an assessment of renewable portfolio standards and
Post on 28-May-2022
4 Views
Preview:
TRANSCRIPT
An assessment of Renewable Portfolio Standards and potential for expansion in the southeastern United States
April 20, 2012
PREPARED FOR:
Rich Crowley North Carolina Sustainable Energy Association
1111 Haynes Street, Suite 109 Raleigh, NC 27604
(919-832-7601
PREPARED BY:
Matt Jentgen Candidate for Masters of Public Policy
Sanford School of Public Policy Duke University
Box 90239 Durham, NC 27708-0239
ADVISOR:
William A. Pizer Associate Professor of Public Policy and Environment
Sanford School of Public Policy Duke University
i
EXECUTIVE SUMMARY
We currently face a tremendous challenge to transition away from carbon-intensive fossil
fuels as our primary energy source to more sustainable and cleaner options, including renewable
energy. A Renewable Portfolio Standard (RPS), which requires a minimum share of renewable
power generation, is one policy mechanism that has been adopted by many states in the US to
stimulate generation and investment. The recent passage of the North Carolina Renewable
Energy and Energy Efficiency Standard (REPS) represents the first example of such a program
in the South. Attempting to learn from this experience, this paper evaluates and offers lessons for
other southern states who might adopt a renewable portfolio standard. This work responds to
interest by the North Carolina Sustainable Energy Association (NCSEA) on the potential for
other southern states to adopt a renewable portfolio standard.
Combining historical experience with RPSs, recent experience with the NC REPS, and
interviews with policymakers and energy sector stakeholders in neighboring South Carolina, I
have concluded that while there are barriers to RPS adoption, there are also tremendous
opportunities. There are three elements of a renewable portfolio standard that can be attractive to
South Carolina policymakers:
1. Job growth potential: A renewable industry in North Carolina has been bolstered by the
state’s renewable standard. A similar industry can be built in South Carolina.
2. A state mandate is better than a federal mandate: South Carolina’s ideological
makeup is more inclined to state regulations based on a state’s needs. Other traditionally
conservative states have enacted renewable portfolio standards: Utah, Arizona, South
ii
Dakota, and North Dakota.
3. Benefits to rural electricity cooperatives: Rural electricity cooperative members in
South Carolina have historically been skilled technicians with experience installing
appliances and equipment. These cooperatives could benefit from a new industry that
installed renewable technologies such as solar photovoltaic and solar thermal systems.
While the elements discussed above can drive RPS adoption in South Carolina, the policy
design of North Carolina’s REPS can serve as a template to create the next renewable standard in
the South. It is important to balance the renewable energy goals with the realities of regulated
energy markets in the region. Based upon insights from North Carolina’s experience and general
research of renewable energy policies, I recommend four policy mechanisms that will make the
next renewable standard sustainable and effective:
1. Make the renewable standard mandatory. Twenty-nine states have enacted
mandatory renewable portfolio standards, while four other states have enacted
voluntary renewable targets. A voluntary standard may appear to be more politically
palatable, but it lacks the certainty utilities covet and the mandate utilities need to
procure anything other than “least-cost” generation.
2. Include an alternative compliance payment (ACP) mechanism to clarify non-
compliance. An ACP has been successfully implemented in most RPS states. Such a
mechanism helps to establish an acceptable price for renewable generation in the
state. If funds are generated through an ACP, they can be distributed to potentially
iii
viable energy technology projects.
3. Design requirements according to various state resources. The annual renewable
generation requirements have been met by most RPS states. The benefit of these state
standards is that they can be tailored to local resources. Set-asides, such as those for
hog and poultry in North Carolina, can be used to address state-specific resources,
expertise, and industry.
4. Allow energy efficiency programs and out-of-state renewable credits to meet
some portion of renewable standard. The energy efficiency provision gives
electricity retailers greater flexibility to meet the standard and gives greater control of
assets. The out-of-state renewable credits enable the purchase of low-cost renewable
generation that still meets broader emissions reduction goals. However, these
advantages need to be balanced against the local economic interest of keeping
resources in state and focused on renewable energy.
Conclusion
A renewable portfolio standard is a proven policy tool that can help to guide our
transition away from fossil fuels. The lessons learned from other RPS programs, from North
Carolina’s recent and pioneering effort, and from on-the-ground, local stakeholders, can and
should be used to help other southern states to adopt an RPS. This will in turn help them to meet
their energy needs, to diversify their energy sources, and to mitigate climate change.
1
INTRODUCTION
Energy from renewable sources can be harnessed to produce cleaner and more
sustainable electricity generation that has the potential to reduce our dependence on carbon
dioxide emitting fossil fuel resources. Since the late 1990s, renewable portfolio standards (RPS)
have been implemented on a state level in the United States as a driver for renewable energy
adoption. An RPS policy was first discussed in the Electricity Journal in 1996, finding that
“market imperfections will hinder the commercial advance of renewables” and that a renewable
portfolio standard can be used to correct market imperfections and move toward greater
sustainability in electricity generation.1 Renewable energy represented 8.2% of US energy
supply in 2010 and greater renewable adoption can reduce carbon dioxide emissions, increase
local employment and technical expertise, and enhance fuel diversity. 2 An RPS is designed to
capture these public benefits.
While the structure of an RPS can vary and incorporate state-specific needs, at its core an
RPS requires retail electricity suppliers to procure a certain minimum quantity of energy from
eligible renewable energy resources.3 A retail power supplier within the state is required to
purchase renewable energy credits (RECs) equivalent to a percentage of total annual energy sales
covered by the standard. A REC is created when a qualifying renewable energy resource is used
to generate one kilowatt hour of electricity. A retail supplier can invest in renewable facilities
and certify its own RECs or purchase RECs separately from an established RECs market.
1 Rader and Norgaard. “Efficiency and Sustainability in Restructured Electricity Markets: The Renewables Portfolio Standard.” Electricity Journal. July 1996. 2 Gruenspecht, Howard. “AEO 2012 Early Release Rollout Presentation.” EIA Annual Energy Outlook 2012. Early 2 Gruenspecht, Howard. “AEO 2012 Early Release Rollout Presentation.” EIA Annual Energy Outlook 2012. Early Release Reference Case. Presented at John Hopkins University. January 23, 2012. 3 Wiser and Barbose. “Renewables Portfolio Standards in the United States.” Lawrence Berkeley National Laboratory. April 2008.
2
Most RPS policies are enacted through state legislation. However, some policies have
been established through regulatory channels (Arizona and New York) and voter-approved
initiatives (Colorado and Washington).4 The federal government has also considered a national
RPS and various bills have been proposed in the US House of Representatives and the US
Senate, but have not been enacted. The proposed American Clean Energy and Security Act of
2009 (ACESA) and American Clean Leadership Act of 2009 (ACELA) would have required
electricity providers to meet a combined renewable energy and energy efficiency standard for
qualifying activities that gradually increased to 20% by 2020.5,6
While RPS policies have proliferated throughout the United States, there are geographic
regions where it is noticeably lacking. These regions are generally more conservative and
maintain a traditional regulatory structure. The Great Plains is one area, but blessed with
abundant wind resources and little native load, states such as Wyoming, South Dakota, and
Kansas can avoid political and regulatory barriers that would otherwise limit renewable energy
growth. These states are able to develop aggressive energy export strategies through state
transmission authorities that attract significant renewable energy investment.7 The South is the
other region, but lacking similar wind potential and needing to supply significant native load, it
is without a similar viable alternative to an RPS. The region must directly address political and
regulatory barriers to stimulate renewable energy adoption.
North Carolina enacted a renewable portfolio standard in 2007, known as the Renewable
Energy and Energy Efficiency Standard (REPS). This was significant because a mandatory
4 Ibid. 5 H.R. 2454. 111th Congress. 6 S. 1462. 111th Congress. 7 Hurlbut, David. “State Clean Energy Practices: Renewable Portfolio Standards.” National Renewable Energy Laboratory. Technical Report: NREL/ TP-‐670-‐43512. July 2008.
3
renewable energy requirement was passed through a state legislature in the South for the first
time and in a region where the electricity market is heavily regulated. North Carolina lead the
way, but other southern states have yet to follow in its path and adopt an RPS.
North Carolina’s state law, Senate Bill 3, overcame significant political and regulatory
barriers to promote a small but promising renewable energy industry in North Carolina. The
provisions in the REPS could be stronger and are more effectively coupled with other policies,
but it has clearly had a positive impact on the energy industry in North Carolina. Given that
North Carolina has similar energy resources as other southern states, North Carolina’s REPS can
serve as a template. South Carolina, in particular, is rich in certain renewable resources and the
business-friendly environment could support a potent renewable energy industry in the state. A
renewable portfolio standard would provide the mandate South Carolina’s electric utilities and
other retailers need to bolster a renewable industry and establish a more sustainable energy mix
for the state.
My client, the North Carolina Sustainable Energy Association (NCSEA), is interested in
the following policy question: Given the impact of North Carolina’s Renewable Energy and
Energy Efficiency Standard (REPS) on the energy industry in North Carolina, what is the
potential for other southern states to adopt a renewable portfolio standard?
To answer this policy question, this paper will analyze the potential for adopting
mandatory renewable portfolio standards in the South and the possible impact that an RPS can
have on a state’s energy industry. After a brief discussion of RPS history, this paper first will
review the electricity industry in the South and identify trends in electricity generation for North
Carolina. Secondly, this paper will assess the initial impact of the North Carolina REPS. Lastly,
4
this paper will assess the potential for North Carolina’s neighbor, South Carolina, to adopt a
renewable standard and recommend a policy framework to enact such a measure. South Carolina
is a state that is typically cautious of government mandates and its electricity market has a
traditional regulatory structure, but there is potential to overcome many of the challenges and
present a renewable portfolio standard as a feasible policy option for South Carolina. The lessons
learned from North Carolina’s REPS policy design and implementation can help to inform South
Carolina and other southern states that consider a similar renewable energy policy.
BACKGROUND – RPS HISTORY
It is often difficult to capture the public benefits of renewable generation through entirely
private-sector investment practices. Therefore, government policies are designed to value these
public benefits and provide the appropriate incentives to develop the industry. A renewable
portfolio standard is a policy mechanism that sets a requirement for electricity retailers to
provide a minimum portion of delivered electricity sales from defined renewable sources. The
primary goals of an RPS include environmental enhancement, economic development, and
greater energy security.8 To achieve these goals, an RPS can contribute to the following
objectives: (1) reduce emissions from carbon dioxide emitting fossil fuel generation sources by
setting a statewide minimum requirement for low emissions energy sources; (2) increase local
employment through local procurement of electricity generation service delivery; and (3)
enhance fuel diversity by setting requirements for investment in specific local energy resources.
Taken collectively, the state renewable standards, which cover more than half of total electricity
8 Hurlbut, David. “State Clean Energy Practices: Renewable Portfolio Standards.” National Renewable Energy Laboratory. Technical Report: NREL/ TP-‐670-‐43512. July 2008.
5
sales in the US, can also enhance environmental, economic, and national security factors for the
US as a whole.
An RPS can be somewhat flexible to a state’s needs in terms of the acceptable level of
compliance costs, qualifying renewable technologies, and other design features. Typically credit
trading is allowed, and banking and borrowing of RECs is accepted within stipulated time
horizons. Regulated utilities are usually allowed to recover any investment costs by passing the
excess costs on to the ratepayer. With retail competition, cost recovery is somewhat less certain,
but costs are typically also transferred to the electricity consumer. Recovery costs are capped at a
specific level to ensure that compliance costs are not overly burdensome to the electric retailer
and ultimately the ratepayer. Procedures can vary by state, but if an electricity retailer claims to
have exceeded the cap, the regulatory authority will review the requirements of the standard
before determining non-compliance. If an electricity retailer is non-compliant and has not
exceeded the cost cap, the retailer can have its electricity license revoked and face monetary
fines. A form of alternative compliance may also be included where an entity can pay a fixed
amount per unit of generation (generally exceeding an average cost of renewable generation)
rather than purchase the requisite renewable generation. The alternative compliance payments
are typically fed into a state renewable energy development fund.
RPS policies first gained traction in the 1990s as states in the West, Northeast, and
Midwest looked to increase renewable generation. By 2006, twenty-one states had enacted
renewable standards. In 2007, for the first time in the South, North Carolina enacted a mandatory
state renewable portfolio standard. As of 2012, twenty-nine states plus the District of Columbia
have adopted a renewable portfolio standard (seven additional states have voluntary standards).
6
Figure 1 below displays the various renewable portfolio standards and renewable energy goals
that have been adopted by states.
Figure 1. States with Renewable Portfolio Standards
Source: Brown, et al. “Renewable Energy in the South.” Southeast Energy Efficiency Alliance. December 2010.
While many of the state requirements are in their early stages or will soon be
implemented, there are encouraging results thus far. According to a National Renewable Energy
Laboratory (NREL) report published in 2008, of the fifteen states that exceeded the national
average for renewable energy as a percentage of overall generation between 2001 and 2007,
eleven states have an RPS: Colorado, Hawaii, Iowa, Maine, Minnesota, Montana, New Mexico,
Nevada, Oregon, Texas, and Washington. The other four states – South Dakota, Oklahoma,
7
Kansas, and North Dakota - are located in the Great Plains region where wind is an abundant
energy resource. These non-RPS states also benefit from an RPS because they can sell renewable
credits to a number of RPS states. Renewable generation, as a percentage of total US generation,
increased from 1.7% to 2.3% between 2001 and 2007.9
Given the brief history of renewable portfolio standards, it is difficult to measure the full
impact of these policies. There have been several studies of the projected costs and benefits of a
state renewable standard. Chen et al. (2007) performed an analysis of the projected impact of the
state policies.10 Wiser and Barbose (2008) provided a comprehensive summary of the various
policy designs of state renewable portfolio standards and policy impacts across the country up to
2007.11 The North Carolina Utilities Commission (NCUC) contracted a study, the La Capra
Report, to evaluate the renewable energy and energy efficiency potential in the state.12 Tuerk et
al. (2009) discussed the potential impact of North Carolina’s renewable standard and the
challenges the industry will face.13 Brown et al. (2010) evaluated the resource potential of
renewable power generation in the South overall.14 These studies conclude that there are
sufficient renewable resources in each state to fulfill renewable generation goals, RPS policies
have been an effective means to stimulate investment in renewable generation while mitigating
9 Hurlbut, David. “State Clean Energy Practices: Renewable Portfolio Standards.” National Renewable Energy Laboratory. Technical Report: NREL/ TP-‐670-‐43512. July 2008. 10 Chen, Wiser, and Bolinger. “Weighing the Costs and Benefits of State Renewables Portfolio Standards: A Comparative Analysis of State-‐Level Policy Impact Projections.” Ernest Orlando Lawrence Berkeley National Laboratory. LBNL-‐61580. March 2007. 11 Wiser and Barbose. “Renewables Portfolio Standards in the United States: A Status Report with Data through 2007.” Lawrence Berkeley National Laboratory. April 2008. 12 “Analysis of a Renewable Portfolio Standard for the State of North Carolina.” La Capra Associates. December 2006. 13 Tuerck, Head, Bachman. “The Economic Impact of North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard.” Beacon Hill Institute. August 2009. 14 Brown et al. “Renewable Energy in the South.” Southeast Energy Efficiency Alliance. December 2010.
8
cost increases to the ratepayer, and the La Capra report ensured North Carolina policymakers
that a renewable portfolio standard was feasible for the state.
The previous literature evaluated the benefits of RPS policies, examined general
attributes of successful programs, and identified certain differences across RPS states. However,
there has yet to be a specific assessment of the initial impact of North Carolina’s renewable
standard and the potential for expansion in the South – a region with the greatest barriers to
renewable energy adoption. We now turn in more detail to the southeast region and analyze the
initial impact that the North Carolina REPS has had on the state energy industry. The goal is to
build a template from the successful provisions within the REPS to inform other southern states
as they consider a similar policy.
1. ELECTRICITY GENERATION IN THE SOUTH
An RPS in the South likely will look different than renewable standards elsewhere based
on its differing characteristics. The US South15 consumes more energy per-capita than the US
average and is heavily reliant on fossil fuel generation. The warm summer temperatures and low
retail electricity rates have made the region a large consumer of electricity. In 2008, the South
accounted for 44% of US energy consumption, while its share of total population in the country
15 By US Census region, includes: Alabama, Arkansas, District of Columbia, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia
9
is only 36%.16 Coal dominates electricity generation in the South, accounting for nearly 54% of
generation in 2008 – 3% higher than the US average.17
Contrary to other regions in the US that have pursued electricity deregulation, the
electricity market in the South remains centrally controlled by state regulatory commissions and
vertically integrated utilities. Vertically integrated utilities sell the electricity to the final
consumer and own the generation that produced it, transmission facilities to transport it, and the
distribution network to deliver it to consumers.18 In a wholesale market, the transmission
network is operated by an independent entity and distribution companies buy power in a
competitive market for customers.19 The region has not developed a regional transmission
organization (RTO) or an independent service operator (ISO), so much of the investment and
procurement decisions remain within the state and its respective utility commission. See
Appendix 2 for a US map of regional electricity transmission authorities. The structure of the
electricity market in the South appears to influence the development of renewable standards in
the region. Figure 2 below illustrates the predominance of electric utilities in the South and the
relative lack of renewable portfolio standards in the region.
16 Brown et al. “Renewable Energy in the South.” Southeast Energy Efficiency Alliance. December 2010. 17 Ibid. 18 Wolak, Frank. “The Benefits of an Electron Superhighway.” Policy Brief. Stanford Institute for Economic Policy Research. November 2003. 19 Ibid.
10
Figure 2. States with the highest electricity generation by utilities
Rank StateNet)generation)by)utilities)(MWh)
Total)retail)sales)(MWh)
Net)generation)(MWh) State)RPS?
1 Florida* 206,062,185 231,209,614 229,095,935 No2 Alabama* 122,766,490 90,862,645 152,150,512 No3 N..Carolina* 121,251,138 136,414,947 128,678,483 Yes4 Georgia* 120,425,913 140,671,580 137,576,941 No5 Indiana 107,852,560 105,994,376 125,180,739 No6 S..Carolina* 100,610,887 82,479,293 104,153,133 No7 Kentucky* 97,472,144 93,569,426 98,217,658 No8 California 96,939,535 258,525,414 204,125,596 Yes9 Texas 95,099,161 358,457,550 411,695,046 Yes10 Ohio 92,198,096 154,145,418 143,598,337 Yes
*State.in.southeast.region.of.USSource:.EIA.State.Electricity.Profiles,.2010
US)States)with)Largest)Electricity)Generation)by)Utilities
According to Hurlbut (2008), the regulatory environment within a state “affects how an
RPS is implemented, but need not constrain what it can accomplish.”20 There is simply greater
utility influence when designing incentives for renewable generation in regulated markets. The
electricity generation infrastructure is owned and operated by a limited number of large,
vertically integrated energy companies. Since these companies control the generation and
distribution assets, they are likely reluctant to support policies that jeopardize their infrastructure
control, require purchases from intermittent resources, and threaten their low-cost mandate to
their customers. While these electric utilities can own and operate the renewable facilities, it may
often times be more cost-effective to purchase the renewable generation. Therefore, these issues
must be addressed when designing renewable policies in these regulated electricity markets.
20 Hurlbut, David. “State Clean Energy Practices: Renewable Portfolio Standards.” National Renewable Energy Laboratory. Technical Report: NREL/ TP-‐670-‐43512. July 2008.
11
North Carolina was able to overcome these regulatory barriers and enact a renewable
standard in the state heavily dominated by electric utilities and in a region that has continued to
rely on fossil fuel resources for its energy needs. The analysis will now turn to greater details
about North Carolina’s electricity profile and evaluate how the regulatory barriers were
overcome to implement the renewable energy policy.
North Carolina’s electricity profile and clean energy activities
North Carolina has an electricity generation mix that is similar to most other southern
states. It is a state that relies on coal, nuclear power, and natural gas for the majority of its
generation needs. In order to enact a renewable standard, North Carolina needed to account for
the market structure of its electricity generation industry, and its current electricity generation
mix.
As of 2009, North Carolina consumed 128 million megawatt hours of total electricity
retail sales, ninth highest of US states. The top five electricity retailers in the state generated the
following portions of total retail sales: Duke Energy – 42%, Progress Energy – 29%, Dominion
Power – 3%, Energy United Cooperative – 2%, and Fayetteville Public Works – 2%. Duke
Energy and Progress Energy own the majority of power generating assets and influence any
significant investment in power generation resources in the state.
The electricity generation mix is based primarily on fossil fuels and nuclear power. As of
2010, hydroelectric power and biomass resources combined contribute more than 5% of net
generation. Distillate fuel (oil), landfill and waste gas, and solar power contribute fractions of a
percentage. Figure 3 below illustrates the energy mix within North Carolina:
12
Figure 3. Net Generation (MWh) in North Carolina 2010
Source: US Energy Information Administration, EIA-‐923 data
While fossil fuels and nuclear power maintain a strong presence, there is an interesting
trend developing in the state. In five years, coal generation has decreased, while natural gas and
various renewable sources have significantly increased. Figure 4 below illustrates that change in
generation between 2006 and 2010. While renewable sources are increasing, wind generation is
still not part of North Carolina’s electricity generation mix.
13
Figure 4. Sources of Electricity in North Carolina, 2006 and 2010
Fuel%Type 2006 2010 Percent%change,%200662010Coal 75,487,005 71,951,214 .4.68%Nuclear 39,963,184 40,739,529 1.94%Natural9Gas 3,195,563 8,447,237 164.34%Hydroelectric 3,970,354 4,756,549 19.80%Biomass 1,736,565 1,933,165 11.32%Oil 515,810 321,752 .37.62%Landfill/9Waste9gas 74,205 138,636 86.83%Solar 0 11,340 complete(growth(since('06Total(generation 124,942,685 128,299,422 2.69%
Electricity%Net%Generation,%North%Carolina%(MWh)
Source:(US(Energy(Information(Administration,(EIA@923(data
The growth of biomass, landfill and waste gas, and solar generation should be an
encouraging sign of modest success in the state’s renewable energy sector. According to the
North Carolina Sustainable Energy Association’s (NCSEA) 2011 industries census, North
Carolina’s clean energy (renewable and energy efficiency) sector includes 1,084 active
businesses and 14,800 full-time employees, an 18% growth since 2010.21
Within the industry, the energy efficiency segment has the highest employment levels,
followed by the solar, geothermal, and wind segments. According to the survey, a growing
number of industry respondents stipulated that the state regulatory structure was of growing
importance to the clean energy sector, as over 75% of respondents believed it was “important” or
“very important.”22 The analysis will now focus specifically on the REPS bill and evaluate the
impact it has had on the energy industry in North Carolina.
21 Quinlan and Crowley. 2011 North Carolina Renewable Energy & Energy Efficiency Industries Census. North Carolina Sustainable Energy Association. November 2011. 22 Ibid.
14
Overview of North Carolina REPS
The North Carolina REPS bill was passed in the General Assembly in 2006 and enacted
in 2007. The passage of the bill proved it was possible to pass a renewable standard in the South.
It also demonstrated that a utility-dominated state is capable of adopting a renewable standard.
As noted above, Duke Energy and Progress Energy accounted for 72% of retail sales in 2010 and
North Carolina ranks third amongst states in electricity generation by utility companies.23
The REPS requirements are implemented on a bi-annual step scale. A solar set-aside
(0.02% of electricity retail sales) is required in 2010. The comprehensive renewable energy
requirement is set to begin at 3% of retail sales in 2012 and increase gradually until it reaches
12.5% in 2021. Specifically, publicly owned utilities must meet the 12.5% requirement while
municipal utilities and electricity cooperatives must reach only 10% of retail sales. The other two
set-aside requirements, hog waste (ultimately 0.02% of electricity retail sales) and poultry waste
(ultimately 900,000 MWh), begin in 2012.
To help meet the requirements, energy efficiency measures can be used to meet 25% of
the standard (increasing to 40% after 2021). Additionally, 25% of the standard can be met
through the purchase of out-of-state renewable energy certificates (RECs). It is also worth noting
actions against non-compliance are not specified in the REPS and there is no alternative
compliance mechanism. Most other RPS states have specific procedures to treat non-compliance.
See Appendix 1 for additional details about the REPS.
The passage of the REPS was a significant achievement for North Carolina. It sent a
signal to the renewable energy industry that the state was willing and determined to invest in the
23 EIA State Electricity Profiles. North Carolina.
15
renewable resources. However, the optimism in the renewable energy industry was countered by
stern opposition that predicted dire consequences. A Beacon Hill Institute report predicted that
North Carolina will shed 3,592 jobs by 2021 and ratepayers will face exceedingly high electricity
prices as a result of the law.24 This analysis will now evaluate the initial impact that the North
Carolina’s REPS has had on the energy industry and provide evidence that the REPS bill has so
far been counter to the alarming forecasts.
2. OBSERVATION OF NC REPS IMPLEMENTATION
North Carolina has been a leader of energy and environmental policy in the South. In
2002, the NC General Assembly enacted the Clean Smokestacks Bill (SB 1078), which requires
significant emissions reductions (77% nitrogen oxide by 2009 and 73% sulfur dioxide by 2013)
from coal-fired power plants in the state.25 The state has also utilized tax expenditures to
facilitate cleaner energy use in the state. Since 1977, North Carolina has offered a generous
corporate renewable energy tax credit, up to 35% of project costs, which has incentivized
renewable installation.26 The REPS bill was yet another step taken by the state to diversify its
electricity generation mix and further develop a burgeoning industry. As noted above, the bill
was designed with state-specific needs and interest groups in mind, so evaluating the impact of
the REPS will help to determine the viability of RPS policies in the region and the potential for
future expansion in other states.
24 Tuerck, et al. “The Economic Impact of North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard.” Beacon Hill Institute. August 2009. 25 North Carolina Department of Environment and Natural Resources, Division of Air Quality. Retrieved from: http://www.ncair.org/news/leg/. 26 Database of State Incentives for Renewables and Efficiency (DSIRE). Retrieved from: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=NC19F&re=1&ee=1
16
To evaluate the impact the REPS has had on the energy industry, I researched REPS
proceedings, utility commission reports, news articles, and energy forecasting reports.
Additionally, I conducted interviews of stakeholders within the state’s energy industry to further
inform research findings and provide various industry perspectives. Relevant insights about the
progress and impact of the REPS law were collected. As part of the interview, certain questions
were directed to specific aspects of the bill, while other questions were more general in nature.
Nearly all interview responses were positive, but there were differing views as to the
degree of the policy’s success. Each interviewee recognized unique aspects of North Carolina
that had to be incorporated into the bill and the need for compromise to enact the bill into law.
Overall, 13 interviews were conducted. The responses provided an informative summary of the
impact of the REPS. Below are observations of the initial impacts of the bill that were gathered
from interviews with industry participants and additional industry research.
Structure of the REPS
Most importantly, the requirements of the REPS give the electric utilities the requisite
statutory authority to purchase and invest in renewable generation. An industry participant
emphasized the legal obligation of the utilities to its customers - that it must provide energy in a
“prudent and reasonable” manner. Without the statutory authority, the utility companies are
directed by the public utility commissions to purchase electricity from low-cost energy sources.
The REPS allows these companies to purchase something other than the lowest-cost energy,
while also creating greater certainty in the electric market. Additionally, the utilities are given
clear expectations about acceptable levels of renewable generation through 2021.
17
While the North Carolina electricity retailers are expected to meet the overall mandates,
the long-term plans by at least some utilities are not developed yet. One industry participant
believes that the utility companies do not have an “exact vision” as to how it will meet the
mandates in the later years and that “not everything is lined up yet.” This uncertainty is not
necessarily a detriment. It forces utilities to discuss and evaluate renewable investments on an
annual basis. Since the REPS requirements are tied to each year’s annual retail sales, the utilities
must meet a continually changing standard. In contrast, the voluntary renewable portfolio
standard in Virginia is fixed on 2007 base levels, which makes resource planning easier, but such
a fixed level implies a lower actual share of renewable generation as electricity use rises.
It is a difficult task to set appropriate levels for a renewable standard and the final levels
are often based on conservative projections of renewable potential. According to a Lawrence
Berkeley National Laboratory report, nearly all of the renewable standards that were enacted in
the 1990s have been revised, typically to strengthen the requirement. No RPS has yet to be
repealed by later legislative action. See Appendix 3 for a timeline of state renewable standard
implementation and revisions. Each state must account for its energy resources and the political
dynamics in the state. Some states such as California (33% renewable generation by 2020) and
New Jersey (22.5% renewable generation by 2021) are able to set high expectations and send a
clear signal to the energy industry. North Carolina needed to establish requirements that were
politically feasible and amenable to the large utilities.
18
Specific, minimum REPS requirements
To date, the solar minimum requirements have established a solar presence within the
industry, while the poultry and hog waste provisions have been slow to develop and have not met
industry expectations. While there is some sentiment from renewable developers that the
potential of the North Carolina solar industry is much greater and would benefit from a higher
standard, there is a near consensus from the respondents that the solar set-aside is achievable and
that it has helped spur investments in a nascent solar industry. One industry participant asserts
that Duke Energy has blown the solar requirement “out of the water.”
Figure 3 above shows the presence, albeit small, that solar power has in the state (0.009%
of total retail generation in 2010). The REPS law has triggered the local investment. In 2011,
Duke Energy acquired three (1 MW) solar farms in North Carolina and now owns seven solar
facilities in the state.27 According to a Progress Energy representative, the company has chosen a
different approach than Duke Energy – opting to purchase renewable credits from outside the
company rather than invest in renewable assets. Regardless, Progress Energy fully expects to
meet the solar requirements.28
There is greater concern about the hog and poultry waste-to-energy requirements. In the
2011 NCUC REPS Status Report, both Duke Energy and Progress Energy expressed significant
concerns about meeting the hog and poultry set-asides. A hog waste-to-energy system is a type
of anaerobic digester that converts the energy stored in the hog manure into biogas. The biogas
can then be fed directly into a gas-fired combustion turbine.29 Poultry litter can be fed directly
27 “Duke Energy Renewables Acquires Three N.C. Solar Farms.” Press Release. Duke Energy. Nov. 15, 2011. 28 2011 NCUC REPS Status Report 29 “Anaerobic Digestion and Bio-‐Gas.” Midwest Rural Energy Council. Retrieved from: http://www.mrec.org/anaerobicdigestion.html
19
into the combustion turbine. Harvesting the energy is currently too expensive for farmers to
shoulder alone.30 One hog waste-to-energy farm in North Carolina, Lord Ray Farms, is building
a 65-kilowatt micro-turbine that will cost $1.2 million. The project has attracted Duke
University, Duke Energy, and Google as investors.
While hog waste projects are slowly developing, a source within the renewable industry
was disappointed with the progress of the hog and poultry minimum requirements (commonly
termed “set-asides”). The set-asides were designed with input from both the industry and the
utilities, but both sides have apparently grown apart since the REPS was enacted. The poultry
waste-to-energy projects are even further behind the hog waste projects.
Another industry participant noted the benefits of using a “state commodity” to meet
energy needs while also reducing environmental risks from poultry and hog waste. Besides self-
interest, these diverging views likely reflect the emerging economics of digester technology and
views about North Carolina’s role in promoting them. Jay Lucas, an engineer with the NCUC
Public Staff, acknowledges that this “one-state technology push” has yet to get off the ground.31
The concerns with the minimum requirements might also be an issue of timing. A new
industry, such as hog and poultry waste energy generation, needs time to reach commercial scale
development. The solar requirement has been successfully tested in a number of other states,
while the hog and poultry requirements were implemented for the first time in North Carolina.
North Carolina can play a critical role in developing this new technology that can then be applied
in other states. For one industry participant, the situation suggests a trade-off: there can be a
balance between investing ratepayer’s money in proven technologies and testing new, scalable
30 Henderson, Bruce. “Alternative energy in N.C.: Pig waste proves powerful.” Charlotte Observer. Oct. 27, 2011. 31 Murawski, John. “Waste to electricity push lags.” Charlotte Observer. March 9, 2012.
20
technologies. Further, the participant added “I think it’s good to test this stuff. What if it can be
an advantage for North Carolina? And then the technology can be shared with similar markets
such as Iowa.”
While it is evident that each electricity retailer subject to REPS is having difficulty
meeting the 2012 set-aside requirements, there is greater optimism about meeting expectations in
later years. Duke expects to meet the hog waste requirement in 2013.32 Six hog farms in North
Carolina have converted to waste-to-energy systems. Fibrowatt, a company based in
Pennsylvania, has invested more than $1 million in an attempt to build a poultry waste-to-energy
facility in North Carolina.33 Meanwhile, the number of waste-to-energy systems is growing every
year – with 162 digester systems on US farms producing 435,000 megawatt hours of electricity
and reducing methane emissions by 51,000 metric tons in 2010.34 Farms are installing digesters
to help meet their waste storage and energy needs. This may only be the beginning as
approximately 15 systems come on line each year, and there are 8,200 eligible dairy and hog
farms nationwide.
Alternatives to in-state renewable energy generation
Half of the REPS obligations can be met through energy efficiency programs and out-of-
state renewable credits. While the alternative measures may appear to weaken the in-state
mandate for renewable generation, they do provide a low-cost alternative to electricity retailers
that still serve to support emissions reduction goals. These two components were critical factors
32 Murawski, John. “Waste to electricity push lags.” Charlotte Observer. March 9, 2012. 33 Ibid. 34 “U.S. Farm Anaerobic Digestion Systems: A 2010 Snapshot.” US Environmental Protection Agency. Retrieved from: http://www.epa.gov/agstar/documents/2010_digester_update.pdf
21
to the passage of the REPS at its specified level, and they were strongly supported by the state’s
large energy companies. The public utility companies are able to develop low-risk energy
efficiency programs that are under their control, while the out-of-state credits allow the utilities
to purchase low-cost renewable generation credits and stay informed about projects in other
energy markets. These measures are discussed below.
Energy efficiency programs are frequently paired in some way with renewable energy
standards. Nevada and Hawaii are two other states that include energy efficiency provisions
within their state RPS.35 Other states including Colorado, Connecticut, Illinois, Minnesota, New
Jersey, New Mexico, Pennsylvania, and Texas have established separate energy efficiency
programs that are in addition to the renewable energy standards.36 A North Carolina industry
participant emphasized the benefits of including the energy efficiency option, stating that energy
efficiency is the least expensive manner in which to meet the REPS requirements. The
participant cites the fact that the cost to reduce electricity by one megawatt hour through energy
efficiency is a much lower cost than adding a megawatt hour of renewable energy. There is also
a large presence of energy efficiency companies in the state that has grown since the REPS was
implemented. According to the 2011 North Carolina Sustainable Energy Association survey, the
energy efficiency segment is the largest segment within the industry.
Since the REPS was enacted, both Duke Energy and Progress Energy have developed
residential, commercial, and industrial energy efficiency programs. Through the Smart Saver
program that provides purchase incentives for lighting and HVAC equipment and five other
energy efficiency initiatives, Duke Energy claims to have displaced 745,000 megawatt hours, the
35 Wiser and Barbose. “Renewables Portfolio Standards in the United States: A Status Report with Data through 2007.” Lawrence Berkeley National Laboratory. April 2008. 36 Ibid.
22
equivalent of 1,700 MW of capacity.37 Progress Energy claims to have reduced demand by
224,000 megawatt hours through its seven energy efficiency programs that have been launched
in the past four years.38
The cost of energy efficiency programs is small, but sometimes the benefits of reduced
energy consumption can be overstated. According to the 2006 La Capra Associates report, there
was concern that the “measurement of energy efficiency savings for RPS compliance purposes
can be difficult” and that there is potential for claimed savings to include some improvements
already included in industry forecasts of energy demand.39 One respondent asserted that meeting
the energy efficiency allotment is “pretty easy to meet and pretty painless.” The respondent
believed that the way of measuring energy efficiency is misleading. For instance, once a
megawatt hour is saved, it is considered saved into perpetuity. You can therefore create a stream
of energy efficiency credits (i.e. if a customer is provided an energy efficient light bulb one year,
the energy provider can assume it will be used every year thereafter). If the consumer was
expected to adopt such light bulbs in the future in any case, those future savings are already built
into the utilities energy demand forecast.
While the actual benefits to ratepayers may be disputed, there are clear benefits to the
electricity retailers even beyond their low cost. The REPS stipulates that energy efficiency
programs will be managed by the respective public utilities, municipal utilities, and cooperatives.
Therefore, according to one industry participant, they are “dealing with their own assets.” Many
of the renewable projects are not operated by the utilities. It is perhaps no surprise that this
37 Duke Energy website. Retrieved from: http://www.duke-‐energy.com/north-‐carolina-‐large-‐business/energy-‐efficiency/nclb-‐energy-‐efficiency-‐plan.asp 38 Progress Energy Integrated Resource Plan. Appendix E. 2011. 39 “Analysis of a Renewable Portfolio Standard for the State of North Carolina.” La Capra Associates. December 2006. Pg. 49.
23
option is popular with utility companies. One participant in the energy efficiency industry that
works with utilities on program implementation observed that there has been “noticeable growth
in the past 4 years.”
The energy efficiency provision elicited some of the stronger reactions for and against its
inclusion within a renewable standard. By including this alternative, some argued the effective
renewable generation requirement had been significantly reduced. These industry participants
argued that without the standard the renewable requirements would be much greater. However,
were energy efficiency not included, the overall renewable requirements may have been merely
set at a lower level. Therefore, it is unclear whether renewable generation has been constrained at
all by the energy efficiency provisions.
On the other hand, the energy efficiency programs provide greater flexibility and are
typically implemented at a much lower cost than renewable generation, so it can mitigate fears of
significant program costs as a result of a renewable standard. The 2006 La Capra Associates
report estimated that the energy efficiency provision would reduce REPS program costs by
14%.40 The provision also provides incentives for energy reduction research and program
development.
Another alternative to the general renewable generation requirements, out-of-state
renewable energy credits (RECs), also gives North Carolina electricity retailers greater flexibility
when planning for REPS compliance. The availability of these credits reduces the cost of the
REPS requirements, but also requires less in-state renewable energy industry growth. Electricity
retailers with more than 150,000 customers in North Carolina can meet 25% of their
40 “Analysis of a Renewable Portfolio Standard for the State of North Carolina.” La Capra Associates. December 2006. Pg. 50.
24
requirements through out-of-state RECs. Other retailers (representing no more than 5% of state
generation) can obtain an unlimited amount of their RECs from out-of-state renewable energy
suppliers to fulfill the REPS requirements. For example, Dominion Power, North Carolina’s
third largest retailer in North Carolina, has thus far met its entire REPS requirement through out-
of-state requirements.
All states with an RPS have certain geographic eligibility and electric delivery
requirements that define their renewable energy credits. North Carolina is the only state to set a
specific maximum level of “unbundled” RECs from outside of the state.41 According to the
Lawrence Berkeley National Laboratory report, other RPS states, mostly states within regional
transmission authorities, are able to purchase RECs generated in other states that are theoretically
delivered to the state along shared transmission lines “bundled” with actual generation. To meet
REC eligibility requirements, states such as Nevada, Texas, Arizona, California, Montana, New
Mexico, New York, and Wisconsin stipulate that electricity must be delivered to the state or load
serving entity (LSE). Other states such as Delaware, Maine, New Jersey, Connecticut, District of
Columbia, Massachusetts, Maryland, New Hampshire, and Rhode Island (states largely within
the PJM and New England ISO territories) require that the renewable generation credit can only
be applied to generation delivered to the region. Illinois provides a cost-effectiveness test so that
unbundled out-of-state RECs can be purchased if an in-state purchase is not financially viable.
North Carolina could not rely on a regional transmission authority to deliver renewable
generation to the state, so a provision was included in the REPS to allow for a certain amount of
lower cost generation to be purchased outside state boundaries, with no requirement that credited
electricity generation actually be delivered to the state.
41 Wiser and Barbose. “Renewables Portfolio Standards in the United States: A Status Report with Data through 2007.” Lawrence Berkeley National Laboratory. April 2008.
25
One industry participant in North Carolina stated that there are two purposes behind the
out-of-state provision. First, this mechanism lowers the cost of the REPS and therefore the
impact on customers. Second, it allows utilities to stay in touch with the national renewables
market. The utilities can help support renewable projects across the country and stay informed of
projects and technology trends elsewhere. Due to this provision, the repondent mentioned that a
utility is able to support promising, cost-effective projects across the country. Another repondent
said it is a “balancing act” that makes the REPS requirements “as affordable as possible.” The
manager further added that this provision could actually help local businesses by forcing
competition and leading to cheaper prices in the long run.
The view from the in-state renewable community differs from the utility perspective. One
participant asked “what is the benefit of spending our tax money out of state?” The participant
further added that this “doesn’t create jobs in North Carolina.” Other industry participants called
this a “bad provision” and “way overkill.”
While this clause reduces the homegrown nature of the bill, it is another mechanism to
reduce costs of the REPS while also reducing emissions from carbon dioxide emitting power
plants - one of the main goals of a renewable standard. One industry participant emphasized that
the out-of-state provision provides greater flexibility to manage the electricity retailer’s
renewable portfolio, which is important for ratepayers and cooperative members. It is also is a
financing tool for renewable programs across the country. The REPS has not brought substantial
wind development to North Carolina, but according to one industry participant, it has enabled the
utility companies in North Carolina to invest in wind generation in Texas, where the costs are
almost down to 10 cents per megawatt hour.
26
Ensuring REPS compliance
Concerning RPS policies, debate continues over how strictly to enforce compliance, what
the maximum costs to develop the renewable industry should be, and who should bear those
costs. It is a balance to provide sufficient oversight while also maintaining an efficient market.
Duke Energy was concerned about the “availability and costs” associated with the procurement
of renewable generation when the renewable standard was being proposed in North Carolina.42
The North Carolina Farm Bureau Federation was “deeply concerned about the negative impact
of rising energy costs” as a result of the REPS implementation.43 These comments from
influential organizations in the state likely reduced the severity of non-compliance of the REPS
requirements. Nearly all RPS states have an alternative compliance payment (ACP) mechanism
(a predetermined payment per megawatt of non-compliance) or explicit financial penalties, only
North Carolina and New Mexico have unspecified compliance procedures administered by the
state’s public utility commission.44
Fears of rising costs to ratepayers as a result of renewable standard implementation have
thus far been unfounded. According to a Lawrence Berkeley National Laboratory report, the
highest estimated electricity rate impact has been 1.1% in Connecticut, while most rate impacts
have been below 0.5%.45 To further protect North Carolina ratepayers, there is a cost cap on the
42 Comments of Duke Energy Carolinas. “Notice Announcing the Avilability of an Analysis of a Renewable Portfolio Standard for the State of North Carolina and Request for Public Comment.” North Carolina Utilities Commission. January 19, 2007. 43 Sherman, M. Paul. Letter to North Carolina Utilities Commission. Comments of North Carolina Farm Bureau Federation. January 19, 2007. 44 Wiser and Barbose. “Renewables Portfolio Standards in the United States: A Status Report with Data through 2007.” Lawrence Berkeley National Laboratory. April 2008. 45 Ibid.
27
effective retail rate increase of 1.9% in the REPS statute. Therefore, it would make sense to
impose explicit non-compliance measures, given that ratepayers are already protected from
sudden rate increases.
For example, five northeastern states including Massachusetts, Maine, New Hampshire,
New Jersey, and Rhode Island have established ACPs with payments applied to a renewable
energy fund. If North Carolina had such a fund, it could be used to support the under performing
hog and poultry waste-to-energy industry. The fund could be administered by the North Carolina
Public Utilities Commission to incentivize pilot projects for the new technologies. The shortfalls
in REC requirements have been fully met through alternative compliance payments in
Massachusetts and New Jersey.46 In 2006, $18.2 million was paid in the form of ACPs that went
to respective renewable energy funds administered by the state.47
While an ACP intuitively provides the electricity retailers with yet another option to
avoid paying for renewable generation, it provides for a transparent debate about the appropriate
cost of the RPS. It can be set at a high enough rate to ensure investment in financially viable
projects and set expectations for project costs of early stage, newly developed energy
technologies. It can also be set low enough to protect consumers. Pennsylvania included an ACP
in its Alternative Energy Portfolio Standard at $45 per megawatt hour for non-compliance.48
New Jersey implemented an ACP in its Renewable Portfolio Standard at $50 per megawatt hour.
While setting a maximum price for renewable generation, an ACP also reduces the costs
of enforcement action and administrative burden. In the case of North Carolina, an ACP could
help resolve the case of early stage non-compliance in hog and poultry waste set-asides by 46 Ibid. 47 Ibid. 48 http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=PA06R&RE=1&EE=1
28
setting a clear maximum price per megawatt hour that the utilities would agree to pay and the
producers would need to provide in order to meet the standard. There are a number of provisions
that protect electricity retailers and ratepayers from potentially high costs of renewable energy
procurement, but some of these provisions can be better designed to be more transparent and to
benefit the renewable industry as well.
Coordination with renewable energy tax expenditures
A renewable portfolio standard establishes a minimum requirement for renewable
generation, but other policies can help provide incentives that make renewable investments more
attractive and beneficial. Historically, federal and state governments have used income-tax
credits as one of the predominant tools to stimulate investment in renewable energy
technologies.49 The tax credit is often not the motivating factor influencing investment decisions,
but it often helps to “seal the deal.”50 The North Carolina renewable energy tax credit is limited
in size, but the policy along with the renewable portfolio standard eases the burden of renewable
energy compliance.
There were a number of comments from industry participants about the role the energy
tax credit plays alongside the REPS. The state of North Carolina provides a corporate tax credit
equal to 35% of eligible renewable energy property constructed, purchased, or leased by a
taxpayer and placed into service in North Carolina.51 Along with the federal business energy
49 Gouchoe et al. “Case Studies on the Effectiveness of State Financial Incentives for Renewable Energy.” National Renewable Energy Laboratory. September 2002. 50 Ibid. 51 Credit must be taken in five equal installments and may not exceed 50% of taxpayer state’s tax liability. http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=NC19F&re=1&ee=1
29
investment tax credit (ITC),52 there is a significant discount on renewable investment in the state.
Several industry participants that were interviewed believe this sets North Carolina apart in the
region. The tax credit coupled with the REPS provides a viable subsidy and a mandate for the
state renewable industry.
There are, however, constraints associated with the tax credit. A National Renewable
Energy Laboratory report found the percentage of project costs eligible for a tax credit in North
Carolina are “adequate to stimulate interest”, but the 50% cap on tax liability “may reduce the
effectiveness of the incentive.”53 The tax credit could also be more flexible to attract a broader
range of investors. According to one renewable industry participant, currently in North Carolina
the federal tax equity and the state tax equity cannot be separated (i.e. one party cannot supply
the federal tax equity while another party supplies the state tax equity). Furthermore, it is
difficult to find companies in North Carolina with sufficient tax equity to fund scalable
renewable projects. The industry participant asserts that the federal and state tax equities should
have the option to be split between two separate funding entities and tax equity streams.
As of March 2012, twenty-four states offer renewable energy tax credits, including the
following southern states: North Carolina, South Carolina, Georgia, Kentucky, and Louisiana.54
See Appendix 4 for a US map of states that offer tax credits for renewable projects. One
renewable industry participant suggested the Louisiana corporate tax credit for solar and wind
energy systems as a model. This credit allows for a 50% credit for the first $25,000 of the cost of
52 30% credit for solar thermal and solar electricity, fuel cells, and small wind turbines (less than 100 kW). 10% credit for geothermal systems, microtrubines (up to 2 MW), and combined heat and power (CHP). Additional information: Business Energy Investment Tax Credit. http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F 53 Gouchoe et al. “Case Studies on the Effectiveness of State Financial Incentives for Renewable Energy.” National Renewable Energy Laboratory. September 2002. 54 Tax Credits for Renewables. Database of State Incentives for Renewables and Efficiency. www.dsire.org.
30
each energy system. There is not a limit based on tax liability and, in fact, any excess funds
beyond the taxpayer’s liability will refunded to the taxpayer. A report by the Bipartisan Policy
Center also suggested that a similar “refundable tax credit” could be a beneficial reform to the
current federal renewable tax credit. The refund could be issued in the form of a loan that is paid
back once the project generates taxable income.55
The viability of the North Carolina corporate renewable tax credit has increased since the
adoption of the REPS. In 2005, the North Carolina Department of Revenue estimated the cost of
the renewable tax credit to be between $2-5 million.56 In 2011, the tax expenditures were valued
at $6.3 million.57 The sluggish economy in recent years makes the tax expenditures even more
significant. This growth provides evidence that investment is increasing in the state.
Summary of REPS findings
The requirements of the REPS have proven to be reasonable as both Duke Energy and
Progress Energy are optimistic that they will meet the overall requirements. While the REPS can
be strengthened in later years, it appears the escalating requirement through 2021 has been
appropriately set to pass the main hurdle: enacting legislation.
The state’s electricity retailers have easily met the solar set-aside requirements, but are
struggling to meet the hog and poultry set-asides. Since North Carolina is the first state to
support these technologies through a renewable standard, it is facing high initial costs. However,
there are projects coming on line and the utility companies are partnering with private companies
55 Mackler, Sasha. “Reassessing Renewable Energy Subsidies.” Bipartisan Policy Center. Issue Brief. March 22, 2011. 56 North Carolina Biennial Tax Expenditure Report. 2005. 57 North Carolina Biennial Tax Expenditure Report. 2011.
31
to invest in these new and promising technologies. North Carolina has the potential to be the first
state to adopt these new renewable energy generators and it can benefit from sharing these
advancements to other states.
The energy efficiency provision was critical for the bill to pass through the legislature,
but there were actions that could have been taken to improve its credibility. As mentioned above,
the manner in which future energy reductions are calculated could be more precise and realistic.
This should avoid double-counting and overly optimistic adoption behaviors of energy efficiency
technologies.
The out-of-state credit option is another provision that is based on the reality of North
Carolina’s electricity market. North Carolina is a traditionally regulated state and part of a
traditionally regulated region, so regional coordination on clean energy policies is more difficult
than other areas in the country. An alternative policy could limit out-of-state REC purchases to
the southeast region, so that the local ratepayer benefit and job opportunities have greater
emphasis in this portion of the REPS.
Actions against REPS non-compliance are not specified in the law, and this has hampered
some aspects of the policy. A mechanism such as an ACP would set an acceptable price for
renewable generation. This would ease administrative burdens and resolve some of the disputes
between the utility companies and those involved with the hog and poultry waste-to-energy
projects.
Despite positive signs, the impact of the tax credits is somewhat constrained. As
mentioned above, the state legislature should consider the decoupling of the federal and state tax
credits to increase investor options. Such a policy would attract greater investment into the state.
32
Other state action could aim to increase the tax liability cap (currently 50% of tax liability) to
encourage greater investment. This reform would likely increase the costs of the tax credit, but it
will also provide the benefits of less-constrained investment in the energy industry. The
increased investment would likely stimulate job growth within the energy and innovation
industries that would likely outweigh the increased cost to the taxpayer.
North Carolina has provided a very relevant example as to how a renewable standard
coupled with other incentives can be implemented in a southern state. While it is not perfect, it
has proven to be an effective policy tool to stimulate a small renewable industry in the state.
Now the analysis will turn to applying these lessons to other southern states.
3. EXPANDING THE REPS TO OTHER SOUTHERN STATES
The southeastern region in the US is largely a regulated electricity market that operates
without a regional transmission organization. Throughout the South, vertically integrated utilities
dominate the electricity generation profile of each state. Therefore, utility company support will
be critical to enacting any similar renewable energy policy. See Appendix 2 for additional
information about the regulatory profile of the South.
The South relies heavily on fossil fuel and nuclear energy generation and this affects
politics and policymaking in the region. In response to a proposed national renewable standard,
Senator Lindsay Graham of South Carolina said “From my part of the country, that’s a bad
proposal because it doesn’t acknowledge nuclear power as being a low, carbon-free source of
33
energy, and it disadvantages nuclear power”.58 This sentiment is especially true in South
Carolina. At a recent conference on South Carolina’s Energy Economy, George Fletcher,
Executive Director of the South Carolina Council on Competitiveness identified nuclear power
as a critical component to the growth of his state’s energy economy.59
While there are challenges to expanding state renewable standards, there are also
opportunities. The region has a number of states with pro-business, right-to-work policies. Its
low corporate tax rates and incentive structures have attracted notable manufacturing companies
such as BMW, Honda, and Boeing. There are also renewable energy projects under way. BMW
Manufacturing Co. won an EPA award for its 11-megawatt landfill gas-to-energy project at its
plant near Spartanburg, South Carolina. According to report to the South Carolina Energy
Advisory Council, the state has significant renewable resources such as (capacity in parenthesis):
offshore wind (3,300 MW), solar photovoltaic (850 MW), landfill gas (12.1 MW), and wood
biomass (317 MW).60
South Carolina, like North Carolina is a regulated electricity market with a strong utility
presence. In 2010, South Carolina Electric & Gas Company accounted for 22,921,978 megawatt
hours in electricity retail sales while Duke Energy had 21,703,078 megawatt hours, the two
companies combined accounted for 54% of retail sales in South Carolina.61 The energy industries
in both North Carolina and South Carolina are dominated by vertically integrated utilities that
58 Howell, Katie. “Sen. Graham’s Plan for Clean-‐Energy Bill Could Drain RES Support.” New York Times. Sept. 29, 2010. 59 “Managing Risk and Realizing Opportunity for South Carolina’s Energy Economy.” Ceres. Business for Innovative Climate and Energy Policy. Conference held in Charleston, South Carolina. March 16, 2012. 60 “South Carolina Resource Study.” South Carolina Energy Advisory Council. Report by: Black & Veatch. January 2012. 61 EIA State Electricity Profiles. http://www.eia.gov/electricity/state/southcarolina/
34
can exert great political influence. However, North Carolina has shown that renewable energy
policies and vertically integrated utilities can co-exist.
While North Carolina has been moving toward natural gas and even some solar
generation (MWh), South Carolina has increased coal generation, and to a lesser extent, natural
gas. Hydroelectric power and landfill gas are the only renewable sources that increased
generation between 2006 and 2010.
Figure 5. Sources of Electricity in South Carolina, 2006 and 2010
Fuel%Type 2006 2010 Percent%change,%200662010Coal 26,845,672 37,671,118 40.32%Nuclear 50,797,372 51,988,079 2.34%Natural8Gas 6,068,061 10,927,237 80.08%Hydroelectric 687,049 1,441,743 109.85%Biomass 1,804,384 1,742,067 A3.45%Oil 267,251 186,251 A30.31%Landfill/8Waste8gas 61,042 130,997 114.60%Solar 0 0 0.00%Total&generation 86,530,830888888888 104,087,4928888888 20.29%
Electricity%Net%Generation,%South%Carolina%(MWh)
Source:&US&Energy&Information&Administration,&EIA:923&data
According to a South Carolina policymaker and former member of the US Congress, the
policy window for any sort of renewable policy in the state is heavily reliant on current economic
conditions “once the economy improves, more things are possible.” The policymaker cautioned
that a conservative state such as South Carolina is naturally opposed to government mandates.
Further, he stipulated that a renewable standard proposal would face a significant “up-hill” battle
in South Carolina.62
62 Interview with former South Carolina congressman. Febraury 29, 2012.
35
That said, the former congressman kindly provided advice as to how a renewable
standard could be implemented in his state. Additional research was conducted at a South
Carolina Energy Conference where stakeholders in the state discussed South Carolina’s clean
energy potential.63 Based upon local interviews and industry analysis, there are three elements of
a renewable portfolio standard that can be attractive to South Carolina policymakers. These are
discussed below:
1. Job growth potential: Organizations such as NC Greenpower were bolstered and
GreenCo Solutions, Inc. were created as a result of the North Carolina REPS. Other
companies such as Advanced Energy and FLS Energy directly benefitted from the
emphasis of renewable generation in the state. A similar industry can be built in South
Carolina. The South Carolina Council on Competitiveness is aggressively pursuing state
business investment. Companies with a physical presence in South Carolina such as
Amazon and BMW, lured by generous tax incentives and right-to-work policies, are
“hailed as heroes.”64
2. A state mandate is better than a federal mandate: South Carolina has a conservative
governor and a majority of the state legislature that is Republican. The ideological
makeup is more inclined to state regulations based on a state’s needs. The value of a state
renewable standard is that it is driven by the states and can be tailored to South Carolina’s
needs and resources. Other traditionally conservative states have enacted renewable
63 “Managing Risk and Realizing Opportunity for South Carolina’s Energy Economy.” Ceres. Business for Innovative Climate and Energy Policy. Conference held in Charleston, South Carolina. March 16, 2012. 64 “Economic Woes Loom Larger as G.O.P. Heads South.” New York Times.
36
portfolio standards: Utah, Arizona, South Dakota, and North Dakota.
3. Benefits to rural electricity cooperatives: The Electric Cooperatives of South Carolina,
an umbrella group for all 20 state cooperatives, operates the largest electric distribution
system in the state and supplies more than 1.5 million residents across all 46 counties.65
Rural electricity cooperative members in South Carolina have historically been skilled
technicians with experience installing appliances and equipment. These cooperatives
could benefit from a new industry that installed renewable technologies such as solar
photovoltaic and solar thermal systems. Berkeley Electric Cooperative is the fifth largest
electricity provider in the state (1.7 million megawatt hours in electricity retail sales in
2010).66 These rural cooperatives also carry tremendous political influence in the state.
Designing the next RPS
There were numerous concessions made in order to get a renewable energy bill passed for
the first time in the South. The REPS was only one part of Senate Bill 3 that passed in 2007.
Additional sections of the bill allowed for the utilities to obtain cost recovery for “non-fuel
costs” such as chemical re-agents that are used as controls in power plants. Additionally, the
utilities were given a “mini CWIP” (construction work in progress) that allowed for cost
assurances of “on-going review of construction costs.” Essentially, this allowed for a much
greater risk reduction in power plant modernization than the utilities had previously. These
provisions were deemed necessary to get utilities to support the REPS.
65 The Electric Cooperatives of South Carolina. Website. www.ecsc.org 66 EIA State Electricity Profile. South Carolina. 2010
37
The REPS allows the utilities to pass through all the costs of renewable energy and
energy efficiency investment to its customers. According to one industry participant, the cost
recovery mechanism allows a utility to obtain $100-200 million annually from its ratepayers to
meet its REPS obligations. In the long term, this generates an expected budget of $1.2 billion for
renewable and energy efficiency projects for one large utility. These are all factors that must be
considered in another highly-regulated utility market.
In each interview, an industry stakeholder identified certain benefits of the REPS. It has
helped the industry grow, it has helped stabilize certain segments, and it has forced the utilities
and the utility commission to consider alternatives to fossil fuel electricity generation.
Therefore the next RPS in the South should seek to contain the following mechanisms
that are politically feasible and ensure a sustainable impact of a renewable standard:
1. Make the renewable standard mandatory. Twenty-nine states have enacted
mandatory renewable portfolio standards, while four other states have enacted
voluntary renewable targets. A voluntary standard may appear to be more
politically palatable, but it lacks the certainty utilities covet and the mandate
utilities need to procure anything other than “least-cost” generation. For
example, Virginia’s voluntary requirement has primarily provided a cost-
recovery mechanism for existing, large-scale hydroelectric facilities.67 It has thus
far failed to provide the proper incentives to develop even a modest solar
industry such as in North Carolina.
67 Virginia Electric and Power Company. “Annual Report to the State Corporation Commission on Renewable Energy, in accordance with Section 56-‐585.2.H of the Code of Virginia.” November 1, 2010.
38
2. Include an alternative compliance payment (ACP) mechanism to clarify non-
compliance. An ACP has been successfully implemented in most RPS states.
Such a mechanism helps to establish an acceptable price for renewable
generation in the state. If funds are generated through an ACP, they can be
distributed to potentially viable energy technology projects to stimulate growth.
3. Design requirements according to various state resources. The annual
renewable generation requirements have been met by most RPS states. The
benefit of these state standards is that they can be tailored to local resources.
Minimum requirements have recently become the preferred policy mechanism
– rather than credit multipliers (additional value added per credit for specific
types of renewable generation) – to develop specific renewable technologies.68
The impact of the hog and poultry set-asides in North Carolina has been
inconclusive thus far, but recent projects and partnerships are positive signs of
progress.
4. Allow energy efficiency programs and out-of-state renewable credits to meet
a small portion of renewable standard. Energy efficiency program incentives
might be most effective as a separate policy initiative, but utilities strongly
prefer the energy efficiency option as part of the standard. As in North
Carolina, the energy efficiency provision gives electricity retailers greater
flexibility to meet the standard and gives greater control of assets. The out-of-
68 Wiser and Barbose. “Renewables Portfolio Standards in the United States: A Status Report with Data through 2007.” Lawrence Berkeley National Laboratory. April 2008.
39
state renewable credits enable to purchase of low-cost renewable generation
that still meet broader emissions reduction goals.
CONCLUSION
Renewable portfolio standards were first analyzed in the mid 1990s as a means to correct
market imperfections. These policies have since proliferated across twenty-nine states and the
District of Columbia, but they have not been widely adopted in the southeastern US. The lack of
renewable standards in the South leaves nearly half of the electricity generation in the US
without sufficient incentives for renewable generation.
North Carolina was the first state in the South to enact a renewable standard in 2007. The
REPS has had a positive impact on the state’s energy industry. It has enabled a nascent solar
industry to grow and has stimulated biomass and waste-to-energy projects. Most importantly, a
renewable standard gave the influential vertically integrated utilities the regulatory authority it
needed to invest in renewable generation. While certain aspects of the bill could be strengthened
and improved, it has had a noticeable impact on the industry.
The lessons learned from North Carolina’s pioneering effort can and should be used to
help other southern states meet their energy needs and diversify their energy sources. A
renewable standard is most likely to succeed if it can balance renewable energy goals with the
obligations of regulated electric utilities. It should be mandatory, tailored, and flexible with clear
compliance mechanisms. An expansion of renewable portfolio standards across the South will
40
incentivize clean energy technologies, create economic opportunity, and ensure a more
sustainable future.
APPENDIX 1
Summary of North Carolina Renewable Energy and Energy Efficiency Standard (REPS)
State: North Carolina
Policy: North Carolina Renewable Energy and Energy Efficiency Standard (REPS)
Originated: 2007
Initial compliance years: 2010 (solar minimum only) and 2012 (full requirement)
Eligible renewable energy resources:
Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Landfill Gas, Wind, Biomass, Geothermal Electric,
CHP/Cogeneration, Hydrogen, Anaerobic Digestion, small hydroelectric (less than 10 MW), Tidal Energy, Wave Energy
Requirements for electric public utilities:
-‐ 2010: 0.02% from solar -‐ 2012: 3% (including 0.07% from solar + 0.07% from swine waste +
170,000 megawatt hours (MWh) from poultry waste) -‐ 2013: 3% (including 0.07% from solar + 0.07% from swine waste +
700,000 MWh from poultry waste -‐ 2014: 3% (including 0.07% from solar + 0.07% from swine waste +
900,000 MWh from poultry waste) -‐ 2015: 6% (including 0.14% from solar + 0.14% from swine waste +
900,000 MWh from poultry waste) -‐ 2018: 10% (including 0.20% from solar + 0.20% from swine waste +
900,000 MWh from poultry waste) -‐ 2021: 12.5% (including 0.20% from solar + 0.20% from swine waste +
900,000 MWh from poultry waste)
Requirements for electricity cooperatives and municipalities:
-‐ 2012: 3% (including 0.07% from solar + 0.07% from swine waste + 170,000 MWh aggregate from poultry waste)
-‐ 2015: 6% (including 0.14% from solar + 0.14% from swine waste + 900,000 MWh aggregate from poultry waste)
-‐ 2018: 10% (including 0.20% from solar + 0.20% from swine waste + 900,000 MWh aggregate from poultry waste) -‐ Permitted to use demand side management or energy efficiency to
satisfy standard without limitation. -‐ Permitted to use large hydropower (greater than 10MW) to meet up
to 30% of requirement
Demonstrating compliance: Procurement of renewable energy credits (RECs), equivalent to 1 MWh or
1MWh avoided through efficiency. Banking allowed of excess RECs allowed for following calendar year.
Energy efficiency provision:
-‐ 25% of the requirement may be met before 2021 (approx. 255,315 MWh in 2009)
-‐ 40% of the requirement may be met after 2021 -‐ No specific technology: Equipment, physical, or program change
implemented after Jan. 1, 2007 that results in less energy used to perform the same function. Includes energy produced from CHP system, but does not include demand side management
Out-of-state renewable energy credit provision:
-‐ Unbundled RECs from out-of-state renewable facilities can meet up to 25% of requirement
-‐ Suppliers with fewer than 150,000 customers are not limited in the amount of out-of-state renewable energy RECs they may procure to meet the standard
Credit multiplier:
-‐ Triple credit for every one REC generated by the first 20 MW of a biomass facility located at a "cleanfields renewable energy demonstration park"
Oversight and compliance:
-‐ The North Carolina Utilities Commission (NCUC) is responsible for administering the REPS and may adjust or modify the REPS schedule if the commission deems such modifications to be in the public interest
-‐ There are no specified penalties or alternative payments for noncompliance, but the commission has existing authority under Chapter 62 of the N.C. General Statutes to enforce compliance
APPENDIX 2
The southeastern US is has largely remained a regulated electricity market. Virginia is the only
state in the South that has been deregulated.
The Southeastern US is also one of the few regions without a strong presence of regional
transmission organizations (RTOs) or independent service operators (ISOs). The reliability of the
electricity markets is primarily controlled by the vertically-integrated utilities.
Source: http://www.ferc.gov/industries/electric/indus-act/rto.asp
APPENDIX 3
Chronology of state renewable energy standards in the US though 2007 (extracted from
Lawrence Berkeley Laboratory report1):
1 Wiser, et al. “Renewables Portfolio Standards: A Factual Introduction to Experience from the United States.” Lawrence Berkeley National Laboratory. April 2007.
APPENDIX 4
APPENDIX 5
List of North Carolina renewable energy and energy efficiency stakeholders interviewed for project:
Felt, Emily. Duke Energy. February 13, 2012.
Ham, Roshena. Duke Energy. February 9, 2012.
Harkrader, Richard. Carolina Solar Energy. February 14, 2012.
Huck, Ken. Ecosavvy Energy. February 27, 2012.
James, Harold. Progress Energy. March 1, 2012. Class presentation.
Kelso, Paul. Fibrowatt. February 6, 2012.
Kolomeets-Dorovsky, Daniel. Clean Hatch. February 8, 2012.
Lips, Brian. NC Solar Center. February 24, 2012.
Maurer, Christine. Advanced Energy. February 24, 2012.
Nemeth, Jay. GreenCo Solutions. March 9, 2012.
Phelps, Peter. Sun Stuff Energy. February 6, 2012.
Shore, Michael. FLS Energy. February 16, 2012. Email response.
top related