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Legal Update

FERC Proposes Changes to Encourage Wind and Solar Energy

22 November 2010
Mayer Brown Legal Update

Through a combination of State and Federal policies, the United States has encouraged (and in some cases mandated) the development of renewable energy resources such as wind and solar generation of electricity.1 In 2009, 9,994 MW, or 39 percent, of all newly installed generating capacity was wind-powered; another 85 GW of wind generating capacity has been proposed for installation by the end of 2012. Further, with more than 800 MW of solar capacity coming into service in 2008 and 2009, the United States now has more than 2,000 MW of solar capacity in service.

However, the inherent variability of these resources—their dependence on factors beyond the control of their operators—has strained transmission systems at times. The responses of transmission systems to the resulting operational demands have been inconsistent and unpredictable, at times resulting in the imposition of significant and unexpected costs on the generators and purchasers of such power. This uncertainty has impeded the development of variable power resources.

The Federal Energy Regulatory Commission (FERC), the agency that regulates, directly or indirectly, most of the transmission grid in the lower 48 states, has long been concerned about this issue. As part of wide-ranging review of its transmission policies, FERC examined the obstacles to the integration of a “Variable Energy Resources” (VER), defined as an electric generating facility whose energy source is (i) is renewable, (ii) cannot be stored by the facility owner or operator, and (iii) has variability that is beyond the control of the facility owner or operator. VERs include wind, solar thermal and photovoltaic, and hydrokinetic generating facilities. FERC preliminarily concluded that existing policies were impeding the development of VERs. As a result, FERC has proposed three important changes to transmission policy. The proposed rule was issued in FERC Docket No. RM10-11-000. Comments are due 60 days after the proposed rule is published in the Federal Register.

First, FERC proposes to require that transmission providers offer intra-hourly transmission scheduling, in 15-minute increments. This could have two important benefits to the system: (i) transmission providers will receive more accurate nominations for service and (ii) VERs, in particular, will be able to adjust their nominations to reflect availability, thereby reducing their exposure to imbalance charges and penalties. Several studies have shown that intra-hourly dispatch intervals can significantly reduce the costs and burdens of integrating wind power.

Second, FERC proposes to require that large VERs—with a capacity of more than 20 MW— provide meteorological and operational data for the purpose of more accurate power production forecasting. Again, this should enable the more efficient scheduling of resources.

However, FERC recognized that VERs may have limited impact in some regions of the country. Therefore, the proposed reporting requirement would apply only if the relevant transmission provider requires customers to purchase, or otherwise obtain, regulation services (discussed below). The types of data that the proposed rule would require—including temperature, wind speed, wind direction and atmospheric pressure for wind projects, and temperature, atmospheric pressure and cloud cover for solar projects—are generally provided under recent power purchase agreements to purchasers, but now would be provided to the transmission system as well. FERC also proposes to require large VERs to report any forced outages that would reduce their generating capacity by 1 MW or more for 15 minutes or more.

Third, FERC proposes to require that transmission providers offer (to the extent physically feasible), and charge for, “regulation service” and “imbalance service” to transmission customers delivering energy from any generator—not just VERs—located in the relevant geographic area. Regulation service includes the capacity reserves necessary for the continuous balancing of resources under stable conditions, while imbalance service accounts for deviations between a transmission customer’s scheduled and actual energy use. At the same time, the transmission provider must demonstrate that it has taken steps to mitigate the total amount of regulation service required, a goal that the first two proposals should help with.

The proposed rule does not specify the level of such services that can be required for VERs and other generators, nor does it set the costs of such services, which would be based upon the actual costs of providing the services. FERC recognizes that VERs may impose greater burdens on the system, so transmission providers may provide differentiated obligations, with resulting cost differences. A transmission customer may elect to buy the service from the transmission provider or self-supply this capability. These proposed changes should provide greater certainty to VERs and other generators of the actual costs of their power, while also providing transmission providers with certainty that they will recover their costs. In effect, FERC is proposing that the same mechanisms that now apply to load balancing should apply to generation balancing, with a prohibition on imposing duplicative charges.

If adopted, the proposed rules should promote the stability of the transmission system, encourage the development of wind and solar power, and provide greater certainty for all parties as to the costs that VERs and the purchasers of their output must bear.

For more information about FERC’s proposals, or any other matter raised in this Legal Update, please contact at +1 202 263 3204.

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Footnote:

1. The extent to which Federal policies will continue to encourage renewable energy will be one of many issues confronting the 212th Congress.

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