Old Is New Again

It would be easy to think that integrating renewables into the grid is an issue that has come about in the last 10 years. Would you believe utilities and renewable generators have been dealing with grid integration for the past 40 years?

In 1978, Congress passed a federal law titled the Public Utility Regulatory Policy Act or PURPA. It stated that if any entity built a renewable project, the local utility MUST purchase the power.

The law set the price the utility must pay at the utility’s avoided cost. Avoided cost refers to the cost of the supply a utility would traditionally use, such as coal or nuclear plants, to provide power. Under PURPA, if a utility must purchase power from an alternative provider like a wood chip plant or hydroelectric facility (the most popular renewable projects of the late 1970s), they had to do so at the same price they would have paid for traditional power (i.e. the cost they are avoiding).

Well, Three Mile Island led to outrageous prices for nuclear plants under construction at the time. Renewable generators argued that these embedded costs were exactly what the utilities would be avoiding by purchasing from their facilities. With no structured wholesale market to point to for alternative pricing in the late 1970s, the utilities lost the argument.

Renewable projects got built and they began collecting rates as high as 18 cents per kilowatt hour. Contracts were signed, the high costs were rolled into the utility’s wholesale rates and the industry moved forward.

Today, we have a robust wholesale market open to all utilities. Wholesale market prices change by the hour. Purchased power agreements can be found in a wide array of ranges and pricing from a multitude of entities.

Recently, in Michigan, Consumers Energy and DTE revisited the old PURPA argument at the Michigan Public Service Commission (MPSC). Looking at the industry through a lens far different than 1978 and with cost to the end user in mind, the MPSC agreed with the utilities that the avoided cost number needed to be changed to reflect today’s wholesale market of 4–5 cents per kilowatt hour.

You can bet there are renewable generators wondering how they will survive under such a low price. I would argue that they have enjoyed a subsidized rate of return for a period of time that is more than fair. I would also argue that all consumers of electricity benefit when regulators and legislators leave the wholesale pricing to an open and competitive market.

In the utility world of 2018, there is a market for renewable energy. It is only fair that old and new projects compete on the same level. The recent MPSC ruling simply did just that.

These older renewable plants have a big advantage over any new project. They are built and running within our state borders at a time when building a wind project is difficult, new hydro is impossible and solar is limited during our winter months. They are also lucky we are at a time when almost every utility is seeking more renewable energy resources.

The grid is rigid, and the utility structure evolves slowly, but it does evolve, even if it takes 40 years.

Tony Anderson

About the Author:

4 Comments

  1. John T Wierenga March 5, 2018 at 11:13 am - Reply

    I appreciate learning this history , but the logic is irrelevant in light of the true cost of energy sources producing carbon. Global warming , with its considerable economic cost, and unthinkable future cost in terms of civilization and human suffering, is not theory. It is established fact accepted by essentially all scientists. There is no controversy about this except among American politicians whose votes have been purchased by the Koch brothers . I encourage your readers to call especially their Republican congresspersons regularly and ask that they support carbon fee and dividend legislation. This is urgent .

  2. Toria March 6, 2018 at 12:24 pm - Reply

    The infrastructure of the distribution of electricity should be a legitimate function of state governments or the federal government when two or more states are involved. However the content of electrical kilowatts should be for private firms who bid for the contracts to deliver electric kilowatts. This requires a rethinking and restructuring of the GRID under Federal guidance.

  3. germanialavoro March 6, 2018 at 2:57 pm - Reply

    The infrastructure of the distribution of electricity should be a legitimate function of state governments or the federal government when two or more states are involved. However the content of electrical kilowatts should be for private firms who bid for the contracts to deliver electric kilowatts. This requires a rethinking and restructuring of the GRID under Federal guidance.

  4. Terry Kearney March 7, 2018 at 9:06 am - Reply

    My current electric utility (Upper Peninsula Power Company) refuses to buy any electricity back from me. The meter only runs one way. I assume there must be some fine print somewhere that makes this legal.
    Terry Kearney

Leave A Comment