From a fact sheet issued by the Homegrown Renewable Energy Campaign:
An innovative way to encourage more smaller-scale renewable energy systems by paying premiums to customers for wind, solar, biogas or biomass electric generation.
How are they different from standard utility buyback rates?
Unlike standard buyback rates, Renewable Energy Buyback Rates provide a fixed purchase price for the electricity produced over a period of 10 to 20 years. They are set at levels sufficient to fully recover installation costs along with a modest profit. Because the purchase price is guaranteed over a long period, Renewable Energy Buyback Rates make it easy for customers to obtain financing for their generation projects.
Why don’t utilities pursue these small-scale renewable projects themselves?
In general, the smaller the generating facility, the less likely it is owned by a utility. Utilities tend to favor bulk generation facilities that employ economies of scale to produce electricity at a lower cost. Renewable power plants owned by
utilities—such as large wind projects—are sized to serve their entire territory, not just a particular distribution area. For that reason utilities have shown little appetite for owning and operating distributed generation facilities powered with
solar, biogas, wind, and hydro.
If utilities won’t invest in small-scale renewable projects, how will they get built?
Clearly, the capital needed to build smaller-scale renewable projects has to come from independent sources—either customers or third parties. There is no shortage of investor interest in these systems, and sufficient capital is available. What’s needed to finance these projects is a predictable, long-term purchasing arrangement that assures full capital recovery if the project performs according to expectations. That’s where Renewable Energy Payments come into play.