Our definition and guide to Qualifying Facility projects will highlight everything you need to know, including benefits, examples and requirements you need to qualify.
What is a Qualifying Facility (QF)?
Qualifying facility (QF) status is awarded to a small power producer or energy generator, which meets the criteria established by the Federal Energy Regulatory Commission (FERC). Usually, the criteria set by this regulatory body involve efficiency and operating aspects.
The generator can only operate under FERC if it is self-certified or has applied for the QF status. A generating facility of 80 MW or less is known as a small power production facility, which utilizes renewable energy like solar, wind, and hydro as its primary energy source.
The Public Utility Regulatory Policies Act (PURPA) encourages the conservation of electricity and implements such regulations, which can help to increase the efficiency of power generation facilities.
This act also ensures that consumers enjoy equitable retail rates. In order to accomplish its goals, PURPA introduced a new genre of power facilities. These facilities work under particular regulations and receive specific rates.
After discussing the qualifying facility definition, let’s unfold some other aspects associated with it.
Breaking down Qualifying Facility
The generating facilities, which fall under the ambit of qualifying facilities (QFs) are divided into two categories.
- Qualifying cogeneration facilities
- Qualifying small power production facilities
A cogeneration facility either generates electric or thermal energy. These facilities can efficiently produce both of these energies. This suggests that apart from producing electricity, cogeneration facilities can also generate steam energy for industrial and residential use.
On the contrary, qualifying power production facilities are the independent power producers. These facilities are allowed to generate and sell electricity to the utilities at avoided cost rates.
In order to qualify, the generator should produce their electricity by either using renewables or cogeneration energy resources. Furthermore, these suppliers must also meet the efficiency, size and ownership criteria laid down by the FERC.
Title 18, Part 292 of the Code of Federal Regulations (CFR) offers the relevant regulations, which are mentioned in sections 201 and 210 of the Public Utility Regulatory Policies Act.
These regulations relate to both the cogeneration as well as small power production facilities.
Mentioned below are some of these regulations.
- The facility cannot exceed the capacity of producing 80 MW of electricity
- If more than one generator is operating within a one-mile area, it will be considered as one facility
- Primary fuel should include Biomass, Waste-to-Energy, Geothermal, Solar, Wind
- It is essential to utilize 75% or more of the permitted primary fuel
- The owner of a QF must either self-certify the operation or file a FERC form 556 with the Commission to obtain a certificate
- Cogeneration or small power production facility producing lower than 1MW doesn’t require such a certification
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Benefits of a Qualifying Facility
QF status offers a wide range of benefits to the small power generators. Most of these benefits are in shape of special regulation treatment offered by state, federal, and local laws.
The advantages conferred upon Qualifying facilities by PURPA fall under three basic categories. These benefits include:
- QFs can operate without strict regulatory burdens
- QFs can sell capacity or energy to any utility serving in the locality
- Right to buy particular services from the utilities
Qualifying facilities can sell capacity or electric energy to a utility. However, it is essential that such a utility fulfill the QF purchase obligation. Apart from some limited exceptions, QFs can sell the energy to a utility at negotiated rates or at an avoided cost.
QFs also enjoy the right to sell the produced energy either as a part of legally enforced obligation or on ‘As-Available’ basis. The qualifying facility can continue to sell its energy for any specific time.
Besides selling energy, it is possible for the QFs to purchase maintenance power, interruptible power, supplementary power, and back-up power at reasonable and affordable rates. The offered prices are based on consistent costing principles and accurate data.
Qualifying facilities can enjoy the benefit of interconnecting with a utility. It requires the generator to pay an interconnection fee, which is nondiscriminatory and has been approved by the State regulatory authority.
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How Qualifying Facility Works
The Public Utilities Regulatory Policies Act (PURPA) made certain obligation for the power utilities to purchase power from qualifying generation projects. The Federal Energy Regulatory Commission (FERC) follows the rules set by PURPA. Hence, the qualifying facilities should fulfill specific criteria as mentioned in the rules set by FERC.
The factors involved during the operation of QFs include:
- Avoided cost
- Power purchase agreements
Qualifying facility Avoided-Cost is a cost, which power utilities avoid. This particular aspect determines the purchase pricing of a qualifying facility. In various states where these utilities are operating, the price is usually determined through a tariff.
This price is applicable up to a specific threshold. The utility commission or public service commission regulates each of these states.
In some case, a body capable of implementing PURPA rules can also regulate the power generation facilities of a state.
Some states require the qualifying facilities to enter into Power Purchase Agreement (PPA). This agreement takes place between electricity generators and electricity buyers. It defines the terms of business that relate to the sale and purchase of electricity.
For instance, these terms include the projected date of operation, including when the project will begin commercial operation, payment terms, schedule for delivery, the penalty for late delivery, and termination.
The quality facilities may also require executing an interconnection agreement when serving in a particular service area. The transmission services function of a company administers the QF interconnection agreements.
This agreement helps to reduce the elements of discrimination, increase the energy production, preserve reliability and minimize the wholesale prices for the customers.
By introducing a new generator into the power generation system, it is possible to make the wholesale electricity market more competitive.
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Conclusion on Qualifying Facility Definition
The qualifying facility status is awarded to small power generation or cogeneration companies. The operation of QFs is regulated by the rules set by the Federal Energy Regulatory Commission (FERC).
In order to obtain qualifying facility status, the facility must comply with these regulations. Furthermore, the commission makes sure that the regulations set by the Public Utility Regulatory Policies Act (PURPA) are implemented in their true spirit.