PURPA Avoided Cost Provision Wasn’t a Problem—Until It Worked
A long-standing, previously obscure provision in U.S. law has become a problem for its utilities—and a boon to some renewable power companies, obliging grid operators to purchase generation from third-party providers at prices competitive with the avoided cost of the power it replaces.
For decades, the mandate under the Carter-era Public Utility Regulatory Policies Act (PURPA) “was essentially irrelevant to the wind and solar industries because their technologies cost far more than power from fossil fuels,” Reuters notes. That price disadvantage has reversed in the last decade, however, as the cost of solar and wind power have plummeted, “encouraging a surge of renewable power projects from developers who can count on legally-mandated contracts with utilities.”
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The effect has been most pronounced in North Carolina, CleanTechnica reports, where “over 2,200 megawatts of solar projects were built (making it rank third in the country), supported by an attractive ‘avoided cost’ price. The state PURPA rules allow any renewable energy project under five megawatts [to] receive a 15-year, fixed-price contract at the utility’s avoided cost.”
“It’s been really important,” said Ben Van de Bunt, whose Cypress Creek Renewables LLC claims to have developed more solar projects under PURPA mandates than any other company.
North Carolina’s Duke Energy, however, claims PURPA’s long-term contracts force it to pay between US$55 and US$85 per megawatt-hour for solar energy it could otherwise get for as little as US$35, Reuters notes, citing GTM Research.
Duke and other utilities are lobbying for shorter PURPA contracts that more closely track falling renewable costs. Legal challenges have been launched against the legislation, or regulators’ interpretation of it, in Oregon, North Carolina, Utah, Montana, and Utah.
But advocates for solar developers argue that shortening the terms of PURPA contracts “would eliminate the long-term predictability investors need to finance renewable energy projects, and undermine clean power development just as PURPA has begun to have the effect its drafters originally intended.”
“It wasn’t a problem until it worked,” noted Adam Browning, executive director of the advocacy group Vote Solar, which has lobbied to preserve PURPA contract terms in several states.