The length of term allowed for power sales contracts is a critical determinant of the ability of states to meet their increasingly ambitious renewable power targets. Many utilities advocate limiting terms to 10 or perhaps 15 years for renewable energy contracts, emphasizing the "flexibility" that shorter terms offer. In contrast, contract terms of 20 or 30 years allow renewables to be more price-competitive and lock in any savings for a longer period. Nonetheless, utilities resist longer-term contracts for fear that their prices could someday be "over-market," exposing the utility to criticism by regulators and the public.
Longer terms for renewable technologies provide a real and immediate benefit: acceleration of the imperative transition away from fossil fuel–based generation. The supposed risks of longer terms are distant and speculative; at some point, the prices will be "above market."
Extended terms enable new generation
Extended terms have traditionally been a major enabler of the development of new sources of generation. In the post–World War II era, numerous hydroelectric facilities were financed and constructed with 50-year sales contracts, rewarding electric consumers even today with low prices and additional power sources. Analogously, 30-year terms were the foundation of Public Utility Regulatory Policies Act qualifying facility (QF) generators built during the 1980s.
Offering 30-year contracts to today's renewable energy producers would likewise help jump-start the development of additional renewable capacity. Renewable projects offer lower, more stable fuel costs than fossil-fueled projects, but their up-front capital costs are higher than those of natural gas–fired combined-cycle projects. A longer term allows the developer of a renewable power project to obtain longer-term financing for the project, amortize its debt over a longer term, and thus offer lower and more competitive prices to purchasing utilities. Longer terms also facilitate the obtaining of financing, offering lenders the opportunity in the incremental years to recoup any possible prior payment delinquencies. Additionally, longer terms enable a fairer comparison of renewable projects and competing utility projects whose economics are typically premised on a 30-year life, allowing lower imputed financing and depreciation costs.
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