Duke Energy says solar power will cost N.C. customers $1 billion too much

RayLen Vineyards in Mocksville has installed solar panels on land that is not suitable for growing grapes.
RayLen Vineyards in Mocksville has installed solar panels on land that is not suitable for growing grapes. AP

Duke Energy, which seeks more control over North Carolina’s fast-growing solar industry, says it will overpay solar developers $1 billion for the energy they generate over the next dozen years.

North Carolina is the nation’s second-largest state for installed solar capacity. Duke contends that growth is costing its customers too much. Solar developers say that’s not so.

Federal law requires electric utilities to buy the power generated by qualified renewable-energy projects including solar. Utilities pay prices equal to the “avoided” costs of not building traditional power plants, such as the natural gas-fired units Duke is building in the Carolinas.

Because those costs change over time, the North Carolina Utilities Commission resets them every two years.

In filings this week, Duke said its actual avoided costs have dropped – largely because of falling fuel prices for natural gas – to $35 per megawatt-hour of energy. But it’s paying solar developers $55 to $85 under long-term contracts based on avoided costs the commission previously set.

Duke said the difference comes to $80 million a year, or $1 billion over the remaining life of those contracts, which are typically for 15 years. For most residential customers, the excess payments work out to about $20 a year, Duke said.

“As a result, our customers are exposed to the significant risk and burden of excess avoided cost rates under the current framework,” Lloyd Yates, Duke’s executive vice president for the Carolinas, said in written testimony.

Solar developers have yet to file responses with the commission, which will decide whether Duke’s avoided costs are correct. Among the parties involved are Cypress Creek, one of the nation’s biggest solar developers, and Chapel Hill-based Strata Solar.

But Strata’s senior vice president of strategy, Brian O’Hara, says accurately set avoided costs give solar a neutral impact on customers. Long-term contract prices that utilities pay for solar energy would serve as a stabilizing force, he said, if electric rates and natural gas prices rise in the future.

“Our view is that the statement Duke made that customers are overpaying for solar is just plain wrong,” O’Hara said.

The North Carolina Sustainable Energy Association, which represents renewable energy developers, has already challenged how Duke calculated its avoided rates. The Utilities Commission denied the challenge in January.

Duke maintains that generous state rules have left the state awash in solar farms with little utility input on whether they are needed, where they’re built or how large they are. Most farms are in eastern North Carolina and small enough to qualify for non-negotiated power purchase contracts.

The company has previously proposed switching to a competitive bidding process for new solar farms to allow “more orderly addition of new solar power” to its system. Those bids would give Duke the right, for the first time, to turn off unneeded incoming solar energy.

Duke is also pushing to allow standardized contracts only for the smallest solar arrays, of 1 megawatt or less, and shorter, 10-year power purchase contracts.

The Utilities Commission will hear testimony from all sides at a hearing that will begin April 18.

Bruce Henderson: 704-358-5051, @bhender