Duke Energy wants to pay North Carolina solar farm developers 15 percent less for their electricity than it now does, according to filings this week.
The proposed rates are for 15-year contracts to buy power from renewable energy projects – most of them solar – of 5 megawatts or smaller. Duke also reduced its rates for similar projects in 2012.
The state Utilities Commission will review the proposal. So will advocates who say lower rates could dampen North Carolina’s fast-growing solar industry.
Duke says this year’s lower rates are a result of falling natural gas prices.
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Renewable energy rates are based on the costs that utilities avoid by buying energy instead of generating their own or buying it elsewhere.
In North Carolina’s case, costs are calculated for operating gas-fired combustion turbine power plants. As natural gas prices dropped in recent years, the cost of running the plants fell.
“Customers save when Duke Energy can purchase power at a realistic price,” Duke spokesman Randy Wheeless said. “We believe our filing reflects the best data on how these prices should be set.”
Duke Energy Carolinas, which serves Charlotte and Western North Carolina, dropped its green-energy rates 12 percent to 13 percent two years ago. Duke said lower gas prices and capital costs drove that decrease.
Federal law obligates utilities to buy renewable energy. State law says green-energy developers have to sell to utilities, not directly to customers, although a push is underway to allow third-party sales.
The N.C. Sustainable Energy Association, which promotes green energy, said lower rates “will make it more difficult for developers to finance clean energy projects.”
The association has hired an outside consultant to review the data and methods Duke used in proposing the rates. “In the coming weeks, we expect to know more about whether the proposed rates accurately reflect the power companies’ avoided costs,” it said in a statement.
North Carolina ranks fourth nationally for installed solar capacity, almost all of it from commercial-scale farms.
The state’s 2007 renewable-energy mandate created a market for solar energy. A 35 percent tax credit that expires at the end of this year – unless legislators renew it – drew investors.
So many new projects have been proposed – more than 700, utilities say, although many will never be built – that the Utilities Commission is looking for ways to relieve the congested review process.
The commission sets green-energy rates every two years. Last year, in light of the solar surge, it took a deeper dive into how the rates are set.
Duke wanted to reduce the size of projects that are eligible for standardized rates and contract terms, which don’t require negotiation, from the current 5 megawatts to 100 kilowatts.
Solar developers pushed to increase the scale of projects eligible for the “standard offer” to 10 megawatts and lengthen contract terms to as much as 20 years.
The commission decided in January to make no major changes. It maintained the 5-megawatt limit for standard offers, 15-year maximum contract terms and cost allocations based on periods of peak demand.
The standard-offer threshold has kept North Carolina’s commercial solar projects almost entirely below 5 megawatts. By last fall, Duke had signed power-purchase agreements with only four solar farms larger than that.
The landscape changed in September. Duke announced it will spend $500 million to buy three large solar farms in the state and buy power from five more. None will be smaller than 15 megawatts.
Larger projects reap economies of scale. Duke has said it expects to pay about 10 percent less for the energy from the large new farms than it would have from smaller projects.