As Indiana utility ends feed-in tariffs, some question motive

Workers install solar panels on the roof of an Indianapolis home in 2009. Indianapolis Power & Light may soon have more solar power installed in its service area than any other utility in the Midwest. (Photo courtesy EcoSource, Inc., used with permission)

Last month, Indianapolis Power & Light (IPL), an investor-owned utility that provides electricity to 470,000 customers in central Indiana, put out a press release boasting about its support of 30 MW of new solar developments.

The new developments would make IPL the leading provider of solar power among Midwestern utilities, the company claimed, citing Solar Electric Power Association’s 2011 utility solar rankings. IPL also touted the 300 MW of wind power already in its portfolio.

The utility’s claims were repeated in glowing news reports around central Indiana.

But what the company did not say was that the 30 MW of new solar was all that remained of an innovative feed-in tariff project that would have incorporated up to 100 MW of renewable energy into their generating mix, and is now ending—over the protests of both renewable energy developers and environmentalists.

“They did a 180-degree turn on the program,” said Laura Arnold, the president of the Indiana Distributed Energy Alliance.

“It’s really disappointing,” said Jesse Kharbanda, executive director of the Hoosier Environmental Council, an Indianapolis-based environmental group. “Just three years ago, IPL was part of a broad coalition of utilities that were rightly calling public attention to climate change and the need for a comprehensive national policy,” he added. “Now IPL is withdrawing one of its only existing policies to begin the long process of cutting carbon.”

IPL did not respond to several phone calls and emails requesting comment.

Voluntary policies

Unlike many other states, Indiana does not require utilities to incorporate increasing amounts of renewable energy into their generating mix via a renewable portfolio standard, although it did institute modest voluntary goals in 2011 that aim for 10 percent renewable energy in the state by 2025. The state also has no law mandating a renewable feed-in tariff—a policy that requires utilities to provide customers that provide electricity to the grid from solar, wind or biomass a long-term rate high enough to justify their initial investment.

As a result, any feed-in tariff program by an Indiana utility is voluntary. The state’s public utility commission, the Indiana Utility Regulatory Commission, approved IPL’s pilot feed-in tariff program, which it calls its Rate Renewable Energy Production (Rate-REP) program, in March 2010.

Under the program, as originally proposed, solar, wind and biomass developers would apply to IPL to participate, and the winning companies would build projects providing up to 100 MW of power—about 1 percent of IPL’s generating mix. In exchange, IPL would contract with the companies to pay them between 7 cents per kilowatt-hour for wind and 24 cents per kilowatt-hour for solar over a 10-year period. (IPL’s current contract terms guarantee a fixed rate for 15 years rather than ten.) IPL would charge slightly higher rates to its customers to cover the cost difference.

The policy worked: Within a year, solar and wind developers applied to build 170 MW of projects, Arnold said.

Then IPL pulled the plug.

‘Considerable return’ on investments

In a June 28 letter to the chair of the IURC explaining the company’s reasoning, William Henley, IPL’s vice president of corporate affairs, first lauded the pilot program, saying that it “had generated benefits for both customers and the Company.”

Customers, Henley wrote, would be paid for 15 years at rates high enough to cover costs and generate a “reasonable return on their investments.” IPL and its customers would benefit by “sourcing renewable energy from within IPL’s service territory at a set cost for 15 years to hedge against the potentially higher cost to comply with future renewable energy purchase mandates and to help keep the investments local.”

If it was so successful, then why did IPL terminate the program? In his letter to IURC chairman James Atterholt, Henley listed several reasons.

With 300 MW of utility-scale wind farms under contract and several MW of solar, IPL had enough renewable energy in its generation portfolio to promote clean energy and hedge against future renewable energy purchase mandates, he wrote. But today’s higher costs of renewable energy, as compared to “traditional forms of generation” such as coal, “must be balanced against other expected cost increases such as those necessary to comply with Environmental Protection Agency mandates,” Henley wrote.

Henley also maintained that costs for solar panels may soon rise, causing demand to fall.

And he said that “Rate REP has not generated the interest among customers that IPL originally expected.”

That’s highly misleading, say renewable energy advocates.

Afraid of competition?

By 2011, a year after the pilot program was launched, the company had 170 MW of proposed projects, more than the program could accommodate. Then IPL moved to end it.

“We believe they withdrew the program because the program would have been quite successful,” said Olson. “Utilities have fought solar PV for decades, especially rooftop PV. You’re generating your own power. It’s competition and loss of business,” Olson explained.

At the time of IPL’s announcement in late June, IPL had contracts for 2 MW in solar projects, and in their July 19 press release, they announced that Sunrise Energy Ventures, had won a reverse auction to supply 30 MW of solar energy to IPL’s mix. (In the reverse auction, the contractors proposed a price at which to sell electricity, and IPL chose the lowest bidder.

Dean Leischow, managing director of Sunrise, told Midwest Energy News the company plans to build three 10 MW, 70-acre solar farms in fields on the outskirts of Indianapolis. IPL has agreed to pay the company a fixed rate for 15 years.

As a result, IPL could lead all Midwest utilities in the amount of solar power generated in their service territory, according to Solar Electric Power Association’s 2011 utility solar rankings, IPL maintained in its press release.

That sounds about right, said Leischow, of Sunrise Energy Ventures.

“The Midwest is not a hotbed for renewable energy, so that would make it fairly easy for IPL to take a lead position. I think IPL going out with 30 MW puts them in the lead,” he said. “It’s an exciting project for Indiana and an exciting project for us, and I’m looking forward to getting it rolling.”

And Ken Zagzebski, IPL’s president and CEO, also touted the deal.

“IPL’s interest in solar energy is part of our commitment to a more diversified portfolio of power generation that includes appropriate renewable sources that allow us to provide safe, reliable energy at some of the most affordable residential prices in the nation,” Zabzebski said, according to the company’s July 19 press release.

But Olson had a very different take on the situation. “There’s lots of greenwashing going on,” he said.