New formula regulating energy costs good for solar companies - but not others
A 40-year-old Michigan law regulating energy costs has been updated to reflect market changes. It sounds bureaucratic, but it could impact Michigan’s green energy future. For better and for worse.
Solar energy providers like the change. Pretty much every other alternative energy producer opposes it.
At the heart of the debate is something called the Public Utilities Regulatory Policies Act, or PURPA.
It’s a federal rule mandating that the state’s large utilities buy power from smaller producers.
The Michigan Public Service Commission is in charge of determining the rate that large utilities must pay the small producers.
Just last week, after 40-years, the PSC updated the payment formula.
The previous rate was based the cost of running a coal powered plant.The updated formula is based on the cheaper cost of natural gas.
“Federal law says that Michigan utilities and the utilities around the country should buy power from those renewable facilities and now new solar power providers will be able to sell power to Michigan utilities through the formula,” said Sean Gallagher, Vice President of State Affairs at the Solar Energy Industries Association.
Gallagher said the new formula is good news for solar energy providers.
“Projects up to two megawatts in size, which is enough to power several hundred households, will be able to sell power under this new arrangement, and we think solar power providers are gonna jump on the opportunity. We’re very enthusiastic about trying to make Michigan more of a leader in the solar power industry and keep up with some of the neighboring states,” said Gallagher.
The new formula shows a shift in Michigan toward renewable options, like solar.
“Increasingly utilities are looking toward more cleaner investment, and that means natural gas, fired powered plants or renewables. What the order does is create a level playing field for renewables to compete against the kinds of resources that utilities are really building today.”
While the new formula pleases solar power producers, all the other alternative energy providers, think wind, hydro and biomass, don’t agree.
“The new PURPA law affects independent power producers like Viking Energy of Lincoln,” saidNeil Taratuta, plant manager for the wood burning power producer in Missaukee County.
The new PURPA formula will cut revenue at his plant by 40 percent.
In fact, he said the formula will hurt many small, independent, non-solar producers.
“We feel some of the data and information they were using was incorrect.”
The rate small energy producers get paid is based on what’s called the avoided cost. That’s the cost large utilities avoid paying by not producing the energy themselves.
“It basically comes down to how they calculate the avoided cost. Obviously we would like to see that be adjusted to be favorable so independent producers can still stay productive and still generate power for Michigan,” said Taratuta.
So here’s the problem. The Independent Power Producers Coalition said with solar projects, upfront costs are higher, maintenance costs tend to be lower. But with other alternative energy, maintenance costs are higher.
“We are a renewable independent power producer. We are not part of the utility, we just produce power put it on the grid and we are paid by the utility. So this directly affects what we will be paid, and again the 40 percent reduction would make it very difficult for our facilities to continue and be profitable,” Taratuta said.
The Independent Power Producers Coalition said operational costs should be added in, things like maintenance, expansions and long term costs.
“There’s quite a few facilities in northern Michigan that produce power, and it’s very important that these facilities be able to continue doing what they’re doing,” said Taratuta.
The new PURPA formula only applies to Consumers Energy.
Cases for each of the regulated utilities, including in the Upper Peninsula and Detroit, are still to be determined.
Viking Energy said they plan to work with the Michigan Public Service Commission to change the formula.
The Independent Power Producers Coalition said it may bring the case to court.