Why the Renewable Energy Market Could Be Set to Explode
The market for small-scale renewable energy production might be set to take off, and that could be big news for local utility companies here in Alabama and all across America. And it all stems from a single federal ruling issued in June following a dispute between energy cooperatives in Colorado.
To see the big picture here, we’ll need some background. To begin with, let’s meet the two main players in this story.
Tri-State Generation and Transmission Association, Inc. is pretty much exactly what it sounds like—a generation and transmission (G&T) cooperative. G&Ts produce electricity by means of their own infrastructure and then sell it on to their member organizations. This G&T is based in Denver, and one of those member organizations is Delta-Montrose Electric Authority. DMEA is a member-owned and locally controlled rural electrical cooperative along Colorado’s Western Slope.
Over the past couple of years, Tri-State and DMEA have been involved in a dispute over how and where DMEA sources some of its electricity. The current long-term contract between the two organizations stipulates that DMEA must derive 95 percent of its power from Tri-State. Per the contract, DMEA can self-generate up to 5 percent of its annual electricity usage, but no more than that.
In 2015, DMEA asked the Federal Energy Regulatory Commission (FERC) if it could go beyond that 5 percent mark by entering power-purchase agreements with small, independent producers. It cited the Public Utility Regulatory Policies Act (PURPA) of 1978, which requires utilities to buy power from small, renewable sources called Qualifying Facilities (or QFs, which are defined here). FERC agreed, ruling that PURPA’s requirements superseded Tri-State’s contracts with its customers.
Tri-State responded with a petition to FERC. The Denver-based co-op called for a new fee that would effectively penalize DMEA (and any of its other members) if it purchased power from a QF instead directly from Tri-State. The idea was that Tri-State needed to recoup some lost revenue following DMEA’s decision to source greater than 5 percent of its electricity from QFs. Tri-State, after all, has always depended on income from its member organizations to pay for costly investments in the infrastructure needed for large-scale generation. The same is true for just about any G&T.
But in a decision released in mid-June, FERC denied Tri-State’s petition. In its June 2016 Commission Meeting Summaries, FERC noted: “Tri-State’s petition would effectively undo Delta-Montrose’s statutory obligation to purchase from QFs and correspondingly limit QFs from selling power to Delta-Montrose at negotiated rates.”
Great, so what does it all mean?
So DMEA won, FERC lost and life will go on as normal. But what does any of this mean for anyone in Alabama?
According to Kevin Brehm and Dr. Joseph Goodman at the Rocky Mountain Institute, it could mean quite a bit. Most significantly, the nationwide market for locally produced, small-scale renewable electricity could be ready to blow up.
“The FERC ruling effectively removes a policy barrier that has substantially constrained solar build-out,” they wrote in a June blog post. “This means that the co-op and muni community-scale solar markets could be even larger than previously predicted.”
FERC’s ruling won’t be the only contributing factor in a market explosion, if one does happen. The costs associated with renewable energy have dropped considerably in recent years, and that trend will only continue. (As Anna Hirtenstein notes at Bloomberg.com.) Lower costs, of course, make it easier for more people to build more solar. But along with that general reduction in costs, this recent ruling has made renewables even more enticing. In effect, FERC has opened the door for co-ops to purchase as much renewable energy as they need from QFs.
The economy of scale
That’s potentially huge for small-scale renewable generators all across the country. How huge? Brehm and Goodman estimate that declining prices could lead to the emergence of a 400 gigawatt (GW) market.
Think about that for a second. According to Alyson Kenward at ClimateCentral.org, the Indian Point Energy Center, a nuclear plant in New York, provides power to about 1.4 million homes with its dual 1-GW reactors. That’s from 2 GW. We’re talking about a market collectively totaling 400 GW.
DMEA CEO Jasen Bronec has hailed the ruling, saying it would help DMEA “diversify” its power supply. Distributed energy is important, but it’s impossible to ignore the financial implications of FERC’s decision. “(The ruling) could also lead to serious local economic development,” Bronec said, “as renewable facilities locate to the area to take advantage of our abundant renewable resources in Delta and Montrose counties.”
It doesn’t have to be just Delta and Montrose counties, though. While FERC’s ruling applied only to a single corner of Colorado, its implications stretch from coast to coast.