A federal policy enacted nearly 40 years ago has breathed life into an ongoing argument at the Minnesota Public Utilities Commission over utility opposition to a wind and solar hybrid project proposed in the rural city of Red Lake Falls.
The law, known as PURPA, was designed to promote local renewable generation by requiring utilities — even monopolies — to buy their electricity from qualified distributed and renewable facilities that can provide power at prices that roughly match the utilities’ “avoided cost” for electricity. But even after all this time, questions loom over exactly how to calculate that value. Utilities would like the number to be as low as possible, to deter competing power suppliers. Power producers, on the other hand, want to account for as many “avoided costs” as possible.
At issue is whether existing utility methodology fully reflects the avoided cost of distributed wind-solar hybrid projects like the one proposed for Red Lake Falls. Typically, the avoided cost calculation includes avoided energy (purchased or generated) and avoided capacity (to meet system demands). It infrequently includes avoided transmission costs, an opportunity for facilities like the Red Lake Falls project situated near substations, compared with far-flung traditional power plants.
Minnesota statute may exacerbate the problem by allowing the utility to use the cost of another renewable energy project as a proxy avoided cost, even if that project has very different benefits. For example, most renewable energy projects serving Otter Tail Power are wind only, providing little overlap with daytime peak energy use. But the Red Lake Falls project includes solar that, when combined with wind, will have a relatively high level of availability during peak demand hours. Valuing this benefit is a key role of the avoided cost methodology.
Ahead of a discussion at the Commission over how to proceed with the dispute, ILSR and several allies submitted a letter urging a more comprehensive, broader analysis. While Red Lake Falls provides an example of why it matters, clarifying the process for accurately calculating avoided cost would forge an easier path for similar, cost-effective projects to come online in the future.