The North Carolina Sustainable Energy Association (NCSEA) works hard to work with our clean energy companies, consumers, electric utilities and decision makers to create a more sustainable, affordable, reliable and safe energy future for our state. However, to date, we have been unable to achieve a balance between different perspectives on how much information about our state clean energy laws should be made public. NCSEA and our members have consistently expressed concerns to the utilities, regulators and legislators about the need for improved transparency in the utility’s progress toward complying with our state’s Renewable Energy and Efficiency Portfolio Standard (REPS) law, so we can achieve the most efficient and cost effective renewable energy market prices possible.
During the last week, two significant developments occurred at the Utilities Commission and General Assembly that you should know about, highlighting the critical need to find common ground on increasing the transparency of our investor-owned utilities’ compliance with the REPS law. Without improved transparency, the renewable energy industries will be constantly out of step with the current state of the non-transparent market, resulting in excessive and unecessary investment and project development costs that translate into higher than necessary prices for new renewable energy facilities in our state.
NCSEA commends Duke Energy and Progress Energy, generally, for complying with all aspects of the REPS law on time; however, these latest developments reinforced our request for improved transparency to create a more efficient and functional marketplace for clean energy in North Carolina.
We continue to learn together and we have made notable, positive progress as a community of public utility, private sector and government energy leaders toward these goals. From this experience, we are developing a clearer understanding of the greater role renewable energy and energy saving solutions must play in 2012 and beyond if we are going to provide our citizens and business with the lowest possible cost for electricity and the quality of life our citizens and businesses want.
What happened?
Last Wednesday (June 8), the NC Utilities Commission conducted hearings on Duke Energy’s progress toward complying with our state’s REPS law – and specifically the solar set aside. NCSEA's Executive Director Ivan Urlaub testified and NCSEA's Counsel Kurt Olson cross-examined Duke Energy's witness, who shocked everyone by revealing they are 8 years ahead of schedule and need no more solar to comply with the set-aside. (Click here to access information on Duke Energy's 2010 REPS Compliance Report, Docket E-7, Sub 984; and click here for Ivan Urlaub's filed testimony.)
And then on Thursday, two important clean energy bills that NCSEA and our members and supporters have been pushing at the NC General Assembly this year were not taken up by legislators before the "crossover" deadline of June 9, thus they are essentially dead until the start of the 2013 session:
- The Solar Jobs Bill (HB495/SB473) would increase our state’s use of solar and create an estimated 4,000 new jobs by 2015 in NC
- The Energy Independence & Job Creation Bill (SB694) would allow cost-effective market competition of small renewable energy systems and create an estimated 4,350 new jobs by 2015. The concepts underlying this bill will likely be studied by the Legislature over the next 9 months.
Why are legislators refusing to pass these much-need “job creation” bills – why did these bills die? Utility opposition and an unclear understanding of how to make an apples-to-apples comparison on cost when talking about how we will meet North Carolina's growing need for electricity.
How did we get here?
Four years ago in 2007, North Carolina became the 25th state to enact legislation requiring our utilities to use renewable energy and become more energy efficient – this law is known by various names including the Renewable and Efficiency Portfolio Standard, Senate Bill 3 or REPS law.
By year 2021, the REPS law requires Duke Energy, Progress Energy and Dominion/NC Power to supply 12.5% of their retail electricity sales using renewable energy (such as wind, solar, biomass, etc.) and energy efficiency solutions. The law caps the use of energy efficiency solutions (such as efficient lighting, equipment, process design, etc.), however, at 5.0% of the electricity they expect to sell by year 2021. Thus effectively, the public utilities must supply 7.5% of their retail sales using renewable energy if they take advantage of the 5.0% allowance for energy efficiency.
Within this renewable energy requirement, a very small 0.2% of retail electricity sales must be supplied using solar power by year 2018. This small incentive [we can also say “investment catalyst”] has elevated North Carolina to the 11th largest solar state in the country for total solar PV capacity. Last year, NC ranked 8th in new solar thermal hot water capacity and 9th in new solar PV capacity. Just five years ago NC was in the bottom 10 states for solar.
Duke Energy Admits: No More Solar Needed
For anyone who has tried to read public records, it has been impossible to figure out what kind of progress the utilities are making toward the REPS requirements with enough confidence to make an investment decision – including the solar set aside, which comes first in the REPS law with 2010 as its first major milestone year, everything else must occur by 2012.
Concerned for the last two years, NCSEA has been asking legislators and regulators for greater transparency into how our electric utilities are, or are not, complying with our state clean energy law – we must sign non-disclosure confidentiality agreements to get access to only partial information that looks forward just one and one-half years. Even under confidentiality, there is no specific visibility to compliance status for years beyond 2012. For renewable energy businesses, this has meant they are spending a lot of money generating project bids, recruiting investors and partners, and sending their project bids into a utility black hole – not knowing whether the utility needs what these companies are offering to build. Is allowing the utility this level of control over the market excessive given our laws already grant the utilities monopoly status, a gauranteed profit margin if they clear the low hurdle of keeping the lights on, a guaranteed service territory, and exclusive access to customers in their territory?
As investors, clean energy business CEOs, and legislators personally asked the utilities over the last several months how far along the utilities are in complying with the Solar Set Aside – different people were given different and often vague answers, and none of them appear to have been completely accurate.
Matters seemingly were clarified last Wednesday, however, when a Duke Energy witness, under cross-examination by NCSEA Counsel Kurt Olson revealed that Duke Energy has not just contracted for enough solar to put themselves a few years ahead of schedule – which was the impression various Duke representatives had given legislators, NCSEA’s staff, investors and solar business leaders in recent months – but in fact Duke has accumulate sufficient RECs and has sufficient contracts in place to meet the entire solar set aside through the final compliance year of 2018.
Through further questioning it was made clear – Duke Energy needs no more solar, period.
Where Does Progress Energy Stand on the Solar Set Aside? We’re not sure…
Duke Energy is North Carolina’s largest utility, and has proposed merging with Progress Energy, our second largest utility. Combined, Duke Energy and Progress Energy serve 65% of NC utility customers and provide 71% of the electricity we consume (this is closer to 95% if counting power they generate and sell to our rural electric corporations and municipalities who re-sell it to their customers). They have no competitors in their service territories.
Duke Energy’s insistence on developing solar itself through means like its company owned distributed generation program, even though doing so costs their customers significantly more than if Duke were to simply buy all its solar from our solar energy businesses, should give us pause. As NCSEA’s Ivan Urlaub testified during the Utilities Commission hearing (click here to access information on Duke Energy's 2010 REPS Compliance Report, Docket E-7, Sub 984; and click here for Urlaub's filed testimony), this approach to compliance with the REPS does not conform to the “least cost” mix of generation required under the law. Indeed, for years Duke Energy has argued that renewable energy was too expensive and could not be used if they were to comply with the least cost requirement – i.e. their hands were tied. Now that the law mandates the use of renewable energy, Duke is insisting on doing it itself, extending its business model into a new energy sector, even though doing so is not the least cost to rate payers. Our regulators and legislators should look very closely at the harm this is likely to cause.
Now that we know Duke Energy is in compliance with the full solar set aside through 2018, where does Progress Energy stand? We hope to find out on September 27th, which is when the NC Utilities Commission will hold a hearing on Progress Energy’s compliance with the REPS law and the solar set aside.
Why Do We Have an REPS Law and Solar Set Aside?
In 2007, legislators passed the REPS law. This law requires the use of renewable energy. The law is based on a study funded by the North Carolina Utilities Commission that found a 10% REPS over 10 years would actually cost electricity customers less than if we met that same need for electricity by building and using new coal, natural gas and nuclear power plants – a 20-year net present value of $577 million less. You can find the link to download this study and other information at: http://www.ncuc.net/reps/reps.htm (see page 62 of report).
In addition to the strong economic justification of lower costs for utility ratepayers and greater job creation through use of our local clean energy resources, there was a secondary concern of the increasingly negative impact coal-fired facilities have had on our public health, natural resources, tourism and overall attractiveness of our state as a place to live and do business.
The study underlying the REPS Law assumed that the cost of solar power would only decline about 1.5% per year t – less than inflation. In real terms, the study actually expected the cost of solar to rise from 2007 to 2011 and beyond. Last winter, NCSEA gathered the actual solar costs filed with the NC Utilities Commission in one database. The Figure “Actual NC Solar PV Costs”shows that since this study was used to create the REPS law, the real cost of solar in North Carolina has declined 31% for residential solar PV systems and 58% for utility scale solar PV systems.
Remarkable is one word to describe the solar industry’s performance – affordable will very soon be another. The cost of solar in North Carolina has declined nearly 50% in four years, thanks to the rapid scale up of the solar industry – made possible in part by the solar set aside in the state REPS law.
Since the cost of solar power has been cut in half and is expected to continue to decline for the next five or more years, North Carolina could easily double the solar set aside without costing ratepayers a single dime more than we originally committed to pay for solar power. In fact, we could get twice the amount of solar for about 30% less cost than we originally expected to pay for the solar set aside. The benefits of doing this would be great. Over 4,000 new jobs could be created and manufacturers looking to locate their next facility would find North Carolina to be more attractive.
Duke Energy and Progress Energy Led Legislative Opposition Against Increasing NC’s Solar Set Aside
In February, a bipartisan group of legislators responding to the incredible and consistent performance of the solar industry agreed to introduce the Solar Jobs Bill (S473/H495), an effort to increase the solar set aside from 0.2% of electric sales up to 0.4% by year 2018 – still a very small amount, but one that could create about 4,000 new jobs statewide.
All forms of energy are currently subsidized by the Federal government and state government in a multitude of ways – historically renewable energy has received the least subsidy and shown the most consistent decline in costs as renewable technologies are commercialized. Nuclear energy has been rising in costs, and faces new uncertainties in further cost increases in light of the disaster in Japan. Coal fuel costs have generally risen since 2003, adding up to a greater total impact in utility customer bills than we expect to see from the entire REPS law – the difference is when coal fuel rises in cost we are paying more for the same amount of energy, while as utilities implement the REPS law we are paying steadily less for an increasing amount of new clean energy, investment and jobs. Natural gas is taking a temporary rest from highly variable costs for possibly 10 years, and then future cost risks become uncertain again – a very short time in the utility world.
Source: Management Information Services, Inc. Analysis of Federal Expenditures for Energy Development. Report prepared for the Nuclear Energy Institute, September 2008.
In contrast to the generally rising, heavily subsidized and unpredictable costs of new coal, nuclear and soon enough natural gas, an analysis of historical and projected solar energy costs in North Carolina lead to the conclusion that doubling the solar set aside to 0.4% would cost less than the original cost estimate of the 0.2% solar set aside.
This effort was thwarted by Duke Energy and Progress Energy, who insisted that it is too early to change the REPS law; it has only been four years since it was passed and we need to give it more time.
Why Does The Status of Duke and Progress Solar Compliance Matter Now?
Right now, numerous global manufacturers of solar products & components are deciding whether to build new facilities and create thousands of new solar and other clean energy jobs in North Carolina. Solar has nearly become affordable enough that it is poised to play a much more significant role in our energy portfolio, but it needs a few more years and a viable market to get the rest of the way. The small incentive provided by the Bill would help assure that North Carolina remained an attractive place for companies to create innovative new solar jobs.
Progress Energy has told legislators they have enough solar contracts and solar Renewable Energy Certificates to meet the solar set aside through the year 2014. Because neither Duke nor Progress need more solar in the next three years, investors may look elsewhere and North Carolina may fall from our status as a top 10 solar market in 2011 to middle of the road. The timing could not be worse for our economy and our unemployed,. Thus, while employment in our state’s clean energy industries grew 22% [click here to download NCSEA’s 2010 NC Renewable Energy & Energy Efficiency Industries Census] last year amidst one of our state’s worst recessions, it is doubtful that the solar industry’s potential contribution to further growth will occur given utility opposition to building on the great success of solar in North Carolina to date.
Now, with Duke Energy’s and Progress Energy’s successful blocking of the Solar Jobs Bill (S473/H495) and the Energy Independence and Job Creation in NC act (S694) this week, they have prevented the creation of as many as 8,350 new jobs by 2015.
What have we learned?
- The utilities and our solar industry have proven that it is much easier and more affordable to build solar than anyone thought possible when the REPS law passed in 2007
- 84% of North Carolinian’s support increasing the requirements of the REPS law
- 85% of citizens want their legislators to allow renewable energy companies to sell power directly to them, instead of currently having to buy all their power from one utility
- 75% of the public supports doubling our use of solar, not slow down or stop as they are doing now
- 91% of North Carolinian’s support using solar power
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North Carolina will not be creating more than 8,000 new jobs up and down the solar supply chain unless legislators decide to override utility opposition to the Solar Jobs Bill (HB495/SB473) and Energy Independence & Job Creation Bill (SB694)
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