(Bloomberg) — A landmark 40-year-old law that’s been key to the growth of renewable energy in the U.S. is being effectively overhauled, threatening to curb demand for solar projects.
Federal regulators on Thursday imposed new limits on which energy projects fall under the Public Utility Regulatory Policies Act, known as Purpa, which helped spur an entire generation of solar and wind farms across the country. More than 30% of solar facilities online today benefit from the law, according to BloombergNEF. The changes may alter those projects’ future prospects and eliminate a key incentive for future ones.
The Public Utility Regulatory Policy Act (PURPA) was passed in 1978, in the midst of the energy crises that ripped through industrial world economies. Faced with predictions that the price of oil would rise to $100 a barrel, Congress acted to reduce dependence on foreign oil, to promote alternative energy sources and energy efficiency, and to diversify the electric power industry.
First Solar Inc., (FSLR) the largest U.S. solar panel manufacturer whose thin-film technology supplies solar farms that benefit from Purpa contracts, sank 3.2% Thursday. Sunpower Corp. tumbled 7.7%, the most in a month.
The overhaul highlights how far renewables have come since 1978, when the law was enacted to boost competition within the power sector and encourage new technologies in the fields of energy efficiency and in energy saving. Wind and solar costs have declined precipitously and renewables now make up about 20% of U.S. energy generation.
“Most of the renewable energy projects developed these days are done outside of Purpa,” said Federal Energy Regulatory Commission Chairman Neil Chatterjee. “That to me is total proof that renewables can compete in our markets and I do not expect that to change.”
PURPA has been the most effective single measure in promoting renewable energy. Some credit the law with bringing on line over 12,000 megawatts of non-hydro renewable generation capacity. The biggest beneficiary of PURPA, though, has been natural gas-fired «cogeneration» plants, where steam is produced along with electricity.
Still, clean-energy advocates argue that the law remains critical to giving solar and wind a leg up in states that aren’t green-leaning.
Purpa mandates that if a developer could build a project for less than a utility could, the developer can request a contract to sell power to that utility. Under the changes made Thursday by the energy commission, utilities are only obligated to buy power from facilities that are 5 megawatts or smaller. Formerly, the limit was 20 megawatts.
The bottom line is that as long as fossil fuel price forecasts are low, there will be very little development of new renewable energy. What is needed is a new law that accounts for the full range of benefits of renewable energy, like reduced pollution, less global warming, domestic and local economic development, and reduced dependence on foreign energy sources. Such a law must be part of electric industry restructuring legislation. The renewables portfolio standard can move large amounts of clean energy into the mainstream; the system benefits fund can support new and emerging energy sources; and closing loopholes in the Clean Air Act for old coal plants will reduce the unfair advantage those gross polluters enjoy.
That means solar arrays between 5 and 20 megawatts “will no longer have unfettered access to utilities that they’ve had for over 40 years,” said BNEF power analyst Brianna Lazerwitz. While current contracts wouldn’t be affected, the projects could face uncertainty once those contracts expire.
The rule change also gives states more authority to set the price at which small generators sell their power and amends the “one-mile rule,” which determines whether generation facilities should be considered to be part of a single facility. The agency will now require that qualifying facilities demonstrate commercial viability.
The new rules will “stifle competition, allowing utilities to strengthen their monopolies and raise costs for customers,” Washington-based Solar Energy Industries Association said in a statement. “We will continue advocating for reforms that strengthen Purpa and allow solar to compete nationwide.”
Commissioner Richard Glick, the lone Democrat on the panel, dissented in part but said that the changes would ultimately benefit consumers. “Under the old regime, customers were overpaying for power they were receiving” to the tune of $2.2 billion to $3.9 billion, he said.
States had already made efforts to curtail development of some projects. North Carolina, which became the second-largest market for solar power because of these requirements, passed a law in 2017 that cut avoided costs and shortened contracts to 10 years from 15 years.
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