An independent power producer (IPP) or non-utility generator (NUG) is an entity, which is not a public utility, but which owns facilities to generate electric power for sale to utilities and end users. NUGs may be privately held facilities, corporations, cooperatives such as rural solar or wind energy producers, and non-energy industrial concerns capable of feeding excess energy into the system.
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Economic situation
For the majority of IPPs, particularly in the renewable energy industry, a feed-in Tariff or Power Purchase Agreement provides a long term price guarantee.
Canada
In 2002, the BC government stipulated that new clean renewable energy generation in the province would be developed by “independent power producers” (IPPs) not BC Hydro, save for large hydro-electric facilities. The role of the private sector in developing BC’s “public” resources is one of the more controversial issues that British Columbians are currently grappling with.
Taiwan
The liberalization of Taiwan electricity market was done in January 1995. Currently there are nine IPP companies operating in Taiwan.
United States
Prior to the US Public Utility Regulatory Policies Act (PURPA) of 1978, NUGs were rare, and the few that existed were seldom able to distribute power, as the cost of building the conveyance infrastructure was prohibitive. Public utilities generated power and owned the generating facilities, the transmission lines, and the local delivery systems. Congress Passed the PURPA in 1978, establishing a class of non‐utility generators, called Qualifying Facilities (QF), which were permitted to produce power for resale.
PURPA was intended to reduce domestic dependence on foreign energy, to encourage energy conservation, and to reduce the ability of electric utilities to abuse the purchase of power from QFs. A QF is defined as a generating facility that produces electricity and another form of useful thermal energy through the sequential use of energy, and meets certain ownership, operating, and efficiency criteria established by the Federal Energy Regulatory Commission (FERC).
Section 210 of PURPA now requires utilities to purchase energy from NUGs which qualify (qualifying facilities) at the utility's avoided cost. This allows NUGs to receive a reasonable to excellent price for the energy they produce and ensures that energy generated by small producers won't be wasted.