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More PURPA Rollbacks: FERC Upends Nearly 40-Years’ of Precedent on Determining QF Size; Leaves Energy Storage Questions Unresolved


In 1981 FERC held that the size of a qualifying small power production facility (“QF”) is measured by the amount of capacity it can “send out” to the grid. (Occidental Geothermal, Inc., 17 FERC ¶ 61,231 (1981)). The holding was consistently applied in many orders since then. On September 1, FERC overturned settled principles in an order revoking Broadview Solar, LLC’s QF status. (Broadview Solar, LLC, 172 FERC ¶ 61,194 (2020)). The Broadview order contributes to a recent trend in unpredictable energy regulatory orders disturbing developer and investor expectations and elevating change in law risks. For additional background on QFs and other recent PURPA changes, see "PURPA overhauled" in the August 2020 NewsWire.

Background

Broadview Solar petitioned FERC for a Declaratory Order that its proposed 160 MW(dc) solar + 50 MW battery energy solar system (“BESS”) project under development in Montana is a QF. PURPA states the maximum power production capacity of a QF cannot exceed 80 MW. Acknowledging this limitation, Broadview explained that the project inverters, which convert direct current (dc) power from the project to alternating current (ac) power as necessary to send power to the grid, are not capable of converting any more than 82.5 MW. With parasitic load and losses of 2.5 MWac from the inverter to the point of interconnection, the total amount of power that the facility can send to the grid is limited to 80 MW. The only way to increase the project’s capacity would be to install additional inverters. The project’s interconnection agreement also expressly limits the facility output to 80 MW. Broadview explained that it designed the project with an oversized solar unit combined with a BESS to increase the project’s capacity factor and significantly enhance efficiency. The 50 MW BESS energy also must be transformed into ac power through the same inverters, so the BESS output and PV output together cannot exceed 80 MWac at the point of interconnection.

Under established FERC precedent, Broadview’s design would have been sufficient to qualify the project as a QF because it is physically impossible to send more than 80 MW to the grid. FERC held nearly 40 years ago in Occidental that determining “a facility’s power production capacity is not necessarily determined by the nominal rating of even a key component of the facility.” Instead, “the electric power production capacity of the facility is the capacity that the electric power production equipment delivers to the point of interconnection with the purchasing utility’s transmission system.” (Malacha Power Project, Inc., 41 FERC 61,350 (1987)).

The Broadview Decision

In Broadview, FERC stated that, “on further consideration” (after 40 years of following Occidental) the “send out” analysis in Occidental is inconsistent with PURPA. It held that the “power production capacity” of a facility will equal the facility’s maximum gross power production capacity, less certain parasitic loads and losses. The parasitic loads and losses cannot account for controls, inverters, or other “output limiting devices” that restrict the amount of power that can interconnect.

As the dissent noted, FERC simply took one component of a power plant and called it the entire facility. It ignored the fact that the output from that component cannot synchronize with the grid without passing through an inverter to convert it to ac power and the inverter size limits the output to 80 MW at the grid. Therefore, the “facility is physically incapable of producing more than 80 MW of electricity for any subsequent use.”

FERC stated all existing QFs will be grandfathered under the prior regime. The facility must actually be a QF – meaning it must have already submitted a FERC Form 556 – to qualify for grandfathering. Simply establishing a legally enforceable obligation or PPA with a utility pursuant to PURPA is insufficient.

Open Energy Storage Questions

The Broadview order turns on the fact that the solar system part of the facility alone exceeds 80 MW, and expressly dodged addressing the impact of the BESS. An intervening protestor (the interconnecting utility) argued the capacity of the BESS should be additive, because FERC “currently treats storage facilities as primary generation resources and does not treat them as ancillary or secondary to the generation process.” In contrast, the dissent stated the BESS “cannot ‘produce’ power in any conventional sense of that term.”

Entities seeking to combine renewable resources with BESS are left without clarity as to the impact of the BESS on the facility’s QF eligibility. At a minimum, if a renewable project must be a QF (e.g., in order to obtain power purchase agreements with vertically integrated utilities outside of liquid wholesale markets), the developer should consider requesting clarification from FERC before committing to include a BESS with a renewable resource when the combined capacity exceeds 80 MW. Developers should also avoid oversizing its solar, wind or other co-located renewable asset above 80 MW in order to optimize BESS capabilities as the petitioner in Broadview planned to do. These restrictions are contrary to the policy rationale behind FERC’s recent Order No. 845, which seemed to encourage siting BESS with variable renewable resources in order to take advantage of unused interconnection capacity (for more information on Order No. 845, see "Big changes in how new power projects connect to the grid" in the June 2018 NewsWire.

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