A settlement agreement approved in September between Consumers Energy and multiple solar energy developers triggers a large-scale buildout across the Lower Peninsula, but also marks a shift in the way the utility will contract for solar power in the future.
The agreement — approved on Sept. 11 by the Michigan Public Service Commission — settles a years-long dispute over the way Consumers contracts for power built by third parties, including large national developers.
By 2023, up to 584 megawatts of solar will be built in Consumers’ territory by independent developers, or nearly four times the amount of existing solar in Michigan. The first phase will likely come online next year.
“We’re happy to see those projects moving forward, especially given the long delays that have been lingering quite a while,” said Laura Sherman, president of the Michigan Energy Innovation Business Council.
Under the federal Public Utility Regulatory Policies Act (PURPA) of 1978, utilities are required to buy renewable power from qualifying producers at or below the price the utility would otherwise pay to produce it itself. This is the “avoided cost,” or the price the utility avoids paying by not building it.
The MPSC started looking at avoided cost reforms in 2016. Historically, avoided costs were based on the power produced from coal plants. Now they’re based on natural gas. The energy transition to natural gas and increasingly renewable sources led to disputes between utilities and developers about what the price should be.
As the MPSC studied the issue, a flood of developers came to Michigan looking to build projects, seeking favorable avoided costs that would make projects profitable. The MPSC issued an avoided cost methodology for Consumers in 2018, which had been challenged by some developers.
Cypress Creek Renewables, a national solar developer and key party in the dispute, called the agreement a “landmark settlement” and the result of months of negotiations.
The firm expects to build about 40 percent of the 584 MW, with construction starting as early as this spring.
“Cypress Creek invested early in the Michigan solar market, and we are pleased to move forward with building approximately 250 MW of solar energy in the state over the next few years,” Cypress Creek Executive Vice President Noah Hyte said in a statement.
Meanwhile, Consumers’ long-term Integrated Resource Plan — which calls for 6,000 MW of solar to be built by 2040 — will competitively bid for solar separately from PURPA contracts.
“Going forward, (developers) will be bidding into the auction rather than pursuing PURPA contracts,” said Douglas Jester, principal at Lansing-based 5 Lakes Energy LLC. “PURPA will still be available, I just don’t think it will be used very much.”
Consumers expects this competitive bidding process to be simpler and agrees it will effectively phase out PURPA.
“The competitive bid process is, frankly, a much better way to procure solar,” said Brandon Hofmeister, senior vice president of governmental, regulatory and public affairs at Consumers Energy. He added that the agreement with developers was a way to “resolve the PURPA interconnection flood we were looking at.”
In the coming years, “PURPA should likely be a moot point for solar developers,” Hofmeister said.
Additionally, the Federal Energy Regulatory Commission recently proposed rules that critics say would further stifle developer interest in PURPA by allowing utilities to pay developers varying rates based on the market as opposed to fixed prices, among other provisions.
Jackson-based Harvest Energy Solutions LLC played a smaller role in the Consumers Energy settlement but still expects to see the benefits, said Ken Zebarah, a sales manager at the company. Harvest Energy doesn’t plan to develop much of the 584 MW capacity, but it plans to be “on the ground” and offer engineering and construction services for the larger companies.
The settlement capacity and Consumers Energy’s broader solar plans are “very, very significant” for the industry, Zebarah said. Harvest Energy currently employs 60 to 65 employees, but participating in Consumers Energy’s buildout in the coming years could add another 50 people.
“It’s going to be good job growth and an opportunity for us and workers in the state,” Zebarah said.
‘The world has changed’
While the PURPA settlement calls for at least 150 MW of new solar annually, Consumers Energy will separately bid out 300 MW a year starting this fall, which will start to come online in 2022. In 2021, Consumers plans to bid 500 MW of solar a year.
Hofmeister said the bid process will include factors beyond price, such as location (brownfield versus greenfield) and the use of a Michigan workforce.
Also of importance to solar advocates: Consumers Energy has pledged to split the ownership of the projects, meaning independent developers will own half of the total projects and the utility will own the other half.
Jester at 5 Lakes Energy agrees the competitive bidding process will be simpler for all parties.
“And done well it should produce the lowest cost power for the utility and, therefore, customers,” he said.
Still, Jester says it’s important to keep PURPA for two reasons: Those contracts for renewables can be a “competitive alternative” to future fossil fuel plants and also keep existing fossil fuel plants from running.
Sherman said the MEIBC has “long supported fair, transparent and competitive bidding as a way to decide who gets projects and a way to determine an accurate reflection of cost. Allowing the market to arrive at those low-cost solutions is something we’ve always really supported and wanted to enhance.”
Hofmeister said the move to competitive bidding reflects a broader industry shift toward renewable energy. Particularly for Consumers Energy, basing avoided costs on new natural gas plants doesn’t make sense for a utility that doesn’t plan to build any more.
“PURPA had its place 40 years ago at a time before there were competitive wholesale markets,” Hofmeister said. “The world has changed dramatically.”