The U.S. Federal Energy Regulatory Commission (FERC) in a September 1 ruling abandoned 40 years of precedent on how to measure the net capacity of small power production qualifying facilities (QF) under the Public Utility Regulatory Policies Act (PURPA).
“This is gutting PURPA with a death of a thousand cuts,” Karl Rábago, principal at Rábago Energy said. “It’s mostly focused on trying to end market opportunities for non-utility renewable energy at a small scale,” he added.
With this ruling, FERC adhered to a strict definition of QF’s megawatt capacity that limits renewable energy generation’s ability to compete with utility-owned natural gas facilities on dispatchability, Grant Smith, senior energy policy adviser at the Environmental Working Group said.
Clean energy advocates view the ruling as protecting fossil fuel generation against financial demise. Increasingly, electric utilities’ natural gas plants are at risk of becoming stranded assets because renewable energy is cheaper and cleaner to produce. When inexpensive dispatchable renewable energy was a not a reality, the investor-owned utilities (IOTs) built their position on natural gas dispatchability, but now that battery storage is making renewable energy dispatchable and cheaper, the IOU argument is shifting, clean energy advocates say.
At issue in the ruling was whether the independent renewable energy company Broadview’s combined solar plus battery storage facility in Yellowstone County, Montana could qualify as a small power production QF under PURPA.
Broadview said that the aggregate capacities of its solar array and battery storage facility do not exceed PURPA’s 80MW limit because the facility’s inverters and interconnection facilities ensure that the delivery at the point of connection cannot exceed 80MW.
The IOU, NorthWestern Energy, meanwhile, countered that Broadview’s solar array and battery storage system should be considered two distinct small power production facilities at the same site because the 160MW solar array exceeds PURPA’s 80MW net capacity limit. It also warned that treating Broadview’s battery storage facility as part of the overall facility, instead of as a separate power facility, would have far-reaching impacts.
The Edison Electric Institute (EEI), which represents all U.S. IOUs, also weighed in on the matter. It asked the Commission to reconsider whether it is still appropriate to measure QF power production capacity based on net capacity as established in by FERC in 1981.
The EEI also argued against permitting batteries or other storage devices paired with renewable facilities located at the same site to qualify as a QF, if the combined rated capacity of all devices is above 80MW.
The winning argument
In the case, FERC’s majority ruled that using inverters to limit the output of an otherwise above-80 MW power production facility to 80 MW is inconsistent with the type of facility that Congress specified can qualify as a small power production facility under PURPA. FERC declined to make a ruling on the eligibility of battery storage in this case.
According to Jason Burwen, vice president of policy at the Energy Storage Association (ESA), the switch from using net output to using aggregate capacity for QF eligibility limits certain solar plus storage configurations. As a result, some solar plus storage configurations might trend smaller or reduce the use of storage, if they seek QF status.
“This is not an optimal outcome for the grid,” Burwen added. “We should be encouraging more storage, not less, and taking advantage of available interconnection capacity.”
That said, the ESA does not see this order as significantly slowing the installation of solar plus storage. “Not only is solar plus storage still eligible for QF status at smaller project sizes, but more solar plus storage is being installed without seeking QF eligibility. Since standalone storage has grown and been deployed profitably without securing QF status to date, we see this mostly as a lost opportunity for additional growth,” Burwen said.
For its part, the Energy Storage Association plans to work with FERC to achieve clarity on the eligibility of storage as a QF, including when paired with solar.
According to FERC Commissioner Richard Glick, the ruling’s lone dissenter, the majority’s ruling on Broadview will make QF status turn on the capacity of any one component of the facility, rather than the actual power capacity of the facility itself.
“That conclusion finds no support in the statute, our precedent or common sense,” he said. The term “facility” indicates that QF status should turn on the actual power production capacity of the resource as a whole, not the capacity of its largest individual component part, Glick wrote, citing the Merriam Webster Dictionary’s definition of “facility” to drive home this point.
“The bottom line is that while Broadview’s configuration may allow it to more predictably produce electricity, that configuration does not give it a power production capacity greater than 80MW,” Glick said.
Looking to the size of each component would cause the Commission to insert itself unnecessarily into commercial decisions that are better made by project developers than by federal regulators, Glick said. Ultimately, this ruling make will make it hard for developers to know which precedent they can count on and which they cannot, he added.
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