Overnight, everyone wanted to be a power producer.
Within a few years of PURPA's passage, the independent power industry was booming. The combination of guaranteed interconnection rights, guaranteed purchase obligations, and high avoided cost payments in states like California made QF development enormously lucrative. Investment banks, engineering firms, and entrepreneurs flooded into the sector.
Wind farms sprouted in the Altamont Pass east of San Francisco. Cogeneration plants appeared at factories, hospitals, and university campuses. Small hydro developers filed for permits on every stream with a dam site. The number of QFs licensed by FERC grew from a handful in 1979 to over 2,000 by 1990, with a combined capacity exceeding 50,000 MW.
Cogeneration — using the waste heat from electricity generation for space heating or industrial processes — was particularly attractive under PURPA. An industrial facility that needed both heat and power could install a gas turbine, sell its excess electricity to the utility at avoided cost, and drastically reduce its own energy bills. Cogeneration projects proliferated at chemical plants, oil refineries, paper mills, and food processing facilities.
The efficiency gains were real: a well-designed cogeneration plant can use 80–90% of its fuel's energy, compared to 35–40% for a conventional power plant. PURPA had accidentally created a massive efficiency revolution by giving independent generators a right to connect.
Early QF projects were sometimes unreliable. Utilities complained about intermittent output, poor power quality, and interconnection problems. FERC responded by developing interconnection standards — technical requirements that QFs had to meet before connecting to the grid. These standards became the foundation for the interconnection procedures that govern all generators today.
But the deeper problem was pricing. States that had set avoided cost too high were paying a fortune for QF power. States that set it too low saw little development. The QF boom highlighted, in the starkest possible terms, the central challenge of electricity market design: how do you price power fairly when you can't just let supply and demand set the price in real time?
As the 1980s wore on, a new breed of generator appeared: the Independent Power Producer, or IPP. Unlike QFs (which had to meet specific technical criteria), IPPs sought to compete openly with utilities for large power supply contracts. Driven by FERC Order 436 (1985), which encouraged open access to natural gas pipelines, IPPs began building gas-fired power plants and competing for utility contracts through competitive bidding processes.
The IPP model proved that competitive generation was viable at scale. By the early 1990s, the infrastructure — legal, financial, technical, and regulatory — for a competitive wholesale electricity market was almost complete. All it needed was the right regulatory trigger.
Altamont Pass, California, 1981–1985. The hills east of San Francisco became the world's first large-scale wind farm district, and they looked nothing like what wind advocates had imagined. Developers chasing California's Standard Offer contracts installed thousands of small, inexpensive turbines — many poorly designed for the site's turbulent winds, prone to mechanical failure, and ruinous to the raptor populations that hunted the same ridge lines. By 1985, Altamont Pass had more than 7,000 turbines and a troubled reputation: capacity factors often ran below 20 percent, and bird mortality from the turbines drew national attention. But the numbers did prove one thing PURPA's architects had hoped for — private capital, motivated by guaranteed purchase contracts, could finance and build renewable generation at scale without a regulated utility doing the work. The gold rush era produced the industry's first real developers, engineers, and project financiers.