Low-Cost Fossil Fuels Force State Renewable Energy Contracts Into a Corner

Electrical power rates are dropping for power plants using natural gas. That is creating a problem for the still-fledgling renewable energy industry.

This is creating havoc in two ways. The obvious one is that the price state utility commissions have been willing to pay for green energy is now coming down. The other is that, in the face of more volatile pricing in the energy market, the length of contracts the same commissions are now willing to consider is also dropping.

Idaho dealt with the situation by cutting the length of contracts for the renewables providers from 20 years to now only 2 years.

Montana’s Public Service Commission was less draconian than Idaho on the contract length, but it still forced renewables suppliers to accept 15-year contracts rather than ones lasting 25 years only a short time ago. It also dropped he price it was willing to pay to renewable energy providers to $31 per megawatt, versus the previous price of $66 per megawatt.

Montana responded to the resultant outcry after these changes were made in a carefully-worded statement. It defended the changes as good for Montana and that, “Out-of-state developers were perched at Montana’s borders, ready to rush in and take advantage of the inflated rates, reaping windfall profits at consumers’ expense,” according to Montana Public Service Commissioner Roger Koopman. He went on to say that shorter contracts were beneficial to the state also, because then they can be adjusted as market conditions change, as opposed to being “locked into 25-year contracts based on sheer guesswork and the silly assumption that markets never change”.

Montana’s decision may have made financial sense in the short term, but its long-term impacts on what is considered a critical industry to develop long term – renewables – drew a rapid response in the form of a lawsuit. Near the very end of 2017, the Montana Environmental Education Center, Cypress Creek Renewables and Vote Solar against the commission and Northwestern Energy filed a lawsuit against the Montana PSC. The suit alleges the commission and Northwestern Energy, the state’s main utility, violated both federal regulations and Montana law. The basis for the complaint is a requirement that the commission has to establish long-term contract rates which can make it easier for third-party power facilities to be economically feasible.

The federal law that backs this up was the 1978 Public Utility Regulatory Policies Act (PURPA), which was passed as part of the National Energy Act. PURPA was a law crafted with the deliberate intent of helping the country diversify from its then high dependence on fossil fuel energy. Renewable energy were to be supported, clean energy alternatives were to be further developed, and energy conservation – an extremely serious issue in 1978 – was made a major national priority.

As time has passed, two things have happened to upset the balance of the energy industry.

The combination of increased fossil fuel production, especially via natural gas harvesting using fracking as just one method, plus tremendous expansion of both solar and wind power options, has made the U.S. a place of plenty rather than scarcity when it comes to power.

Power costs for renewables have also dropped as well. Since 2008 large-scale solar projects went down by 64%, wind power installations have gone down by 41%, and backup battery systems to support both have dropped 73%. It has become so desirable to consider renewables that in 2015, solar power alone made up approximately 15% of all new electrical generation capacity installed in the U.S.

Since 1976, when energy scarcity, long gas station lines, and President Jimmy Carter’s plea to lower our thermostats during winter to 68 degrees Fahrenheit was the country’s way of life, the Department of Energy has invested $2.4 billion in research for wind power, and helped provide major backing for solar as well. Government and state grants, plus past state Public Service Commission decisions all helped drive the rapid growth of the renewables industry.

Some states still see renewables as in a boom time. Michigan recently updated the way it compensates renewables companies – in a positive way. And Hawaii, on track for a major makeover of the entire way renewables and its large electric utility work together, is moving rapidly to converting to 100% green energy as a way of life.

Montana, however, is far more in line with current Federal government policy, which is far more supportive of conventional fossil fuels, natural gas and even coal-powered energy production than at any time in decades. There is even a plan now to extend the life of Montana’s existing Rosebud coal mine to 19 years. That will be used to supply close to 10 million tons of low-sulfur coal to the obsolete and filthy Colstrip Power Plant, and another 300,000 tons of the same coal to the Rosebud Power Plant.

Despite the current U.S. Federal Government administration positions, many believe renewables are in need more than ever as the only acceptable way to power the country in the future. This time it is not about either cost or energy scarcity, though. It is about the potential death of the planet in the face of global warming. This therefore makes the current legal fight regarding the contract lengths and prices being charged in Montana a far bigger issue than it may appear.

In many ways, then, this legal and energy battle to come will be a little bit like the old story of the ‘canaries in the coal mine’, whose death in the presence of too high a build-up of coal gas was a warning to all. Whichever way this lawsuit ends up being decided, some equivalent ‘canary’ is going to die for sure.