The Sierra Club said Nov. 16 that Duke Energy (NYSE: DUK) has asked North Carolina regulators to approve a plan that would thwart the growth of the state’s solar energy and make it harder for solar businesses to succeed.
The North Carolina Utilities Commission currently requires Duke Energy to enter into 15-year standard contracts with solar producers of any project 5 MW or smaller. Duke has asked the commission to cut the length of those contracts to 10 years and to change the rules so that any solar installation 1 MW or larger selling to Duke would require a negotiated contract. The club said that such contracts would be on Duke’s terms—without specific timelines and standard procedures—thereby creating financial uncertainty and hardships for solar businesses and investors.
David Rogers, representative for the Sierra Club’s Beyond Coal campaign in North Carolina, said: “Duke wants to roll back the very policies that have helped North Carolina to become the second ranked state in the country when it comes to solar power. Unfortunately, Duke continues to oppose the expansion of access to solar energy, unless it’s done on Duke’s terms. It’s time for Duke to give their customers what they want, which is more clean, cheap, renewable energy. “
The Duke Energy Carolinas (DEC) and Duke Energy Progress (DEP) units of Duke Energy on Nov. 15 presented to the North Carolina commission proposed standard avoided cost rates and contract terms and conditions.
They wrote: “North Carolina’s position as a national leader in renewable energy is a source of pride for customers, the industry, and policymakers alike. Forward-looking regulatory and legislative policies, strong partnership by the state’s major utilities, Duke Energy Carolinas and Duke Energy Progress, and aggressive construction and deployment of solar facilities by developers large and small have combined to make North Carolina second only to California in interconnected solar capacity. As of September 30, 2016, there are more than 1,300 megawatts (‘MW’) of third-party developed solar connected to DEC’s and DEP’s grid in North Carolina, with another 4,600 MW progressing through the interconnection queue.
“DEC and DEP have embraced renewable energy and are leading the way to smarter, cleaner energy solutions for customers. Since 2007, Duke Energy Corporation (‘Duke Energy’) has invested more than $4 billion in renewable generation projects, including nearly $300 million by DEP and $175 million by DEC in North Carolina.
“In 2014, Duke Energy issued a request for proposals (‘RFP’), targeted at solar facilities greater than 5 MW, which resulted in a $500 million solar expansion commitment through acquisition and construction of new North Carolina solar facilities and execution of new purchase power agreements (‘PPAs’) with additional solar projects in North Carolina.
“More recently, on October 24, 2016, DEC issued an RFP for 750,000 megawatt-hours (‘MWh’) of renewable energy and associated renewable energy certificates (‘RECs’) located in the DEC territory to encourage development of more renewable generation in the most competitive manner possible, giving developers the opportunity to either pursue projects themselves or sell current projects under development to DEC.
“Today Duke Energy has more than 35 solar plants of over 1 MW in North Carolina. DEP currently owns and operates nearly 140 MWs of solar generation in North Carolina, while DEC owns and operates nearly 9 MWs of solar generation with an additional 75 MWs under development. Both DEC and DEP have achieved long-term compliance with North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard (‘REPS’) solar carve-out, and, as of August 2016, DEP has contracted for sufficient RECs to achieve full REPS compliance through at least 2028.
“The Companies’ commitment to solar and other renewable power in the State is clear and compelling. Just as important is their desire to continue bringing more solar power onto their systems for the benefit of North Carolina customers. However, the North Carolina solar power success story that so many have helped shape is at a crossroads. The policies that supported such a rapid rise in utility-scale solar growth now need to be reevaluated. In short, existing policies have created a distorted marketplace for solar projects that could result in artificially high costs passed onto North Carolina residents, businesses, and industries, while potentially degrading operation of the Companies’ electric systems that serve those customers.
“By demonstrating the same foresight that helped establish unprecedented solar power growth in the State, however, this Commission can ensure its long-term viability and success.” The Duke companies said the key challenges posed by the current Public Utility Regulatory Policy Act (PURPA’ and avoided costs polices are costly and complex:
- Cost – 60% of all PURPA projects in the entire United States are in North Carolina in part because the price and terms the Duke companies are mandated to offer to those projects are unnecessarily generous compared to other utilities and states around the country. This places a burden on customers who are exposed to significant purchased power expense in excess of avoided costs. DEC and DEP now advocate for a competitive bidding process, which would ensure that the most attractive, most cost-efficient projects are built, helping further ensure a more orderly addition of new solar power.
- Complexity – The current avoided cost policies have helped to draw an increasingly unmanageable number of solar projects into the queue seeking to interconnect with the companies’ systems. A backlogged queue prevents viable projects from coming online in a timely manner and increasingly causes a disconnect between forecasted avoided costs and actual system incremental avoided costs. Critical improvements are needed to North Carolina’s current unplanned and uncontrolled process for developing, interconnecting, integrating, and operating in parallel with utility-scale solar generators to ensure that the state’s energy policies and customers’ long-term interest in reliable and affordable electric service is maintained. In addition to the other proposals the companies are making in this docket, the Duke companies ask the commission to establish a separate proceeding to enable DEC and DEP to collaborate with interested parties in the development of a competitive solicitation process to provide for sustainable growth in new solar resources in North Carolina. Additional policy changes beyond the scope of this docket will also likely be necessary to fully move North Carolina to a smarter, sustainable renewable energy future.
Recent surge of up-to-5-MW projects causing issues, Duke says
The commission’s implementation of PURPA over the past decade has been designed to encourage development of qualifying facility (QF) generators, including utility-scale solar generators with a nameplate capacity of 5 MW or less, by requiring the Duke companies and Dominion North Carolina Power (DNCP) to offer standard 5-, 10-, and 15-year long-term levelized fixed rate PPAs. While the commission’s PURPA policies have remained relatively unchanged over the past decade, the importance and impact of these decisions has grown exponentially for the companies, the state’s energy grid, and power customers.
Since 2012, an unprecedented surge in utility-scale solar QF generators, including over 200 projects sized between 4.0 to 5.0 MW, have interconnected and are now selling energy to the Duke companies, especially to DEP, pursuant to commission-approved long-term PURPA avoided cost rates.
As of Sept. 30, 2016, the Duke companies said they have interconnected more than 1,300 MW of third-party utility-scale solar generation, with nearly 75% of those solar projects (960 MW) interconnected in DEP. More importantly, however, approximately 4,600 MW of additional utility-scale solar generators have requested to interconnect to the companies’ systems in North Carolina.
Further, a significant number of these proposed QF generators have potentially established “legally enforceable obligations” or “LEOs” under the commission’s PURPA policies and are requesting to sell power under the commission’s previously-approved “Sub 136” or current “Sub 140” fixed, long-term avoided cost rates and terms and conditions. The amount of PURPA-supported solar generation currently in development exceeds the companies’ near term energy needs in certain hours as well as projected near term capacity needs presented in the companies’ respective biennial 2016 Integrated Resource Plans (IRPs).
Both DEC’s and DEP’s 2016 IRPs show that no additional unplanned capacity is needed to reliably serve customers’ peak consumption, or energy demand, through the years 2022 and 2021 respectively. The companies’ IRPs show that, at least in the near term, the growing levels of utility-scale solar that the companies must purchase under PURPA will be providing capacity and, at certain times, energy in excess of the companies’ needs.
The Duke companies added that this surge in utility-scale solar development is also creating significant, excess long-term costs for their customers due to the trend in declining energy markets that have been seen in the past several years where actual incremental energy costs have been significantly lower than prior forecasts in earlier avoided cost filings. This calls into question whether entering into longer-term avoided cost PPA contracts is prudent, considering that DEC and DEP have long-term PPAs with commission-set avoided cost rates ranging from $55 to $85 per MWh, while the companies’ current actual system incremental “avoided” costs are approximately $35 per MWh.
In contrast to the current uncoordinated and unconstrained PURPA marketplace for solar development, the companies believe a proposed competitive market solar solicitation process would provide superior value for customers and attract the most competitive solar projects at a cost potentially lower than the current avoided cost rates.
Reliably planning and operating the Companies’ systems is also becoming increasingly challenging as the level of variable, non-dispatchable utility-scale solar continues to surge. The generation, transmission, and distribution systems must adjust minute to minute and even second to second to meet constantly fluctuating customer demand. PURPA regulations do not allow for effective real time control of QF generation, which creates operational impacts when significant QF generation, especially significant variable and intermittent QF solar generation, is added to the system.
The Duke companies added: “This proceeding represents the Companies’ first opportunity in a biennial avoided cost proceeding to inform the Commission regarding the actual and detrimental impacts to the DEP system after approximately 1000 MWs of variable, non-dispatchable and noncurtailed utility-scale solar generation has come online – overwhelmingly in 5 MW increments on rural distribution feeders in Eastern North Carolina. The Companies have gained significantly greater experience over the past 18 months with the real operational impacts of the surging development of PURPA-driven utility-scale solar generation on the DEP and DEC systems, as well as new information on the growing impacts of these variable, non-dispatchable energy resources on the Companies’ generation, transmission, and distribution system operations. The continuing surge in utility-scale solar QF generation is increasingly challenging how the Companies plan and operate their generation fleets, manage their transmission systems, and assure reliable power is delivered to our customers over local distribution circuits.”