Page 304 - Fluid Power Engineering

270 Chapter Thirteen

agreement (PPA) with a buyer (typically, a utility), (b) market-based
pricing, (c) feed-in tariff, or (d) retail rate through net-metering. In the
rest of this section, the laws and policy drivers that determine pricing
in the United States are discussed.
In the United States, according to the Public Utility Regulatory
Policy Act (PURPA), a utility is required to buy power from an in-
dependent power producer at the “avoided cost” of production. The
responsibility of setting the avoided cost rests with individual states.
In the 1990s, the electricity market was deregulated and a framework
for wholesale energy generation market was created. Utilities were
required to provide to independent power producers the same trans-
mission service that is provided to their own generators. The service
must be provided through nondiscriminatory open access tariffs.
In the United States, renewable portfolio standards (RPS) is an-
other policy tool that influences power prices paid to wind projects.
RPS is a state policy that requires utilities to produce or purchase a
minimum percentage of energy from renewable energy sources within
a certain timeframe. As of 2010, RPS has been enacted in 29 states and
District of Columbia. Of the 29 states, six states have set goals; the
rest of the states mandate the requirement. For example, RPS of the
1
state of Illinois mandates that all utilities get 25% of electricity from
renewable sources by 2025.

Power Purchase Agreement
The PPA is the most widely used model to set prices and sell electrical
energy for large wind projects in the United States. It is a negotiated
price for sale of power in a “take or pay” structure, which means the
utility is obligated to take all the energy that is produced, regardless of
demand. The floor price of the PPA is the avoided cost; in the United
States one could argue that if the price is the “avoided cost” then the
project owner does not need a PPA because this price is guaranteed
by the law. Therefore, the PPA price is higher than the avoided cost.
Figure 13-1 is a chart of the past prices of wind energy in the United
States. Utilities in states that have RPS mandates usually have higher
PPA price compared to states without RPS, because the utility has a
mandate to purchase a fixed percentage of renewable energy. In most
states, utilities are far below the mandated percentage and, therefore,
are eager to buy renewable energy.
PPA is typically a long legal document that is negotiated between
a buyer and seller of energy ahead of commissioning of a project.
The PPA typically covers the entire life of a project, which is typically
20 years. In addition to sales price of energy and duration of agree-
ment, PPA contains a variety of negotiated agreements about: Exit
clause, the commissioning process, curtailment agreements, transmis-
sion issues, milestones and defaults, credit, insurance, and ownership
of environmental attributes or credits. Although PPA provides the