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FERC Ruling Is Good News for Feed-in-Tariffs and Distributed Generation

Christine Hertzog's picture
Principal Technical Leader, Cyber Security Strategic Initiative Electric Power Research Institute

Christine Hertzog is a Principal Technical Leader focused on OT Cyber Security research at EPRI.  She conducts research on new technologies suitable for OT environments and informs industry...

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Distributed generation (DG) is one important realization of the Smart Grid to improve grid reliability and add jobs to local economies.  At residential, microgrid or utility-scale levels, DG increases options for powering the distribution grid in the event of centralized generation or transmission failures.  Last week the Federal Energy Regulatory Commission (FERC) clarified an earlier ruling about Feed-in-Tariffs (FiTs) that strengthens the business cases for residential and commercial property owners contemplating installation of renewable energy production for DG. 

My July 19, 2010 blog identified FiTs as part of a quiet revolution sparked in a number of states to encourage installation of clean and renewable electricity generation at a grassroots level.  This type of tariff requires utilities to purchase electricity from individual producers of different renewable energy sources at defined prices, ending the previous practice of costly one-off negotiations between producers and utilities, and greatly simplifying this relationship to benefit both parties. FiTs have been used around the world to ramp up renewable energy deployments, and are responsible for catapulting countries like Germany to the forefront of solar-sourced electricity generation. 

The FERC ruling resolves uncertainties about how states calculate FiT prices.  In the past, the calculation was based on “avoided cost” (defined in the Smart Grid Dictionary as “A price calculation based on the amount of money that a utility avoids paying for generation through use of cogeneration or distributed generation facilities.  It is the marginal cost for a regulated utility to generate or purchase one more unit of power.”)  While individual states’ calculations varied, most have been based on the costs to build a new fossil fuel generation facility or the purchase of fossil fuel-based power.  Now, costs must consider purchase of similar types of power (ie, other renewable sources), and new costs such as upgrades to transmission facilities must be factored in as well, creating a more level playing field for renewables like solar and wind. In other words, the “locational benefits” of local generation must be considered as part of the calculations to build a proper Feed-in-Tariff. 

Locational benefits factoring in transmission costs are part of DG’s very persuasive argument, but are not the only benefits.  Local generation using renewable energy sources can create local jobs, and negate the CO2 emissions that would otherwise be released through conventional power supplies.

The FERC ruling also commented on how to account for Renewable Energy Certificates (RECs) or credits as part of FiT transactions, so utilities can get credits for purchasing renewable DG, and DG producers get additional returns on their investments.  In summary, this is a boost for local generation of renewables, and all the benefits that accrue from it.  For more information about Feed-in-Tariffs, go to the FiT Coalition website.  

Proposition 23, the ballot initiative that two Texas oil companies hope will overturn California’s landmark clean air legislation enacted in 2006, will be decided on November 2 in California.  The immediate question is – should Californians protect their profits or our health and economic security?  From a broader perspective, do we want to use clean tech as a catalyst for new economic growth or continue on our current path?  Many businesses, including Cisco, eBay, and respected venture capitalists have spoken out against Prop 23, along with numerous state and city officials, the American Lung Association, AARP, local Chambers of Commerce, environmental organizations, and state business and community groups. 

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