On June 17, 2016, the Federal Energy Regulatory Commission ("FERC" or the "Commission") issued a final rule ("Order No. 827") eliminating exemptions for wind generators (and an option for solar generators to elect certain exemptions) from the requirement to provide reactive power. Unlike real power, which transfers net energy to the grid for use by consumers, reactive power is used for grid reliability, supporting voltages used for grid stability.
FERC requires that power generators design their systems to provide adequate amounts of reactive power to the transmission system to which they are interconnecting in order to maintain grid stability. Prior to the entry of Order No. 827, however, wind generators were exempted from the reactive power requirement, which required an interconnecting generator to design its generating facilities to have a reactive power capability of 0.95 leading to 0.95 lagging. This reactive power band essentially represents the range of reactive power that generators' systems must provide so that their respective transmission system operator may adjust the reactive power within that range in order to manage the reliability of the transmission system.
The basis for the prior exemption for wind generators from having to design systems that produced reactive power within this set range was primarily policy driven. In short, because the cost to design and build wind generators that were capable of providing reactive power was high, there was a view that such costs would deter the development of wind generation. Accordingly, the exemption was used to facilitate and encourage the development of wind power in the United States.
FERC found in Order No. 827 that the existing exemption was unjust, unreasonable, and unduly discriminatory and preferential. It based its finding on two primary factors. First, it found that technological advancements in the wind industry have sufficiently progressed, and driven costs down, to the point that the cost to wind generators to provide reactive power no longer presents an obstacle to the development of wind generation. Second, the Commission recognized that an increasing number of wind generators interconnecting to certain transmission systems, coupled with a growing number of non-wind generator retirements, could leave those transmission systems with a potential shortfall of necessary reactive power. Given that sufficient amounts of reactive power are necessary to ensure the reliability of the transmission system, if the number of wind generators increases, yet those wind generators are not providing a corresponding increase in necessary reactive power on the system to accommodate that increase, the system is potentially vulnerable to negative reliability events.
While the requirement that wind generators must provide reactive power will not be received favorably by many in the wind industry, the Commission did undertake to minimize the additional costs such generators would have to bear. For example, although the Commission originally proposed that wind generators' provision of reactive power be measured at the Point of Interconnection (i.e., the point where the facilities connect to the transmission provider's transmission system), it ultimately determined that reactive power be measured at the high-side of the generator substation, which can often be anywhere from 50 to 80 miles from the Point of Interconnection. In reaching this decision, the Commission considered that although providing reactive power at the Point of Interconnection would result in the greatest amount of reactive power being supplied to the transmission system, the cost in doing so did not justify the higher cost, when providing it at the high-side of the generator substation would cost less yet supply adequate reactive power. Specifically, the Commission determined that imposing a requirement on wind generators to enhance reactive power capabilities at the Point of Interconnection would unreasonably force those generators to incur unnecessary additional costs that provide no commensurate benefits to the transmission system.
As a result, Order No. 827 now requires all newly interconnecting non-synchronous generators to provide reactive power at the high-side of the generator substation as a condition of interconnection. Specifically, all newly interconnecting non-synchronous generators that have not yet executed a Facilities Study Agreement as of the effective date of Order No. 827 will be required to provide dynamic reactive power within a power factor range of 0.95 leading to 0.95 lagging.
The Commission used the execution of the Facilities Study Agreement as the point in the interconnection process for transitioning to the requirements of Order No. 827 for the following reasons: (i) the execution of a Facilities Study Agreement by the interconnecting generator and the transmission provider represents the point in the interconnection process when the transmission provider and generator developer have already agreed to the general technical requirements that will be needed for the generator to reliably interconnect to the transmission system; (ii) requiring wind developers to amend their projects after having already established their interconnection requirements in the Facilities Study Agreement would impose additional undue costs on these developers and would make it difficult, if not impossible, to make reasoned business decisions; and (iii) execution of the Facilities Study Agreement is a distinct point that would avoid confusion in applicability of the new requirement.
It is also important to note that Order No. 827 will not apply to existing non-synchronous generators making upgrades to their existing facilities that require new interconnection requests, provided that those generators would not have been required to provide reactive power under the previous framework. In crafting this exclusion to the new requirement, the Commission reasoned that: (i) there are a variety of triggering points for a new interconnection request in the various transmission provider regions; (ii) an existing non-synchronous generator upgrading its system may not be installing new equipment; and (iii) the resultant cost to wind generators would not be justified in an upgrade scenario. Moreover, Order No. 827 does permit certain variations and expressly provides that a transmission provider may justify any departures from the requirements of the order in its compliance filing with FERC, which must be filed within 90 days after Order No. 827's publication in the Federal Register.
Order No. 827 comes at a time of an increasing proliferation and acceptance of wind generation as a viable alternative to traditional fossil fuels in the present-day generation mix. While Order No. 827 is an acknowledgment of the growing parity between wind and other forms of traditional generation resources, those engaged in the wind development business may view the added costs of compliance resulting from Order No. 827 unfavorably.
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