September 8, 2020
In a decision breaking with long-established precedent, the Federal Energy Regulatory Commission (FERC) ruled in a Sept. 1, 2020, order that small power production qualifying facilities (QFs) cannot circumvent the 80 MW power production capacity limit simply by relying on inverters or other output-limiting devices to reduce the net production capacity of a solar array that otherwise has the capability to produce power in excess of the 80 MW power limit.
Importantly, FERC’s order does not address whether battery storage capacity should be factored into the facility’s net power production capacity or whether co-located storage should be viewed as a separate facility. Therefore, it remains unclear whether co-located storage capacity would be viewed as increasing power production capacity in a manner that could disqualify future QFs integrating storage as exceeding the 80 MW power production capacity limit under the Public Utility Regulatory Policies Act (PURPA).
Acknowledging that this shift in statutory interpretation could cause significant disruption for the QF industry, FERC held that this new approach to the 80 MW limit would apply prospectively only. It will not impact QFs that have self-certified or received FERC-approved certification prior to Sept. 1.
FERC’s order was issued in response to Broadview Solar’s application seeking recertification as a QF and concurrent filing of a new Form No. 556 self-certifying as a QF. In support of its application, Broadview argued that its net production capacity was limited to 80 MW even though the facility is equipped with a 160 MW solar array and 50 MW battery storage system. According to Broadview, because any power generated by the solar array or discharged from the battery must pass through one of 20 4.2 megavolt ampere DC-to-AC inverters before transmitting onto the grid, the practical net output of the facility conformed to the 80 MW capacity limit for small power producer QFs under PURPA. Broadview Solar argued that its facility was designed consistent with FERC’s 1981 Occidental Geothermal, Inc. holding that a facility’s power production capacity is equivalent to its “send out” (i.e., the maximum net output a facility can deliver to an interconnecting utility under the most favorable operating conditions over a period of several years).
Reconsidering this decades-old standard, FERC emphasized that Broadview’s 160 MW facility design represents a significant departure from any project FERC has considered in the past and, therefore, found that its past focus on “send out,” as articulated in Occidental, was inconsistent with the statutory language mandating an 80 MW “power production capacity” limit for small QFs. Consistent with this standard shift, FERC rejected Broadview’s application and revoked its QF status on the grounds that its solar array has the capability to produce 160 MW of power, notwithstanding the physical limits on generator output caused by inverters.
In a dissenting opinion, Commissioner Richard Glick argued that the majority improperly focused on the capability of the facility’s individual components, rather than the actual power production capacity of the facility as a whole. He noted that a QF’s decision to install a larger solar array renders a system more efficient, increasing the facility’s capacity factor without exceeding the 80 MW limit. In his view, the majority’s decision will “cause the Commission to insert itself unnecessarily into commercial decisions that are better made by project developers than federal regulators.” Commissioner Glick also expressed concern that FERC’s “casual upending [of] settled precedent creates unnecessary uncertainty, making it hard for developers to know which precedents they can count on and which they cannot.”
Notwithstanding this criticism, the Broadview order makes it clear that QFs filing a Form No. 556 or preparing an application for certification cannot discount their solar array capacity to reflect the physical limits of an inverter or other output-limiting device.
What remains unclear, however, is whether applicants must include battery storage capacity in their reported gross power production capacity. The majority explicitly declined to address whether Broadview’s co-located battery storage system should factor into a facility’s power production capacity (or should be considered a separate QF) since Broadview’s facility would be disqualified with or without its battery capabilities. While Commissioner Glick argued that a “battery system cannot ‘produce’ power in any conventional sense of that term,” a straightforward reading of the majority’s strict statutory interpretation of “power production capacity” suggests that storage resources with the capability to store and later inject energy into the utility’s system would constitute power production capacity in addition to a solar array.
In the absence of any clear direction, however, QFs are left without concrete guidance as to how they should address battery storage in a Form No. 556 or certification application. The impact of this decision for other, non-solar renewable technologies is likewise not clear, although FERC does emphasize that it is not mandating any changes to the manner in which maximum net power production capacity is determined on the Form 556 today.
In sum, the Broadview decision is likely to have a significant impact on developers designing solar QFs going forward, as well as utilities evaluating whether a proposed solar generating facility is eligible to impose a purchase obligation as a QF. While the majority stated that its decision will be applied prospectively, allowing facilities that were certified prior to Sept. 1, 2020, to keep their QF status even where capacity was adjusted based on output-limiting devices, it does not grant those facilities any waiver for recertification. Accordingly, as developers plan for new facilities and/or consider potential modifications that would require recertification of existing QFs, they may be forced to avoid making “over-paneling” investments to increase capacity factor or achieve other operating efficiencies in order to obtain or retain small QF status.