Expanding Feed-In Tariffs May Entail Tighter Contract Terms

As the California Public Utilities Commission considers expanding its feed-in tariff program to larger projects, investor-owned utilities and green energy producers are debating whether the state should increase performance guarantees in contract terms. Southern California Edison and other utilities generally favor stricter requirements for developers--such as insurance, performance guarantees, and liquidated damage payments to utilities--as the size of renewable energy projects offered feed-in-tariffs increases. These tariffs set a public, long-term price for wind, solar and other alternative power supplies, which provides financial security for developers. “A 20 MW project has a lot different risk profile than a 5 MW project,” notes Mike Montoya, Southern California Edison attorney. Developers are concerned that adding such contract requirements would bog down renewable energy projects. “Loading feed-in tariff contracts up with these types of terms and conditions imposes significant additional costs on the project developers without really providing the surety the utilities seek,” according to Gregory Morris, Green Power Institute executive director. Power industry representatives discussed potential revisions to feed-in-tariff contract terms at a February 10 meeting. The commission is considering whether to require utilities to pay feed-in-tariffs for projects up to 20 MW to help the state meet its renewable portfolio standard. Utilities currently only have to offer feed-in-tariffs for projects up to 1.5 MW in capacity. “The challenge is to design effective limits, terms, and conditions balanced with a simplified standard contracting process,” according to Division of Ratepayer Advocates’ attorney Christopher Clay. Feed-in-tariffs can play a valuable role in meeting the state’s green energy standard, he said, but “as the size of the project increases, it is justified to require additional terms and conditions.” However, Morris suggested that instead of adding new terms and conditions the commission simply should require utilities to “over contract” for renewable power. “They will end up with enough successful projects to meet their procurement obligations,” according to Morris. An additional benefit of expanding feed-in-tariffs is that it can lower power system costs, according to Kevin Fox, attorney for Vote Solar and the Solar Alliance. For instance, he said putting solar systems into the distribution grid can reduce the need for new transmission lines. By taking pressure off the grid, strategic placement of solar systems can even eliminate the need for distribution system upgrades to meet peak power needs, Fox said. The commission plans to decide whether to expand the size of projects eligible for feed-in-tariffs and establish parameters for terms and conditions for those projects. However, the commission does not expect to resolve all of the issues until 2010.

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Expanding Feed-In Tariffs May Entail Tighter Contract Terms

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