The Public Utilities Regulation Policies Act, or PURPA, has been a catalyst for utility-scale solar and other alternative energy projects since its inception and passage 40 years ago. In 2017, PURPA projects accounted for approximately 2,000 of the 4,500 MW of solar energy production added in the United States.
PURPA has driven solar development because it obligates utilities to purchase renewable energy from qualified facilities’ (QFs) projects if the cost of energy meets or is less than fossil fuels.
“This is called the ‘must purchase obligation,’ and this thing is the target of assault by so many utilities around the United States,” said Todd Glass, energy and infrastructure partner with Wilson, Sonsini, Goodrich & Rosati. “They’ve hated it since 1978, they hate it still today and a subset of the utility industry is trying to rub it out.”
PURPA was passed following the 1970s oil crisis to add competition and diversify the energy market, loosening the grasp of a utility-held energy monopoly. As oil shipments decreased, prices for the fossil fuel shot up and revealed a glaring lack of alternative energy sources in the United States. This supply mismatch obligated utilities to purchase renewable energy from QFs at avoided cost.
Forty years later, gas prices have lowered, but so too has the price of solar. While utilities want to keep their electricity portfolios under their control as much as possible, cheap solar from outside facilities keeps sneaking in. Utilities have continued pushing for amendments to PURPA at state levels, trying to limit their requirements to buy more solar.
For example, the three investor-owned utilities in Arizona have filed petitions within the last three years to amend PURPA and limit contracts with QFs exceeding 100 kW outputs to two years at most. A hearing will likely be held on the issue sometime in 2019.
PURPA is different from Renewable Portfolio Standards, which mandates utilities operating in certain states to purchase a certain percentage of renewable energy. Instead of an obligation, PURPA was meant to introduce competition into the energy market, Glass said.
“We — the solar industry in particular — are very comfortable with competing,” he said. “We just want to be able to compete fairly with the utilities and the others in the industry, because we think we can create some of the lowest-cost power. Problem is, if you defeat PURPA, you’re left with these vertically integrated utilities that will discriminate against smaller solar projects. They won’t buy it. They don’t want to. That’s what’s playing out right now, because wind and solar are now cheaper than coal, nuclear and natural gas generation.
If it’s required, utilities prefer building solar themselves and profiting, rather than buying it from other smaller developers.
However, not all utilities view PURPA as a nuisance. Certain energy markets have community choice aggregation (CCA), which gives customers the option to select their energy provider and often includes renewable options.
Four decades in the books
The Public Utilities Regulatory Policies Act was passed by Congress on November 9, 1978, influenced largely by a small-scale solar and wind project located on New York City’s Lower East Side. Charlie Copeland, president and CEO of the engineering firm Goldman Copeland, was part of the Urban Homesteading Assistance Board back then. Members, known as ‘homesteaders,’ were responsible for living in and renovating abandoned New York City buildings in the 1970s.
“I was always a little grim about our use of energy — fossil fuels,” Copeland said. So the homesteaders did something unique for the 1970s. They installed 30 Sunworks solar collectors and a large windmill on the rooftop of 519 East 11th Street, which provided more than enough energy to power the building and provide hot water. That excess energy was subsequently fed back into the power grid.
Local utility Con Edison was surprised by the excess energy.
“The utility took the position that nobody should ever [feed power] to their grid,” Copeland said. Following that, a group of residents petitioned the Public Service Commission to allow cogeneration in the city and eventually won the case, defended by Attorney General Ramsey Clark.
“This was like the trigger that allowed all of us to install systems and provide electrical power to the grid,” he said.
Ultimately, this victory legitimized cogeneration, letting residents create their own energy and making utilities buy it from them. Soon after, PURPA was enacted, and cogeneration was a nationwide concept.
Becoming a qualified facility
While it’s been a game changer for utility-scale solar, smaller solar projects up to 80 MW can also be considered for QF status. Solar project owners can submit a self-certification with the state’s energy commission declaring a project as a QF if it meets PURPA’s standards. The same self-certification must be sent to electric utilities that the project will transmit, interconnect or sell energy to.
Another option is applying for a commission certification by filling out FERC’s Form No. 556 and submitting it to a state’s energy commission.
If approved as a QF, solar plants producing 500 kW or more will have a 90-day waiting period until a utility will purchase from them.
PURPA in action
The Southeast and mountainous Northwest states boast the most PURPA solar projects. States like Idaho, Utah and Montana, which aren’t necessarily known for having thriving solar markets, have garnered a larger solar presence through PURPA.
“With the proliferation of the solar technology and how cost-competitive we are, we’re in these state commissions routinely, trying to enforce the federal law and some other things that are within the law of PURPA but haven’t received any guidance from state commissions,” said Bret Sowers, VP of solar installer Southern Current. “There’s a lot in the federal law that leaves it directly to the state to make these decisions as it relates to what is a financeable contract term length. FERC doesn’t prescribe what that is, and that’s up to a commission — or if the commission has no direction, to the utility — to provide those contract term lengths and non-discriminatory access to their grid. There’s consternation, a lot of legal battles and a lot of activity increasingly in state commissions related to PURPA.”
More than 60% of Southern Current’s solar portfolio is considered PURPA projects. Its markets in the Southeast have been driven by PURPA, but utilities continue to find workarounds in the law, preventing potential QFs from participating.
An issue Southern Current and other solar developers in the region have encountered is an extensive competitive solicitation. No language in PURPA mandates utilities return correspondence with solar companies on eligible QFs within a set amount of time at a state level.
“Those projects that would have entered the interconnection queue, say, two years ago, intending to follow PURPA will now bid into a competitive solicitation process for that generating capacity,” Sowers said. “There’s a lot of things that can happen throughout the time in which we begin development of a project and when we actually build it and bring it online.”
Another point of contention on QFs for utilities is contract term lengths and wattage. Steve Levitas, senior VP of regulatory affairs and strategy at Cypress Creek Renewables, said approximately 20 states have Public Utilities Commissions that have not implemented PURPA to let QF development occur.
“The big problem is that these commissions have not complied with PURPA’s mandate that utilities be required to offer QFs contracts that are of a sufficient duration,” he said. “You either see contracts that are very short in duration — under five years or less — or that do not have fixed pricing available. And no one, except in very unusual circumstances, can finance the construction of a major energy project without certainty as to the revenues that they will realize form the project over some reasonably defined period of time.”
Cypress Creek found a foothold in the North Carolina solar market by focusing on developing PURPA projects. The state had the most solar QFs in the United States in 2016, beating out even California.
“FERC has adopted rules and policies with respect to the implementation of PURPA,” Levitas said. “Frankly, the majority of states, in our opinion, have not complied with the requirements of federal law, and have not implemented PURPA in a way that really allows for much qualifying facility development to occur.”
Despite utility backlash, PURPA remains a driving force for solar development in certain markets. Solar developers and utilities are both prepared to stand firmly on either side of the aisle as PURPA approaches its 41st year.