration of President Jimmy Carter.
The law was enacted in response to the 1973 energy crisis, which was sparked when OPEC issued an oil embargo to punish nations, including the United States, for appearing to support Israel. By the time the oil embargo ended in 1974, the price of oil had increased 400%, and the U.S.’s eyes were opened to our extreme dependence on foreign oil as essentially our only energy source.
In response, President Carter prioritized the diversification of our energy sources so that another such shortage of oil would not lead to the same devastation. PURPA was included in the National Energy Act to diversify our energy sources, conserve our natural gas, increase the efficiency and production of additional energy sources, like solar power, and to make energy retail rates more affordable for consumers.
The main and most influential component of PURPA was that it created a market for power from non-utility power producers, like small-time solar companies that usually look to provide solar panels for houses. Prior to PURPA, only large-scale utility companies were able to own and operate electric generating plants, but PURPA then forced these utilities to purchase power from smaller, independent, energy producers who could generate the power for less than what it would cost the utility to generate the power themselves. Such a change promoted the creation and growth of many smaller renewable energy producers that helped diversify the country’s energy portfolio, which became too dependent on a few, large, producers.
The difference in cost between the utilities producing the power themselves versus buying it from an independent company became known as the “avoided cost.”
The changes brought on by PURPA have been credited with greatly enhancing our country’s production of renewable energy and it is estimated that over 30% of today’s solar facilities benefit from the law.
Detractors of PURPA, however, have long-argued that the law has become irrelevant in today’s energy industry, which is why these recent changes have come about.
What’s changing with PURPA?
As a result of FERC’s recent overhaul of PURPA, federal regulators have now changed the requirements for deciding what small-time energy companies fall under PURPA.
Specifically, large-scale utility companies are now only required to buy power from energy facilities that are 5 MW or smaller as part of the “avoided cost” requirements that were set over 40 years ago. The previous limit had been 20 MW, so solar producers between 5 and 20 MW will now lose valuable access to that market of energy production contracts.
Additionally, states will now have more authority when it comes to setting the price at which small energy and solar producers sell their power.
Equally important, the “one-mile rule” that previously considered any solar projects located more than one mile from each other as separate sites, therefore qualifying as QFs, has been updated so that only projects located 10 miles or more from each other will enjoy the QF designation.
What it all means
Much has been made of the recent overhaul of PURPA, and opinions on what the changes will mean certainly vary a great deal.
On one side of the coin, some argue that the old version of PURPA was outdated and did not keep up with the massive deregulation of energy markets and the burgeoning market where energy could be purchased. Because of this, utilities were forced to purchase energy from QFs at a price that was far greater than market prices, and this in turn was eventually hurting the consumers, who then had to overpay for energy.
As a result, those who fall within this line of thinking now believe renewable energy will continue to grow, and consumers will be able to get access to this energy, like solar power, at a price far cheaper than before.
On the other side, detractors of the recent PURPA changes believe that energy competition will now be stifled and utilities will be allowed to strengthen their energy monopolies by cutting out smaller renewable energy producers from large contracts. This will then allow the large utility companies to raise prices on consumers without worrying about competition.
Some also believe that the recent changes from FERC will push the country more towards fossil fuels and away from cleaner energy sources like solar power.
But, like any big legislative change, only history will be the judge that gets to decide if the recent changes to PURPA will be good for the country, the people, and the renewable energy push.
As Director of Communications at LendEDU, Mike Brown uses data, usually from surveys and publicly available resources, to identify emerging personal finance trends and tell unique stories. His work for LendEDU, which has been featured in outlets like The Wall Street Journal and The Washington Post, provides consumers with a personal finance measuring stick and can help them make informed finance decisions.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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Thank you Mike Brown for the updated information. Since Solar energy can be produced far cheaper than fossil fuel generation facilities today, If a utility choses not to buy it, other utilities will snatch it up on the national grid. This does not change “Net Metering” for homeowners still trying to pay off older more expensive systems because they are below 5 mega-watts. To save out planet, we need to be “Carbon neutral” and the world knows this, outside of Washington DC.
See also the article “The Software-Defined Power Grid” in the July 2020 issue of the IEEE SPECTRUM
I thought that I would correct a few inaccuracies in Mike Brown’s description of the new PURPA rules.
First, the reduction in size of facilities that can require utilities to purchase power applies only in the organized RTO markets. Outside of those markets the old rules apply, which means solar facilities up to 80 MW still have the ability to require utilities to purchase their electricity. Also the reason for the reduction in size in the RTOs is because the larger sized facilities have the ability to sell into the RTO markets, so it is just substitution of one type of purchaser for another, although at different rates.
Second, although states have more authority over rates, those rates still must be at the purchasing utility’s avoided costs.
Third, it is not correct that all projects within 10 miles of each other are considered to be at the same site. Facilities within 1-10 miles of each other will be considered to be at the same site only if: (a) they are affiliates of each other and/or there are other factors present that indicate they are being operated as part of a single facility.
I hope that this is helpful
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