Under the federal Public Utility Regulatory Policies Act of 1978 (PURPA), wind power plants are considered “qualifying small power production facilities.” Section 210(m) was added to PURPA in 2005 to permit an electric utility to stop purchasing energy from qualifying small power production facilities at “avoided cost” rates if the Federal Energy Regulatory Commission (FERC) finds that the facility has non-discriminatory access to wholesale electric markets. Otherwise, wind farms are guaranteed a wholesale payment for electricity connected to the grid, and need not compete in the open market.
PURPA is implemented by state public utility companies (PUC). An electric utility must apply to the state PUC (or FERC if no state PUC has been federally approved) for relief from the obligation to purchase from wind plants. See 18 CFR §§ 292.309-311.
On October 20, 2006, the FERC issued a Final Rule to implement PURPA section 210(m). See 71 Fed. Reg. 64,342 (2006). In the Final Rule, FERC found certain system operators around the country, including the New York Independent System Operator (NYISO), qualify as markets to which wind plants have non-discriminatory access, and thus guaranteed payments for their electricity could be replaced with market competition. This would allow NYSIO to charge wind plants for services they now provide for free to balance the load on the grid as a result of the intermittent nature of generated wind energy.
However, NYSIO has elected not to implement the FERC rule.* As a result, in New York wind power plants continue to benefit from free balancing services, whose costs are paid by all consumers, and non-competitive rate payments. In addition, under PURPA wind plants with a capacity less than 20 MW continue to enjoy the presumption that they cannot survive in a open market and thus must get the guaranteed rate and must not be charged for the balancing services wind energy necessitates.
The unreliability of wind energy has led other states to impose penalties on wind power plants if actual output varies substantially from forecasted electricity production. See Idaho PUC, Order Nos. 29632, 30109. Minnesota commissioned a study of reliability and costs of increasing wind capacity to twenty percent of Minnesota’s retail electric sales by 2020 in light of the intermittent nature of wind. The study found the cost of integrating wind into the grid ranges from $2.11 (at fifteen percent wind generation) to $4.41 (at twenty-five percent wind generation) per MW of wind generation delivered. See <http://www.puc.state.mn.us/docs/>.
FERC has, however, moved in the opposite direction. In March 2007, FERC issued Order 890, which exempts intermittent energy sources from imbalance penalties.
IN 2008, NYISO imposed a cost on wind farms for new forecasting technology that will improve the ability of the grid operator to predict when electricity generated by wind plants might come on and off.