As a general rule, generators cannot sell directly to retail customers without becoming a public utility regulated by the local state's public utility commission. Some states have exceptions to this general rule, such as when the sale is incidental or to a small number of customers and not to the public at large. These rules are very state-specific, however, and require additional analysis on a state-by-state basis.
Because of state utility regulation of retail sales, many megawatt (MW)-scale generators make wholesale sales, which is a sale to an entity that subsequently resells the power, such as a utility. The Federal Energy Regulatory Commission (FERC) exercises jurisdiction over most wholesale sales of power. The trick for generators is figuring out (1) which entity will buy the power, and (2) what, if any, federal regulatory approvals are needed to sell to that off-taker.
For the first issue, generators located in some parts of the country may have access to wholesale markets, such as PJM or the Midwest ISO. Such markets provide those generators the option of selling directly into a wholesale market without a bilateral contract. Another option for generators seeking to make wholesale sales is to enter into a long-term bilateral power purchase agreement. By securing a long-term contract and avoiding reliance on the daily spot market prices for power, the generator may be able to secure financing more readily. Alternatively, under the Public Utility Regulatory Policies Act of 1978, certain generators can become "Qualifying Facilities," or QFs, which enables them to force the local utility to purchase the generated power at the utility's avoided costs. Unlike a standard PPA, the avoided cost rate may fluctuate, as avoided cost rates are determined by state regulatory commissions.
On the regulatory side, any entity making wholesale sales of power must obtain federal approval to do so, unless covered by an exemption. To obtain approval, the generator must file under section 205 of the Federal Power Act and request permission from FERC. Certain classes of generators, however, may become QFs and obtain various regulatory exemptions. For example, QFs under 20 MW are exempt from section 205 of the FPA and do not need prior approval to make wholesale sales. QFs under 30 MW are not subject to most federal holding company act requirements.
Small generators are also granted some regulatory flexibility. For example, many states permit facilities below a certain capacity threshold to "net meter," which provides the opportunity to "run the meter backward" and reduce the facility's power bill. As long as at the end of the relevant billing period the generator consumes more power than it puts on the grid, FERC has held that no wholesale sale occurs, and thus such a generator does not need FERC approval. Additionally, in 2010 FERC changed its regulations and removed the need for QFs smaller than 1 MW to formally apply for such status. Assuming they otherwise meet the requirements, such facilities are now automatically granted QF status.
Needless to say, numerous options exist for selling the power from a wind or solar generator, and choosing the option that is right for your facility can be a complicated process. FERC and state commissions continue to make a concerted effort to streamline the requirements for small generators, which bodes well for developers. Still, developers must be clear early in the development process about how they plan to sell their power and what regulatory approvals they need to do so.