A new Concentric Energy Advisors analysis shows that administratively-determined solar and wind contract rates signed under the Public Utility Regulatory Policies Act (PURPA) exceed competitive market rates and do not reflect declines in the construction costs of solar and wind capacity.
Concentric analyzed a sample of 708 solar and wind contracts representing approximately 8,000 MW of generation capacity that utilities in seven states signed with solar and wind qualifying facilities (QF). Concentric found these contract rates consistently exceeded rates in competitively determined power purchase agreements (PPA) for solar and wind energy executed in the same year.
Concentric estimates that utilities and customers overpaid between $150.7 million and $216.2 million per year relative to competitive benchmarks. Accounting for the full term of the solar and wind QF contracts raises the total overpayment estimate to between $2.7 billion and $3.9 billion.
Concentric concluded that the administratively-determined avoided cost rates in the solar and wind QF contracts did not reflect competitive market or construction cost trends for solar and wind energy. The Concentric study also claimed that market-based rates, as compared to administratively-determined rates, encourage more efficient renewable investment and deployment: “Setting QF contract rates administratively without regard to current market conditions, can also result in inefficient investment over time because such rates encourage developers to locate in jurisdictions with the highest avoided cost rates as opposed to areas where solar and wind energy would be most effectively deployed, and therefore valuable to the utility and its customers.”
Concentric was commissioned to conduct this study by the Edison Electric Institute, an energy association with membership from U.S. investor-owned utilities.
Historically, utilities have pushed back against PURPA. It introduced competition in the energy market through interconnection for alternative energy resources when it was passed in 1978. This meant solar and wind systems could be considered QFs, and required utilities to purchase energy produced by them that was fed to the grid.
SEIA recently filed a proposal with the Federal Energy Regulatory Commission to introduce more utility competition through PURPA.
But PURPA hasn’t retained the prevalence it once held. Since its enactment, PURPA has seen reinterpretation at the state level nationwide. California, Utah, Georgia and Minnesota have developed solar through QFs, but North Carolina has installed the most PV through PURPA in the last decade.
News item from Concentric Energy Advisors
Tell Us What You Think!