In Draft, Pennsylvania State Agency Recommends Consideration Of Utility-Owned Generation, Long-Term Contracts
July 12, 2018 Email This Story Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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A draft report from the Energy Programs Office at Pennsylvania's Department of Environmental Protection recommends consideration of long-term contracts and utility-owned generation to promote solar generation development
Concerning the development of grid-scale solar, the draft states that, "In the current deregulated landscape ... facilities must compete for short-term energy contracts to serve load. This entails added risk and is reflected in the cost of capital."
The draft states, "Despite ongoing interest in developing projects in PA, Independent Power Producers (IPPs) report that difficultly in securing long-term contracts with utilities is a significant obstacle in building large solar systems in Pennsylvania. EDCs are reluctant to enter into long term contracts (LTC) due to the concern that ratepayers will pay more over time than short term purchases because load growth is relatively flat and energy prices have been stable or declining in recent years. Because long-term contracts are often more readily available in other states, IPPs are more likely to obtain investor financing for these projects outside Pennsylvania where the Return on Investment (ROI) is guaranteed for a longer term."
A proposed strategy in the draft is to, "Develop guidelines for limited use of long term contracts (LTCs) for a period of ten or more years to ensure Pennsylvania benefits from grid scale solar energy."
Another proposed strategy in the draft is to, "Evaluate and consider utility ownership of solar generation especially in cases where market-driven deployment may be insufficient to achieve public goals and/or reliability concerns."
The draft notes that, "Under electricity restructuring, Pennsylvania utilities’ core functions are to provide distribution and transmission services, providing default service to customers who have not chosen an electric generation supplier, administer low income and energy efficiency programs, and meet AEPS requirements. Utilities do not currently own generating assets."
"At present, the ability of Pennsylvania utilities to own solar generation is not expressly provided for in legislation and has not been directly addressed by the PUC or the courts. Some parties interpret the current rules and regulations to prohibit utility ownership of generation entirely. Other parties interpret the rules to say utility ownership is permissible, but utilities would be restricted to receiving market price and may not include generation in the rate base or receive a guaranteed rate of return. The uncertainty around the legal status of such ownership is, itself, a barrier to utility investment in such resources," the draft states
"Appropriate enabling legislation, such as PA House Bill 1799 introduced in 2017, could allow utility ownership of solar generation provided such investment is consistent with a utility’s obligation to act in a reasonable and prudent manner to provide service to customers at the least cost. Utility ownership could address access to capital issues by financing installation through the utility rate base. This may be implemented as a voluntary choice on the part of customers, particularly those that otherwise lack solar access that opt for utility-owned generation as an alternative to purchase or lease of generation assets. Or, this could be implemented where the utility owns a generation asset to reduce congestion, meet portfolio standards, acquire generation for default-service customers, or achieve other social goals," the draft states
"Stakeholders’ opinions vary as whether to recommend that utilities own solar generation and if so, under what circumstances. Some envision a more limited role for utilities where they would provide solar to low income residential customers, affordable multi-family housing projects or to their default service customers. Others, particularly utilities themselves, prefer more flexibility," the draft states