RALEIGH, N.C. — Far from the sunny Southwest, North Carolina has unexpectedly become one of the fastest-growing destinations for solar energy developers in the nation. But a battle pitting the state’s largest utilities against environmentalists could stop that growth in its tracks.
At stake is the way solar energy is sold in the state. The state Utilities Commission currently requires Duke Energy, Duke Energy Progress and Dominion Power North Carolina to enter into 15-year contracts with solar producers of any project 5 MW or smaller. Duke and Dominion have asked the commission to cut the length of the contracts to five years and reduce the size of qualifying facilities to 100 kW — 2% of the current size.
Solar power companies and environmentalists countered by asking that plants producing up to 10 MW be included and that the contract term be lengthened to 20 years.
How North Carolina Got Bright
The contracts for such qualifying facilities (QFs) are priced at avoided costs, currently set at about 6.5 cents per kWh.
The commission meets every two years to set the rates. At the most recent proceeding in February, the commission asked all parties to reexamine the contract rules to determine if they should be adjusted.
The current rules were set when the solar industry was just getting on its feet. It was designed to provide a ready market for the nascent industry by encouraging utilities to add renewable energy to their portfolios.
At 750 MW, North Carolina ranks fourth among states with installed solar capacity, behind only California, Arizona and New Jersey, according to the Solar Energy Industries Association (SEIA). The state added 335 MW last year, ranking third in the U.S.
In 2007, North Carolina enacted a renewable portfolio standard that called for utilities to obtain 12.5% of their electricity from renewables by 2021. The state has also subsidized renewables through a tax credit.
Growing Clout
Solar also grew as a result of North Carolina’s efforts to lure energy-gobbling data centers to the state. Apple’s data center in Maiden came with its own 20-MW solar farm. Google and other companies pressed Duke to win approval of a Green Source Rider allowing companies to pay the utility a slightly higher rate in return for renewable energy.
The state’s QF program became an unexpectedly large contributor to the industry’s growth, according to Ivan Urlaub, executive director of the North Carolina Sustainable Energy Association (NCSEA), an umbrella group of sustainable energy providers. “Those small regulatory rules, combined with a renewable energy tax credit, were sufficient to take what was otherwise a small market and carve out a space for entrepreneurs to jump in and compete on price and quality,” Urlaub told Slate.
The state now has 570 green energy firms employing 18,400 people, according to Urlaub. The SEIA says $787 million was invested in solar plants in the state last year.
That growth has given the industry the clout to be a credible opponent to utilities. A bill that would have repealed the state’s renewable portfolio standard died in committee last year.
Duke Hearts Solar?
In the run up to four days of hearings on the contract issue last week, combatants filed expert testimony and the environmental group NC WARN launched a state-wide ad campaign.
“Why does Duke Energy Hate Solar?” its website and full-page ads asked. “Duke actually likes solar — just not for North Carolina solar companies.”
In an interview, NC WARN Executive Director Jim Warren explained his organization’s support for the solar groups’ position. “We think it’s good for the community, the solar industry — and even for the utilities, since they’re facing a corporate death spiral if they don’t adapt to the fast shift toward distributed energy,” he said.
“More solar installations added to the grid would further reduce the need for Duke to build new power plants and raise rates. So, while more solar on the grid has tremendous benefits to all customers, it is an existential threat to Duke Energy’s business model and profits.”
Duke spokesman Randy Wheeless insisted the company doesn’t hate solar. In fact, he said, Duke has been a major proponent of solar energy all along, and continues to be. The company owns 140 MW of solar at 20 sites in eight states, about 3% of its 49,626 MW of generation capacity.
“Duke and Duke Progress were in the top 10 [nationally] in bringing on new solar” projects in 2013, he said. “Duke Energy has wind and solar [facilities] in 12 states. When you add all those facts together, it’s hard to say Duke is anti-solar or trying to kill solar. I think Duke has a pretty good story to tell.”
Wheeless noted that most of the solar projects in North Carolina were 5 MW or lower “because the standard offer is the most attractive one” for producers. He said the utilities’ sought to decrease the QF size to allow them the “flexibility to negotiate the contracts.”
Pass Through to Consumers
Shortening the length of purchase power agreements with solar producers will benefit consumers, Wheeless said. “We basically say, ‘Look, the PPA is a pass through to consumers.’ When you throw a contract out 15 years to 20 years, and you look at that curve, we think most of the risk is being borne by the customers. The odds are better that over the course of the longer contract, the customers will pay more, not less. We feel [customers] would benefit if they were 10 years. Customers would be less likely to overpay.”
Betsy McCorkle, government affairs director for the NCSEA, declined to be interviewed on the issue Friday.
But the NCSEA lined up experts to file written testimony. R.T. Beach, an energy consultant from California, filed a lengthy response with the commission outlining why solar projects benefit both utilities and customers.
Lumpy Additions
“Most of the QFs in North Carolina are 5 MW or smaller. In contrast, typical utility additions of capacity are in increments of at least 100 MW, and often more, as shown by the utilities’ current resource plans,” Beach wrote. “These large central station units require significantly longer time to develop, permit and build.
“As a result of the long lead times and the large, ‘lumpy’ nature of utility capacity additions, new utility plants must be sized to provide much more than the amount of capacity [that] the utility needs in the year in which the new plant enters service. The result is that ratepayers may have to pay for years of excess capacity until demand ‘catches up’ to the last major addition,” Beach wrote.
Off Switch
NCSEA witnesses and other solar proponents say that decreasing the QF size and PPA length would pose an existential threat to the solar generation industry. Beach said the change would press an “‘off switch’ that would be likely to significantly slow, if not halt, QF development.”
Banks would be less likely to finance larger projects if they were not QF-rated, and shorter PPAs would also result in more difficulty obtaining financing. It has already happened in other markets, solar proponents say.
Beach cited Idaho regulators’ decision to allow Idaho Power to reduce its standard contract size to 100 kW from 10 MW. “The practical result of this order has been to halt further wind development in Idaho, even though wind QFs are entitled to negotiate with the Idaho utilities,” he said. (See related story, Utilities, Solar Industry Square Off in Other States.)
Consumer Response
The battle has captured the attention of North Carolina residents. The docket includes dozens of emails and letters from consumers.
“Duke Energy’s claims of sensitivity to environmental concerns must be viewed with skepticism, given their recent and historical performance in environmental protection,” wrote Sharon Fortner of Winston-Salem. “This regulated monopoly will have to be forced to treat solar generation fairly; it will not do it on its own.”
A decision is expected before the end of the year.
