Consumers Energy plans a major shift to solar energy over the next two decades, but the extent to which the Jackson-based utility will rely on third-party developers eager to build projects in Michigan remains unclear.
The company released a long-term plan last month showing a strong shift toward renewable energy as it retires aging coal plants and stops buying nuclear power in Van Buren County.
According to the company’s Integrated Resource Plan, the first filed from a utility under the state’s sweeping 2016 energy rewrite, Consumers plans to own or contract for 6,350 megawatts of solar energy by 2040. Roughly 5,000 MW of this would take place during the 2020s. As of the filing, the company owns or contracts for just 11 MW of solar.
By adding solar to the company’s mix of natural gas, energy storage and energy efficiency, President and CEO Patti Poppe said last month that Consumers “can actually have a leaner system than we could before.”
However, questions remain over the role for third-party developers planning billions of dollars in solar investment across the state. As the cost of solar continues to decline, companies see opportunity to develop utility-scale projects in Michigan under the federal Public Utility Regulatory Policies Act of 1978, or PURPA. Under the law, utilities are required to purchase renewable energy from third parties if it can be done at cost or cheaper than what the utility would pay to do it itself, which is known as the avoided cost.
Most PURPA contracts in Michigan are for hydroelectric, landfill gas or biomass projects, but developers see solar as the next frontier in the state. Here and in other states, though, utilities have challenged the cost of those projects in ways that critics say make them uneconomical for developers.
Since Consumers filed its IRP in mid June, developers and their trade groups are uncertain at best on the issue, while others are concerned they will be shut out from utility-scale projects.
Consumers says it hasn’t determined how much of the 6,350 MW of solar would be contracted from developers or built by the utility. The company proposes a new competitive bid process for future projects, which the utility can also participate in, that it says will reflect a more accurate market price than the current PURPA process.
This would effectively set new avoided cost rates, even as the issue is being debated in separate rate cases at the Michigan Public Service Commission. The rate Consumers pays third-party developers also depends on whether the utility shows a need for capacity into the future. Consumers says it does not have a capacity need within the next three years, which would mean lower payments to developers under PURPA.
Consumers also is proposing a “financial compensation mechanism” on new power purchase agreements to compensate for the “inherent financial burden associated with the imputed debt and corresponding financial obligations” with buying power from independent producers. Created by the 2016 energy law, the mechanism is meant to incentivize utilities to buy power from third parties.
“From an independent power perspective, it’s encouraging that Consumers is open to accepting bids on all new generation resources from third-party developers, but we have serious legal and practical concerns about how they are proposing to handle existing and proposed projects under PURPA,” said Laura Chappelle, an attorney with Energy Michigan, which represents independent power producers.
Chappelle also formerly served as a Michigan Public Service Commissioner appointed by Gov. John Engler.
“Consumers is making it tough for small and medium-sized developers in the state as the utilities continue to fight competition and set barriers and tariffs to steal money from residences and businesses who want to invest in solar,” said Rob Rafson, president of Chart House Energy LLC in Muskegon. “This decreases the return on investment, the number of projects being installed, and the number of clean energy jobs.”
And the competition appears to be growing. California-based Cypress Creek Renewables has roughly 2,600 MW of solar it wants to build statewide, representing a $3.3 billion investment. While not all of that is likely to get built, the company still has aggressive plans for Michigan.
“We were really happy to see the participation from competitive suppliers in (Consumers’) IRP,” said Kevin Borgia, Cypress Creek’s Midwest policy director. “We don’t know a lot about the details and are not sure about the overall impact, but it’s good to see the utility moving in that direction.”
But with a 6,350 MW target by 2040, Borgia added, “I think they’ll need the private sector to hit that kind of goal.”
Consumers spokesperson Brian Wheeler said the company has not decided where to build new solar projects and has “made no promises to purchase energy from any specific project or area at this time.”
Responding to claims that small or mediumsized developers could be shut out, Wheeler said competitive bidding is “in the best interest of our customers and puts us and all others who are developing energy sources on equal footing. Recent unsolicited offers from non-PURPA renewable developers suggest that solar resources can be acquired for customers through competitive bidding at a much lower cost than the suggested avoided cost rate in the recent MPSC order on PURPA.”
Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council, said the group is “trying to understand” what competitive bidding and the financial compensation mechanism is “going to mean to independent power producers. How those will work will be important to understand the overall industry impact. The devil is always in the details.”
As Consumers’ Poppe said in June: “As long as (developers) have the best price, they’ll have a place to play in our future.”
CLEAN ENERGY SHIFT
By 2040, Consumers plans a resource mix that is 43 percent renewables, 10 percent natural gas and 6 percent energy storage. The remaining 41 percent would come from market purchases, and it’s unclear how much of that will be renewable or natural gas generation. By then, the company plans to eliminate its coal-fired power as well as energy it buys from the Palisades nuclear plant in Covert Township.
Overall, clean energy groups support Consumers’ plan, particularly because it does not call for building new natural gas plants. In state filings, Consumers officials support a “modular” approach to new generation, which is more easily done through smaller solar projects than high-capacity gas plants.
This is also in contrast to DTE Energy. While DTE plans to have 25-percent renewables by 2030, the utility is building a 1,100 MW gas plant in St. Clair County. Clean energy groups are appealing that project before the MPSC and the Michigan Court of Appeals, claiming it could create a stranded asset for ratepayers.
“The modular approach of adding smaller portions of supply on a yearly basis allows (Consumers) to be flexible in its resource planning … without making significant up-front investments in one large, centralized generating station,” according to testimony from Richard Blumenstock, Consumers’ executive director of electric supply.
Eichler Clark believes there is still opportunity statewide for all sizes of clean energy companies. In addition to Consumers’ energy efficiency and demand response plans, the residential solar market likely will continue to grow and new technology — such as battery storage — may also expand, she said.
“I continue to think there is a ton of opportunity here,” Eichler Clark said. “We’re making sure we’re sitting at the table so we’re not on the menu.”
MiBiz energy news coverage is supported by Consumers Energy, a public utility that provides natural gas and electricity to 6.6 million Michigan residents. For more information, visit consumersenergy.com.