New Study Finds Customers Paying Above Market Rates for Solar and Wind PURPA Contracts
MARLBOROUGH, Mass., Nov. 14, 2019 /PRNewswire/ -- A new Concentric Energy Advisors (Concentric) analysis shows that administratively determined solar and wind contract rates signed under the Public Utility Regulatory Policies Act (PURPA) exceed competitive market rates and do not reflect dramatic declines in the construction costs of solar and wind capacity. The Edison Electric Institute commissioned the study to better understand the relationship between the contract rates solar and wind qualifying facilities (QFs) receive under PURPA and recent market trends.
Concentric analyzed a sample of 708 solar and wind contracts representing approximately 8,000 megawatts (MW) of generation capacity that utilities in seven states signed with solar and wind QFs. Concentric found these contract rates consistently exceeded rates in competitively determined purchase power agreements (PPAs) for solar and wind energy executed in the same year. Concentric estimated that utilities and, in the end, customers overpaid between $150.7 million and $216.2 million per year relative to competitive benchmarks. Accounting for the full term of the solar and wind QF contracts raises the total overpayment estimate to between $2.7 billion and $3.9 billion.
Solar QF Contracts Under PURPA:
- The solar QF contracts signed between 2013 and 2019 exceeded a competitive solar PPA benchmark by between $6.27/MWh and $10.79/MWh on an annual levelized cost basis.
- This contract rate differential amounts to an estimated overpayment relative to the competitive benchmark of between $67.9 million and $116.8 million per year on an annual levelized basis.
- After accounting for the full term of the contracts, the overpayment for the solar QF contracts is estimated at between $1.05 billion and $1.87 billion.
- The solar QF contract rates did not follow construction cost trends and only declined at approximately half the rate of solar levelized cost of energy estimates over the 2009-2019 period.
Wind QF Contracts Under PURPA:
- Concentric found similar results for wind QF contract rates.
- The wind QF contracts signed between 2009 and 2018 exceeded a competitive wind PPA benchmark by between $17.66/MWh and $21.19/MWh on an annual levelized cost basis.
- This contract rate differential amounts to an estimated overpayment relative to a competitive benchmark of between $82.9 million and $99.4 million per year on an annual levelized basis.
- After accounting for the full term of the contracts, the overpayment for the wind QF contracts is estimated at between $1.65 billion and $1.99 billion.
- The wind QF contracts generally tracked underlying cost trends, as measured by the levelized cost of wind energy, but as noted above, exceeded the competitive benchmarks.
Concentric concluded that the administratively determined avoided cost rates in the solar and wind QF contracts did not reflect competitive market or construction cost trends for solar and wind energy. Concentric also concluded that market-based rates, as compared to administratively determined rates, encourage more efficient renewable investment and deployment. The setting of QF contract rates administratively without regard to current market conditions, can also result in inefficient investment over time because such rates encourage developers to locate in jurisdictions with the highest avoided cost rates as opposed to areas where solar and wind energy would be most effectively deployed, and therefore valuable to the utility and its customers.
All dollar estimates are provided in 2018 dollars.
About Concentric Energy Advisors
Concentric Energy Advisors specializes in management consulting and financial advisory services with a focus on the North American energy industry. Through its subsidiaries, CE Capital Advisors, Concentric Advisors ULC, and Concentric Energy Publications, Concentric provides capital market advisory support, consulting services in Canada, and publishes The Foster Report. Information about Concentric Energy Advisors is available on the company’s website, Twitter, and LinkedIn, which can be accessed via ceadvisors.com.
Source: Concentric Energy Advisors
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SOURCE Concentric Energy Advisors