The 1978 law mandates electric utilities to buy power from independent producers at pre-set "avoided cost" rates - the sum at which electricity could be generated from a traditional power source. In addition to paying attractive rates, Purpa facilitates utility interconnection. The contracts, aimed at smaller projects, were commonplace in the 1980s and 1990s. Over the past decade, use of the contracts declined as developers found increasing success securing conventional PPAs.
The $500 million project, known collectively as Idaho Wind Partners, is now under construction after GE Energy Financial Services (Geefs) signed on to become its majority equity owner in the summer.
This comprises 122 GE 1.5MW turbines spread throughout 11 wind plants on more than 4,000 hectares in southern Idaho's Magic Valley. Purpa contracts were signed with utility Idaho Power for all 11 projects.
"There are very few power purchase agreements in the United States for renewables," says James Carkulis, president and CEO of Exergy Development Group, the project's originator. "So you have to look for what will be the alternative. Can you find a utility that is willing to sit and negotiate with you? Or do you find a mechanism like Purpa in order to be able to continue the advent of renewables?"
Purpa prices vary regionally and can be recalibrated as fuel prices fluctuate. Idaho's rates are tied to natural gas prices. With gas prices at recent lows, wind businesses are struggling to secure economically viable rates. But Carkulis says that, thanks to Purpa, he can get good rates. Carkulis says the project's contracts are between $52-$82/MWh - relatively high rates despite recent flagging gas prices.
"The published avoided-cost rates for projects under 10MW are pretty attractive and usually better than they can negotiate [with the utilities]," says Gene Fadness, spokesman for the Idaho Public Utilities Commission. "And there are some must-buy provisions - the utility must bend over backward to work with them and get them interconnected."
The maximum allowed installed capacity for Idaho Purpa power plants is 10MW and the project's 11 wind plants range between 10.5MW and 22.5MW each. When capacity factors are considered, all will comply.
Cash
The project is innovative in other ways as well. For Geefs, which offers structured project finance to renewables using debt and equity, the development represents a rare foray into the federal government's renewable-energy cash grant programme.
The grants cover 30% of a wind project's installed capital costs and have supplanted the production tax credit (PTC) as federal subsidy of choice among US developers. For one thing, the PTC requires a partner with enough federal tax liability to offset the credit and the number of such players has dwindled since the financial meltdown. Also, the cash grants are not based on production, making them especially lucrative for projects without optimal wind.
Geefs spokesman Andy Katell says: "Projects that are most economically attractive for the PTC are the ones with the highest capacity factor. Don't get me wrong - this one has good wind conditions. But it does not cross the threshold where the PTC, given all other factors, would be the most attractive economic incentive to take advantage of."
To date, says Katell, the PTC has been Geefs' primary form of government support. "There have not been that many wind farms we have invested in so far that have been eligible for the treasury grant," he says. "So this one is somewhat unique for us."
Despite a summer of brush fires, the Idaho development should be complete by year-end, with Vermont-based Reunion Power assuming overall management duties. Weeks ago, Atlantic Power Corporation announced the acquisition of a 20% stake in the project for $40 million.
Construction must begin this year for projects to be eligible for the grant. Geefs remains hopeful that the grant programme will be extended past its year-end expiry in spite of the contentious election-year political climate in the US.
"Given a choice today, most projects, and most developers and investors, would choose the grant over the PTC," Katell says. "We have an active pipeline of wind deals that we are trying to close on right now and a whole bunch of them would benefit by an extension - no question about it."
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