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The nuances of developing a wind or solar generating facility can trip up even the savviest developer. With the expiration of the 1603 cash grant program in the news, much attention has been paid to the tax considerations involved with picking the appropriate structure and becoming eligible for various incentives. Lost in the shuffle are the state and federal regulatory regimes that affect whether and how a generator can sell power. This article provides a brief overview of several of the options developers have for selling their power, as well as the regulatory issues developers may face.
As a general rule, generators cannot sell directly to retail customers without becoming a public utility regulated by the local state's public utility commission. Some states have exceptions to this general rule, such as when the sale is incidental or to a small number of customers and not to the public at large. These rules are very state-specific, however, and require additional analysis on a state-by-state basis.
Because of state utility regulation of retail sales, many megawatt (MW)-scale generators make wholesale sales, which is a sale to an entity that subsequently resells the power, such as a utility. The Federal Energy Regulatory Commission (FERC) exercises jurisdiction over most wholesale sales of power. The trick for generators is figuring out (1) which entity will buy the power, and (2) what, if any, federal regulatory approvals are needed to sell to that off-taker.
For the first issue, generators located in some parts of the country may have access to wholesale markets, such as PJM or the Midwest ISO. Such markets provide those generators the option of selling directly into a wholesale market without a bilateral contract. Another option for generators seeking to make wholesale sales is to enter into a long-term bilateral power purchase agreement. By securing a long-term contract and avoiding reliance on the daily spot market prices for power, the generator may be able to secure financing more readily. Alternatively, under the Public Utility Regulatory Policies Act of 1978, certain generators can become "Qualifying Facilities," or QFs, which enables them to force the local utility to purchase the generated power at the utility's avoided costs. Unlike a standard PPA, the avoided cost rate may fluctuate, as avoided cost rates are determined by state regulatory commissions.
On the regulatory side, any entity making wholesale sales of power must obtain federal approval to do so, unless covered by an exemption. To obtain approval, the generator must file under section 205 of the Federal Power Act and request permission from FERC. Certain classes of generators, however, may become QFs and obtain various regulatory exemptions. For example, QFs under 20 MW are exempt from section 205 of the FPA and do not need prior approval to make wholesale sales. QFs under 30 MW are not subject to most federal holding company act requirements.
Small generators are also granted some regulatory flexibility. For example, many states permit facilities below a certain capacity threshold to "net meter," which provides the opportunity to "run the meter backward" and reduce the facility's power bill. As long as at the end of the relevant billing period the generator consumes more power than it puts on the grid, FERC has held that no wholesale sale occurs, and thus such a generator does not need FERC approval. Additionally, in 2010 FERC changed its regulations and removed the need for QFs smaller than 1 MW to formally apply for such status. Assuming they otherwise meet the requirements, such facilities are now automatically granted QF status.
Needless to say, numerous options exist for selling the power from a wind or solar generator, and choosing the option that is right for your facility can be a complicated process. FERC and state commissions continue to make a concerted effort to streamline the requirements for small generators, which bodes well for developers. Still, developers must be clear early in the development process about how they plan to sell their power and what regulatory approvals they need to do so.
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
The problem with economic regulation is that it only has merit over the short term. Over the long term, regulation has the potential to cause more problems than it purports to solve, or prevent. The problem with solar and wind power is that they require state subsidy. It would be absolutely wonderful if non-subsidized wind and solar power were cost competitive against other non-subsidized power generation technologies.
Attempting to create a market for a technology that requires subsidy and protection from competition through regulation, is a formula for creating economic chaos. It is the foundation of a dysfunctional economy. Despite massive direct and indirect investment in wind and solar technologies, other technologies can produce subsidy-free power at much lower cost.
The economic climate in several nations (Spain, Greece, Italy, Ireland, Portugal, Poland and even the USA) now requires massive reductions in expenditures being directed to renewable energy, mainly solar and wind. A market shake out in renewable energy is now unavoidable.
Malcolm Rawlingson 6.7.12
Excellent comments Harry and I agree completely. One of the reasons both Spain and Portugal are in such economic disarray is their foolish pursuit of renewables at any cost. Wind and solar are not competitive yet without taxpayer subsidies. You could argue that was once the case with nuclear but now it is competitive without the government research programs that spawned the industry. However the investment in the nuclear program was mainly through research the investment in wind is ongoing because the wind and the sun are too variable to justify the capital costs of the installations. If you have a nuclear plant that only operates (makes product) for 20% of the time and often at times when the price of power is low then you will never recoup your investment.
While the technology may change you cannot change the fact that the wind cannot be turned on and off and blows when it wants to and the Sun is not out half the time. These are the physical limitations that cause them to be uneconomic without Government help. I do not see that changing any time soon.
As Governments can no longer afford the scale of renewable subsidies the electricity industry will revert to the tried tested and reliable ways of producing electricity. It is just a matter of time and the realization that the great experiment was a costly one that did not work.
Ferdinand E. Banks 6.9.12
The temperature in northern Sweden in the winter is very low, for instance minus twenty or more. When my son did his military service in the infantry he was in the north, and the temperature was minus 25 that winter.
The completely stupid Swedish energy minister wants nuclear dumped and replaced with renewables and alternatives. I gladly repeat what I tell anybody who asks me: THE ENGINEERS AND MANAGERS IN SWEDEN DO NOT WANT TO HAVE ANYTHING TO DO WITH THAT GOOFY AGENDA. In no country do governments talk more about renewables than Sweden, but do less.
And Malcolm. one of the countries in Europe with the best economy is Finland, and as you know they are installing a Gen 3 reactor. There has been a lot of delay and extra expense with that reactor, and so the Finns are now making plans to install even one more. You see, being one of the best educated countries in the world, they get the energy message. The Swedish engineers and managers get it too, but they can't sing that message in thier favorite karaokee bars, and so they pretend that renewables and alternatives have a great future.
I am 100% in favor of investing in renewables and alternatives when it makes economic sense, which means that some subsidies are OK, since voters are so keen on renewables and alternatives. After all, it is better to subsidize renewables than stupid wars on the other side of the world. But what about using some common sense where this issue is concerned.
WES CAMPBELL 6.12.12
Fossil fuels have received subsidies and tax breaks since their inception . All of the "external" costs such as war to protect pipelines , and environmental degradation ; have been pushed onto the citizenry and climate respectively. Nuclear power is not competitive with other sources of energy, or it would not require a government gauruntee to back the financing . The "spent" fuel from these facilities is incredibly dangerous and has a half life of over 150,000 years . There is no discussion as to the cost of nuclear proliferation via terrorism or "Natural" disasters of which the calamity is nearly incalculable . Would any of you gentlemen care for a multi-MegaWatt coal fired plant or Nuclear plant accross the street from you and your children ? Until the true costs of energy production are considered and a carbon tax instituted , we will continue to hear these arguements made based on "cost"; without a real view of the BottomLine . If we don't have an environment in which to live , all of your arguements are for naught .
George Morris 6.13.12
Wes....I work in the nuclear field, and not only is it extremely economical with regard to producing electricity, it is also extremely safe. Yes, if allowed to I would move my house, my family, and all my friends directly onto the shield building of any nuclear plant in the United States. Coal plant? Not so much. Terrorism concerns are unfounded. The shield buildings in the US are designed to withstand the impact of a fully loaded 747 (and giant Tsunamis), and if even a flying squirrel or housecat attempts to get within a hundred yards of the shield building, there would be not enough DNA remaining after it is vaporized by weapons fire to determine what type of animal it was to begin with. The spent fuel? It's encapsulated in glass and concrete and only represents a small percentage of nuclear waste. Most of it is stuff like a wrench or a pair of boots used inside a containment area. But I understand your point of view...you believe nuclear is bad no matter what and that a grid can be run with windmills and solar panels. Please learn about it...like the biggest proponent of nuclear power...the founder of Earthday!
Garth Barker 6.13.12
Good comments all; I don't like the idea of babysitting nuclear waste into the dim future, there has to be a reason so many states are against housing the stuff. That said I agree with the article concerning regulation and further more, mid-level bureaucrats make the licensing process extremely expensive and time consuming as well. I wonder how the regulatory system will treat energy storage since it isn't new generation but time shifted previously generated energy. They need to get this aspect of the industry figured out in the next few years - storage is the magic bullet that will make our energy system work.
Fred Linn 6.16.12
-------"They need to get this aspect of the industry figured out in the next few years - storage is the magic bullet that will make our energy system work."----------
Not much babysitting required Garth. After about 100 years you can park a fuel bundle in your living room with no adverse effects. But I would not chop it up and sprinkle it over your cornflakes. The hype around radioactive waste being "highly dangerous" for 150,000 years was and is nonsense. Besides I would hardly call it waste when it still contains about 98% of the original fissile materials. It is very recyclable so burying it or vitrifying it in glass is just plain stupid.
Having worked in the business for well over 40 years now there is no question that nuclear power plants are the safest of all places to work. Those that continue to spew out the "unsafe" mantra have no idea what they are talking about and obviously learned all the technical details from cartoons. As you note Garth if you could move your house onto a nuclear site you would greatly reduce your risks.
Storage of electricity would be great Fred Linn - when you figure it out let me know as it will give the nuclear industry a massive boost. Most nuclear plants run to fulfill base load capacity requirements so if you can use storage to meet the peaks then all nuclear plants can be continuously run and more will be built above base load requirements. Storage greatly lowers the already low cost of nuclear generated electricity and it certainly does not favor windmills - quite the opposite. Since you are a lifetime opponent of anything nuclear (don't get X-rays as the Cobalt 60 isotopes are made in Canadian nuclear reactors) then I would be careful what I wished for.
And to Professor Fred whose wise and witty comments are always a joy to read - of course the Finns have a strong economy - they have politicians who understand that cheap reliable electricity is the foundation of prosperity and not something to make half baked experiments with that do not work technically or economically. Cheap power attracts major industries like metals refining so building another large Generation 3 reactor makes complete sense to them and to me. It also appears to make sense to China, India, United Arab Emirates, United Kingdom, Russia, Argentina, Brazil, France and dozens of other countries even the USA who are now (at last) realizing that their fleet of incredibly reliable and efficient nuclear power plants is not going to last forever.
It should not be viewed as a coincidence that Saab - that one time manufacturer of superbly designed vehicles - has now been sold to the Chinese and are now slated to make electric cars. As beautiful as they are Saab vehicles were just far too expensive to compete - certainly in North America. Shutting down the Swedish nuclear industry and filling the streets with electric cars is a recipe for economic disaster. Unfortunately the lunatic politicians in your country believe this is possible when the battery technology is not there to support it and the electrical infrastructure cannot supply the increased load. When the Swedish public realizes they have converted their nation into a third world economy perhaps things will change - or the Finns will annex Sweden.
Swedish politicians must be getting their technical information from cartoons as well.
Malcolm Rawlingson 6.22.12
Wes, I do have a very large nuclear plant just down the road from me. Safest place on Earth and no risk to me or my family. Malcolm
------------" Wes, I do have a very large nuclear plant just down the road from me. Safest place on Earth and no risk to me or my family. Malcolm"------------
Until it isn't safe anymore.
Malcolm Rawlingson 6.23.12
When you already live in the best country in the world why would I move there? I helped build it. I know it is perfectly safe. And if you were so worried about risks Mr. Linn I strongly suggest you stop driving. It has a much greater probability of killing you than any industrial plant nuclear or otherwise.