(Bloomberg) -- A landmark 40-year-old law that’s been key to the growth of renewable energy in the U.S. is being effectively overhauled, threatening to curb demand for solar projects.
Federal regulators on Thursday imposed new limits on which energy projects fall under the Public Utility Regulatory Policies Act, known as Purpa, which helped spur an entire generation of solar and wind farms across the country. More than 30% of solar facilities online today benefit from the law, according to BloombergNEF. The changes may alter those projects’ future prospects and eliminate a key incentive for future ones.
First Solar Inc (NASDAQ:FSLR)., the largest U.S. solar panel manufacturer whose thin-film technology supplies solar farms that benefit from Purpa contracts, sank 3.2%. Sunpower Corp. tumbled 7.7%, the most in a month.
The overhaul highlights how far renewables have come since 1978, when the law was enacted to boost competition within the power sector and encourage new technologies. Wind and solar costs have declined precipitously and renewables now make up about 20% of U.S. energy generation.
“Most of the renewable energy projects developed these days are done outside of Purpa,” said Federal Energy Regulatory Commission Chairman Neil Chatterjee. “That to me is total proof that renewables can compete in our markets and I do not expect that to change.”
Still, clean-energy advocates argue that the law remains critical to giving solar and wind a leg up in states that aren’t green-leaning.
5 Megawatts
Purpa mandates that if a developer could build a project for less than a utility could, the developer can request a contract to sell power to that utility. Under the changes made Thursday by the energy commission, utilities are only obligated to buy power from facilities that are 5 megawatts or smaller. Formerly, the limit was 20 megawatts.
That means solar arrays between 5 and 20 megawatts “will no longer have unfettered access to utilities that they’ve had for over 40 years,” said BNEF power analyst Brianna Lazerwitz. While current contracts wouldn’t be affected, the projects could face uncertainty once those contracts expire.
The rule change also gives states more authority to set the price at which small generators sell their power and amends the “one-mile rule,” which determines whether generation facilities should be considered to be part of a single facility. The agency will now require that qualifying facilities demonstrate commercial viability.
Stifle Competition
The new rules will “stifle competition, allowing utilities to strengthen their monopolies and raise costs for customers,” Washington-based Solar Energy Industries Association said in a statement. “We will continue advocating for reforms that strengthen Purpa and allow solar to compete nationwide.”
Commissioner Richard Glick, the lone Democrat on the panel, dissented in part but said that the changes would ultimately benefit consumers. “Under the old regime, customers were overpaying for power they were receiving” to the tune of $2.2 billion to $3.9 billion, he said.
States had already made efforts to curtail development of some projects. North Carolina, which became the second-largest market for solar power because of these requirements, passed a law in 2017 that cut avoided costs and shortened contracts to 10 years from 15 years.
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