FERC Decision Clears Way for State-Based Feed-in Tariffs

Date: 25 Oct 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

It’s been a common argument against feed-in tariffs that federal law preempts states from establishing prices for renewable energy above the utility’s avoided cost (a figure meant to represent what it what otherwise cost the utility to get the same amount of electricity from another source, typically a natural gas-fired power plant). The FERC ruling in mid-October changes everything, allowing states to set the avoided cost rate based on the renewable energy technology in question.

From the ruling, as shown on wind-works.org:

“. . . Avoided cost rates may also ‘differentiate among qualifying facilities using various technologies on the basis of the supply characteristics of the different technologies’. . .”

“. . . We find that the concept of a multi-tiered avoided cost rate structure can be consistent with the avoided cost rate requirements set forth in PURPA and our regulations. Both section 210 of PURPA and our regulations define avoided costs in terms of costs that the electric utility avoids by virtue of purchasing from the QF. The question, then, is what costs the electric utility is avoiding. Under the Commission’s regulations, a state may determine that capacity is being avoided, and so may rely on the cost of such avoided capacity to determine the avoided cost rate. Further, in determining the avoided cost rate, just as a state may take into account the cost of the next marginal unit of generation, so as well the state may take into account obligations imposed by the state that, for example, utilities purchase energy from particular sources of energy or for a long duration.51 Therefore, the CPUC may take into account actual procurement requirements, and resulting costs, imposed on utilities in California. . .”  [emphasis added]

The FERC ruling does specify one difference between a U.S. state-based FIT and those in Europe or Ontario – the state must specify the amount of each renewable energy technology it wants, as well as the price (e.g. 100 megawatts of solar PV that is under 10 kilowatts).  

There’s also a very nice, plain English explanation of the impact of the FERC ruling from Jen Gleason at Environmental Law Alliance Worldwide.

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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.