Duke Energy proposes changes to ‘distorted’ North Carolina solar markets

A worker walks among a set of solar panels at an O2 Energies solar farm near Biscoe in Montgomery County.
A worker walks among a set of solar panels at an O2 Energies solar farm near Biscoe in Montgomery County. dtfoster@charlotteobserver.com

North Carolina’s runaway success at building a solar energy industry, now the second-largest in the U.S., has created a “distorted marketplace” that needs correcting, Duke Energy says.

Some solar developers won’t like the change Duke has proposed to the North Carolina Utilities Commission. It would replace a free-wheeling system with one increasingly controlled by utilities, making developers compete for the right to build new farms.

Duke says the shift wouldn’t slow solar’s growth in the state, but the industry is taking a guarded approach to what would be a significant shift in its evolution. Some developers predict competitive bids, coupled with other policy changes Duke has proposed, would squeeze out smaller companies.

Under the process, developers would submit bids to build solar projects under requests for proposals by utilities. Duke has solicited bids in the past, most recently last month.

Peter Ledford, regulatory counsel for the North Carolina Sustainable Energy Association, called competitive bidding a “totally different paradigm” for the state’s solar developers. Bids have been used successfully in other states, such as Georgia and California, he said.

“It’s not an unfamiliar process,” he said. “It certainly does put more control in Duke’s hands, but if done properly a request for proposals will guarantee that a certain amount of energy will be connected to the grid.”

Duke’s commission filing last week didn’t include enough detail for the association to form an opinion on it, he said.

North Carolina ranks second, behind California, in solar capacity.

A 2007 state law that makes utilities derive a fraction of their energy from renewable sources such as solar and wind, coupled with generous state tax credits that expired last year, sparked the industry’s growth.

But the cornerstone of the state’s solar success is a 1978 federal law, the Public Utility Regulatory Policies Act or PURPA, that requires utilities to offer to buy the output of renewable energy projects. The price utilities pay for that green energy, called the “avoided cost,” is supposed to equal the cost of generating mainstream energy.

Duke contends North Carolina was too generous to solar developers in putting PURPA into effect.

The Utilities Commission set prices and allowed long-term power purchase contracts that, Duke says, forced utilities to pay too much for solar power as avoided costs fell. The state made solar farms of up to 5 megawatts eligible for standardized contracts, resulting in a flood of under-5 megawatt installations.

More than 1,300 megawatts of solar capacity from independent developers is connected to Duke’s grid in North Carolina. More than three times that amount is in line to connect – an amount that Duke says is more than it needs as demand for electricity flattens.

“North Carolina has had tremendous success, but it’s just not sustainable,” said Rob Caldwell, president of Duke Energy Renewables and Distributed Energy Technology. “Let’s declare success and continue that success on a more rational and consistent basis.”

Solar developers wary

Solar developers are wary of tinkering with a system under which their industry has flourished. Under Duke’s proposal to the Utilities Commission, it would pay about 30 percent less for solar energy than it now does, limit standardized contracts to installations of 1 megawatt or less and limit contract terms to 10 years.

North Carolina doesn’t let independent power producers sell electricity directly to customers. But developers say PURPA, and the state’s implementation of it, gives them access to the grid by selling to utilities at the same price as the utilities own costs.

Joel Olsen, president of Cornelius-based solar developer O2 Energies, said Duke’s competitive bid proposal would create an advantage for Duke that could cripple small power producers but won’t necessarily help consumers.

“It would be like AT&T running a competitive bid process among its competitors, so that only AT&T could then provide its pricing to consumers,” Olsen said.

O2 filed complaints in October that claim Duke is refusing to process grid connection requests by solar developers under time frames set by the state. The Utilities Commission ordered Duke to respond, but it hasn’t yet done so. Caldwell wouldn’t comment on the complaints.

Duke created a backlash last summer when it imposed new interconnection requirements, saying solar projects tied to some distribution systems have caused problems for retail customers. In August, Duke and seven solar developers reached an agreement resolving their disputes, and the Utilities Commission said it is satisfied that Duke is taking “appropriate steps” on the issue.

The commission rejected changes to power purchase contracts that Duke proposed in 2014 and revived last week, such as limiting contract terms and solar installations eligible for standard contracts.

Solar in the wrong place

Competitive bids, in response to utility requests for proposals, would give Duke new control over where solar farms are built.

“What’s going on is a shift by Duke to try to move the structure of the market,” said Steve Kalland, executive director of the North Carolina Clean Energy Technology Center. “They have concerns ... that so much solar is on the grid that they didn’t have as much say as they would like about where it is.”

Developers now make site decisions, and they overwhelmingly choose flat and cheap former farmland in eastern North Carolina. That’s not always where Duke wants them to be.

Some solar systems in the region are connected to parts of Duke’s grid that aren’t designed for them or are overloaded with solar energy, Caldwell said. Solar energy often floods the grid at times of day when it’s least needed, Duke says, forcing the utility to ramp up and down generation from its own power plants.

While Duke now is forced to buy solar energy, it wants to be able to say no when it doesn’t need the additional capacity.

Last month Duke issued a request for solar proposals west of Raleigh. Duke owns pumped-storage hydroelectric plants in the western Carolinas that, unlike eastern North Carolina, could store excess energy from solar farms.

“They come at us without any rhyme or reason,” Caldwell said. “We think we can control how many megawatts come into the system on an annual basis and where does it make sense for them to come in.”

Bruce Henderson: 704-358-5051, @bhender