Decades-old green power law is a fresh nuisance to U.S. utilities

March 29 In the last four years, North Carolina
has become the second largest solar market in the United States,
behind only California.

It has installed more solar energy than Texas, which has
nearly three times the population; more than Arizona, which has
twice as many sunny days; and more than New York, which has far
more aggressive renewable energy targets.

North Carolina’s solar boom is rooted in a federal law
enacted four decades ago – one that has only recently had much
impact.

The law is now emerging as a boon for many solar developers
in select states, but a nuisance to many power companies,
including North Carolina’s top utility, Duke Energy Corp
.

The federal Public Utility Regulatory Policies Act (PURPA),
passed in 1978, requires utilities in many states to buy
renewable power from small providers – provided they can sell it
at a price comparable to power from fossil fuels, such as coal
or natural gas.

Because rates and contract terms are set by state utility
regulators, that boom is focused on handful of markets –
including North Carolina, South Carolina, Montana and Oregon.
Sixty percent of the nation’s current PURPA projects are in
North Carolina, where state rates and policies favor solar
companies.

Nationwide, about 28 percent of U.S. solar projects in
development will benefit from PURPA mandates that utilities buy
their power, according to industry research firm GTM Research.

For decades, PURPA was essentially irrelevant to the wind
and solar industries because their technologies cost far more
than power from fossil fuels. But the last decade has brought
sharp declines in the cost of solar and wind power, encouraging
a surge of renewable power projects from developers who can
count on legally mandated contracts with utilities.

“It’s been really important,” said Ben Van de Bunt, Chairman
of Cypress Creek Renewables LLC, which has developed more solar
projects under PURPA than any other company.

UTILITIES LOSE CONTROL, PROFITS

Utilities aren’t pleased with the development. They say
PURPA is upending their ability to plan, control and profit from
new electricity generation being added to their territories.

In North Carolina, Duke Energy wants to slow down the
breakneck solar expansion.

On sunny days, the utility now has more solar power in some
places than the grid needs, overwhelming some circuits and
threatening reliability, the company said. The state’s terms for
PURPA contracts, Duke said, require it to pay far more for solar
energy than if contracts were let competitively.

Duke reported in a state filing that it is paying between
$55 and $85 per megawatt-hour for the solar energy it must buy
under PURPA. A typical solar contract in the United States falls
between $35 and $50, according to GTM Research.

“There is a better way to be proactive in figuring out where
to put solar, and better pricing for our customers,” said Rob
Caldwell, Duke’s president of renewable energy.

REGULATORY BATTLE GROUND

Duke is now seeking approval from the North Carolina
Utilities Commission for shorter-term contracts with solar
providers and lower prices for mandated power purchases under
PURPA.

Both moves would give solar developers less incentive to
build new projects in the state.

The NCUC declined to comment, saying it cannot publicly
discuss matters pending before the commission.

In other states, including Idaho, Oregon, Utah and Montana,
utilities such as NorthWestern Corp and Berkshire
Hathaway Inc’s Pacificorp have made similar pleas for
relief in reaction to an influx of requests from solar and wind
companies to connect projects to their grids.

Solar advocates argue that slashing contract terms to five
years from the current 15 years, as Duke has requested, would
eliminate the long-term predictability investors need to finance
renewable energy projects. They contend that would undermine
clean power development just as PURPA has begun to have the
effect its drafters originally intended.

“It wasn’t a problem until it worked,” said Adam Browning,
executive director of the advocacy group Vote Solar, which has
lobbied to preserve PURPA contract terms in several states.

The battle in North Carolina will be hard fought because the
state has led the way nationally for solar development under
PURPA.

Solar power now accounts for about 3 percent of the state’s
electricity, compared with less than 1 percent nationwide. About
95 percent of the North Carolina’s solar projects were developed
under PURPA.

Duke has sparred with the solar industry before. Two years
ago, solar companies objected when Duke requested shorter
contract terms and limitations on the size of projects that
would qualify for its standard contract. The state utilities
commission denied Duke’s request.

ONE FIRM’S SOLAR BOOM

North Carolina’s boom in PURPA solar projects has been
particularly good for one developer – California-based Cypress
Creek.

The company started doing business in North Carolina in
2014, buying cheap land close to the grid from farmers and then
building projects for a captive customer, Duke. The company owns
about a quarter of the state’s solar installations, and has
another 2.2 GW in the works.

In January, Cypress filed a complaint with the state utility
commission after Duke slashed its contract term for larger PURPA
projects to 5 years. That dispute is unresolved, and Duke is
separately seeking regulatory approval to lower the fixed
contract price for smaller projects.

In a January filing, the NCUC said it would consider whether
current economic conditions for utilities justify changes in
rates and PURPA implementation.

Cypress Creek’s Van de Bunt says the battle in North
Carolina is critical.

“Duke has an extraordinary amount of power in North
Carolina,” he said in an interview. “If they continue down a
path to making solar development difficult to finance, we’ll
have a smaller path in North Carolina.”

In another debate that could roll back gains for solar
companies, Duke is also working with state lawmakers to
introduce a competitive process for purchasing solar power.

Duke says it is committed to solar energy production, but
will continue pushing for more control over project locations,
power prices and the amount of solar needed overall for the
grid.

“We’ve been growing and growing,” said Rob Caldwell,
president of renewable power at Duke. “Let’s declare success,
but let’s find a more sustainable, balanced approach going
forward.”
(Reporting by Nichola Groom)

Source: Reuters

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