Cypress Creek solar farm

Cypress Creek has developed other solar farms including this 40-acre project near Helena.

Solar energy’s prospects dimmed in Montana on Thursday as state regulators retooled incentives for renewable energy development.

Montana’s Public Service Commission voted to dramatically cut the guaranteed rates and contracts offered to solar projects no larger than 3 megawatts — projects large enough to power 540 or fewer homes.

The changes by the PSC make Montana’s incentives the smallest in the region, say renewable energy advocates, who said solar developers would likely move on to other states as a result.

“Montana is going to lose out on the solar revolution. It’s going to go to Idaho and Wyoming and other states,” said Anne Hedges, of the Montana Environmental Information Center.

Last year, MEIC was among a group of solar advocates to file a complaint with the quasi-judicial Federal Energy Regulatory Commission after the utility regulator pulled the plug on guaranteed rates and contracts for small solar projects. The state’s largest utility, NorthWestern Energy, had argued that the PSC’s terms for small solar projects were too attractive and that there had been a surge in applications from solar companies hoping to hook up to NorthWestern.

By law, the utility must offer small qualifying projects the contracts and rates set by the PSC. The extremely favorable terms — a 25-year contract and payment for power roughly double the spot market price — had been on the PSC books for several years, during which the cost of solar panels was high enough that no one bothered with Montana's terms.

Then, the price of solar panels fell dramatically and solar companies began showing interest in Montana's favorable terms.  

The PSC obliged the utility in June 2016. NorthWestern had received 97 solar hookup requests in the 18 months before Montana suspended its offer. After the PSC obliged NorthWestern, the number of proposed small Montana solar projects fell to 10. By December, FERC had ruled that Montana regulators were wrong to suspend the solar incentives program for NorthWestern.

Thursday was the PSC’s attempt to set new incentives for renewable energy projects. States are required by federal law to set a price and contract lengths in order to promote alternative energy resources under the Public Utility Regulatory Policies Act. Utilities are supposed to be obligated to buy power from qualifying facilities under the state’s terms. The law has been on the books for 49 years.

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Thursday’s PSC reset of the rules effectively cut contract lengths to five years, with an option to negotiate for five more. Previously, the contracts had been 25 years, a length solar developers said they need to secure financing. Guaranteed rates for power were cut 40 percent.

Commissioner Tony O’Donnell, of Billings, said the contract and rate changes would force small qualifying facilities to operate more like businesses in a free market setting. The long contracts and above-market rates were subsidies that ultimately cost utility customers more money based on the guaranteed price paid for renewable energy.

However, those small qualifying facilities also make a minimal contribution to the power sold by NorthWestern, influencing monthly customer bills in pennies not dollars.

Commissioner Travis Kavulla then persuaded the PSC to apply the same short contracts to any additional power generated by NorthWestern in the future. The utility shouldn’t benefit from monopolistic terms, either, Kavulla said. The PSC agreed, applying the new terms to NorthWestern, also.

NortheWestern had been outspoken about cutting contract lengths and rates for small qualifying facilities. The utility didn’t have a response Thursday concerning how the contract changes might affect NorthWestern.

“We support the Commission’s efforts to appropriately set rates for Qualifying Facilities projects, projects that our customers ultimately pay for under federal rules that require utilities to buy the electricity the projects generate,” said Butch Larcombe, a NorthWestern spokesman. “Beyond that, from a NorthWestern standpoint, we need to wait to see the PSC’s final, detailed order to understand what impact it may have on our customers.”

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Agriculture and Politics Reporter

Politics and agriculture reporter for The Billings Gazette.