What Is a Utility Avoided Cost Tariff?

Many renewable power generators find that they must work with a utility to determine the value of their power to them. There is no universal value. The value of power is location dependent. But, what is an “avoided cost”?

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Simply put, it the price that the utility would have paid if it had to produce the power itself or bought it. It is the cost it would pay if they did not buy the power from the renewable power provider. It serves as the “floor” price.

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If the renewable power generator is willing to sell power to a utility at the avoided cost or lower, it saves the utility from having to build a new generation source.  The local rate payers benefit from this. They need not pay for the new plant costs.

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In the State of Indiana, the avoided cost is filed by the regulated utility on its Internet web sites. It is recalculated every year and posted on the web site once it has been approved.  In Indiana, the new rate normally goes into effect about April 1st. It is approved for one year. Next year the new avoided cost is calculated and the cycle starts all over again.

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Currently, the avoided cost is quite low because there is an abundance of electric power due to the recession causing commercial and industrial electricity usage to drop significantly. But, once the recession is over, it is expected to quickly go up to previous avoided cost rates.

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Questions? Rudd Energy Management can help. We can help you calculate an avoided cost. We can explain it and its proper usage to you and help you develop a strategy to accommodate the temporary low rate.

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Rudd Energy Management (REM) is an energy consulting company that specializes in cost effective solutions. REM prides itself in matching experienced professionals with your problems to ensure the best solution in the shortest time possible. Contact us at (219) 476-6911 begin_of_the_skype_highlighting              (219) 476-6911      end_of_the_skype_highlighting.

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