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North Carolina utilities panel will delve into cost of green energy

In a proceeding that could boost or dampen North Carolina’s fast-growing solar industry, the N.C. Utilities Commission is taking a new look at the rates utilities pay for renewable energy.

A hearing that begins Monday focuses on how to calculate the “avoided costs” – costs utilities would otherwise pay to generate or buy electricity elsewhere – they are required to pay for green energy. Solar, which now ranks North Carolina fourth in the U.S. for installed capacity, is by far the biggest player.

The Utilities Commission sets avoided-cost rates every two years, most recently in February. The commission noted then that solar’s growth has “potentially disruptive implications, both positive and negative” and decided to take a deeper dive into how rates are set.

The N.C. Sustainable Energy Association said those rates “have the ability to shape the entire clean energy landscape.” They’re not only the price utilities pay for electricity but are used in regulatory affairs such as assessing energy efficiency programs.

Duke Energy’s portfolio of contracts to buy North Carolina-produced green energy has grown quickly since 2011. But the avoided costs it paid fell in 2012 after reaching peaks in 2008 and 2010.

The commission’s focus is on green-energy projects with capacities under 5 megawatts. Solar farms of that size are eligible for a utility’s “standard offer” for their electricity without negotiating prices.

The standard offer is where Duke and solar developers disagree.

Solar developers argue that larger projects of up to 10 megawatts should get the offer. They would like to lengthen power-purchase contracts to 20 years, which with Duke now run no longer than 15.

Making more projects eligible for the standard offer won’t guarantee they will be built, the solar industry says – many aren’t – but it would lower their transaction costs.

Solar companies also argue that avoided costs should include the environmental and social benefits of generating emission-free electricity.

Duke argues in the opposite direction, suggesting it’s overpaying for solar energy. The company’s signal earlier this year that it wants to pay less for residential rooftop solar power ignited a firestorm among solar advocates.

In advance of Monday’s commission hearing, the Durham advocacy group NC WARN, a frequent Duke critic, bought media ads headlined: “Why Does Duke Energy Hate Solar?” The ads claim Duke is “trying to stop paying a fair price to solar-generating customers who contribute clean power to the electric grid.”

Duke wants flexibility

Duke says it does anything but hate solar.

Its two North Carolina utilities are paying for nearly 750 megawatts of installed green-energy capacity, the company said in commission filings. Pending projects could add 2,800 megawatts.

Both North Carolina utilities ranked in the top 10 nationally for new solar capacity installed in 2013, the Solar Electric Power Association says.

But Duke wants to reduce projects eligible for the standard offer to those with far smaller capacities of no more than a 100 kilowatts, forcing most commercial solar projects to negotiate contracts. And it favors shorter contracts of no more than 10 years.

The current 5 megawatt threshold “reduces (Duke’s) ability to manage growth in (its) systems on an orderly basis, and reduces the commission’s ability to carry out its responsibility to assure that consumers have reliable power at the least possible cost,” Kendal Bowman, Duke’s vice president of regulatory affairs, said in written testimony.

The Utilities Commission’s Public Staff, which represents consumers, doesn’t advocate a change from the current 5 megawatts.

“The Public Staff is evaluating this in terms of what’s best for customers of the utility,” said James McLawhorn, who heads its electric division. “We don’t want it to reach a situation where it’s no longer a benefit to a utility and its customers.”

Negotiating power

Public Staff filings illustrate the importance of the standard offer to solar projects.

Duke’s North Carolina utilities have received 62 requests to negotiate power-purchase contracts for solar projects larger than 5 megawatts, Public Staff said, but has signed only two contracts.

“Despite all of that goodwill and the efforts of their personnel, at the end of the day, by virtue of their regulated monopoly status and size, the utilities enjoy complete negotiating power,” Zoe Hanes, general counsel of Asheville solar developer FLS Energy, said in written testimony.

Solar advocates say the avoided-cost rates should reflect broader benefits of green energy, such as its lack of carbon dioxide emissions, creation of new jobs and ability to generate electricity when it’s most needed in summer.

The Public Staff takes a narrow view of that argument, saying it supports only “known and quantifiable costs” that for now don’t include carbon reduction.

“The obligation to Duke is to keep the lights on, deliver electricity the most least-cost reliable way possible,” Duke spokesman Randy Wheeless said. “Our focus is on getting the job done.”