Residential Solar Developers and Investors Seek Regulatory Clarity from FERC
As the costs of residential solar photovoltaic (PV) systems fall and installations rise, developers and investors face new regulatory hurdles. Registration as a qualifying facility (QF) under the Public Utility Regulatory Policy Act (PURPA) recently has become a common subject of concern among both developers and tax equity investors. Developers are working to determine whether they are triggering compliance obligations, and investors are asking whether they have to register by virtue of their ownership interests. One solar developer, SunRun Inc., is seeking clarity at the Federal Energy Regulatory Commission (FERC).
PURPA, among other things, grants generators that meet the eligibility requirements for QF status an exemption from most regulations under the Public Utility Holding Company Act of 2005, the Federal Power Act, and state laws respecting the regulation of utilities. Under FERC’s regulations, the owner or operator of a QF with a net power production capacity greater than 1 megawatt (MW) must either submit a self-certification to FERC or file an application for certification. QFs under the 1 MW threshold are exempt from FERC’s filing requirement. The complication for residential solar developers comes in determining whether the 1 MW threshold has been met.
FERC calculates the size of a facility by examining its power production capacity together with the capacity of any other facilities that use the same energy source, are owned by the same person(s) or its affiliates, and are located at the same site. FERC considers facilities “at the same site” if they are located within one mile of each other. If multiple facilities located within a one-mile radius are owned by the same person or its affiliates, their capacities will be aggregated for PURPA purposes.
FERC’s capacity aggregation rule leads to problems for solar developers, particularly developers of residential PV systems. As developers install tens or hundreds of thousands of small PV systems, it becomes increasingly difficult to determine whether a developer owns or operates more than 1 MW of aggregated capacity within a one-mile radius. This is particularly true in high concentration areas like California. Additionally, tax equity investors are concerned that they may own more than 1 MW of capacity within one mile and be required to register with FERC. Tax equity investors generally do not have the means to track such thresholds, relying instead on the developer – and developers rarely track capacity between portfolios – so investors are put at risk of violating PURPA unknowingly.
In September, SunRun filed a petition at FERC in Docket No. EL18-205 seeking a waiver of the QF filing requirements for residential solar PV systems, irrespective of whether such systems aggregate to over 1 MW within a mile. The waiver request is limited to solar PV systems (and accompanying battery systems) of 20 kilowatts or less that are located on the property of a residential homeowner. According to SunRun, the waiver would apply to over 150,000 systems within its portfolio totaling 1,106 MW of capacity. SunRun argues that without the waiver, the QF self-certification would be unduly burdensome for developers and would result in voluminous and unhelpful information for FERC. While several parties filed comments asking that FERC address PURPA issues in a more generic proceeding, no one has strictly opposed SunRun’s requested waiver. FERC is likely to act on the petition by spring of 2019.
If FERC grants the requested waiver, it will alleviate compliance concerns for residential solar developers and tax equity investors. However, it will not apply to all solar PV systems, and developers and investors will still need to track the concentration of larger systems. Additionally, it may lead to implementation questions, such as how to address a situation where a developer owns a larger commercial-scale solar project located within one mile of smaller residential-scale projects that in the aggregate surpass the 1 MW threshold. SunRun’s petition is not the end of PURPA compliance questions, but it is a good place to start.