Michigan regulators set new avoided cost rate for PURPA contracts

Dive Brief:

The Michigan Public Service Commission has approved the new avoided cost formula Consumers Energy Co. must use to buy power under the federal Public Utilities Regulatory Policies Act (PURPA), marking the first time those rates have been updated in almost 30 years.
The commission approved the avoided capacity cost of $117,203/MW-year, or $140,505/zonal resource credit-year. Renewables advocates said the new rates would make Michigan more attractive for clean energy investment.
The decision is a change in the way avoided cost payments are structured in Michigan. Current contracts are based on the costs of running a coal plant, but new contracts will be based on the energy costs associated with running a natural gas combined cycle plant, and capacity costs based on a natural gas combustion turbine power plant.

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Renewables advocates are praising the PSC's decision, which they say illustrates the value solar energy can have in the state, particularly during peak periods.

Margrethe Kearney, senior staff attorney with the Environmental Law & Policy Center in Grand Rapids, Mich., said in a statement that the PSC "adopted a strong methodology that reflects the value solar provides to Michigan during peak periods." The decision, she added, "makes Michigan more attractive for renewable energy development at no additional cost to ratepayers.”

During the summer, the Michigan PSC established avoided cost calculations based on the costs of energy and capacity from new natural gas facilities. Advocates say that helps create even playing field for independent developer.

They also said the commission's order simplifies the development and financing process for small projects, by establishing 20-year contracts at a standard rate for projects up to 2 MW. Previously qualified project sizes were capped at 100 kW.

Rick Umoff, director of state affairs for the Solar Energy Industries Association, said regulators “correctly recognized the significant long-term value of solar to Michigan, and the need to update old rules to capture that value."

In another change announced by the PSC, new PURPA contracts will pay a fixed monthly capacity payment based on the ZRCs the qualifying facility can provide, and a per kilowatt hour price for the energy the utility purchases. Currently, PURPA contracts pay a qualified facility for capacity at a contracted rate per kilowatt hour.