North Carolina Utilities Commission Considers Utility Power Purchase Agreement Rule Changes that Could Spur or Cripple Solar Development
Last week, the North Carolina Utilities Commission (“NCUC”) held hearings on policies that have the potential to either significantly expand opportunities for small-scale solar projects or severely restrict solar industry growth. Currently, North Carolina utilities are required to enter into 15-year power purchase agreements (“PPAs”) for new solar facilities of 5 MW or less. The program is standardized so that the utility purchases the energy from these solar facilities at the standard offer service (“SOS”) rate, set by the NCUC. This PPA structure has benefited developers by providing a specific non-negotiable rate for solar plant output, lowering the upfront transactional costs and uncertainty for new solar projects. Solar industry supporters are urging the NCUC to expand the PPA parameters, while the utilities want to limit the scope of this program.
Solar Industry Proposal:
To help grow distributed solar infrastructure in North Carolina, solar industry advocates have asked the NCUC to expand the solar PPA program to provide for 20 year contracts at the SOS price for all plants up to 10 MW. If the developers’ proposals are adopted, they may soon find it easier – and less costly – to finance 5-10 MW projects, as well as smaller-scale projects that would be able to lock in 20-year contracts, rather than the current 15-year limit.
By contrast, North Carolina utilities – including Duke Energy Carolinas, Duke Energy Progress, and Dominion Power North Carolina – propose limiting the size of eligible facilities from 5 MW down to 100 kW. Solar advocates anticipate that if NCUC accepts the utilities’ proposal, this 98% reduction in the size of solar facilities eligible for standardized PPAs would cripple solar developers, subjecting future larger-scale projects to protracted negotiations with utilities, increasing the time and costs to break ground. The utilities raised concerns about (1) their ability to manage growth and balance their systems and (2) potential challenges the NCUC may face in managing solar growth while carrying out its regulatory charge ensure safe, reliable power at just and reasonable rates.
A primary NCUC focus in these proceedings is the potential disruptive impacts, both positive and negative, increased development of distributed solar may have on North Carolina’s electricity systems. With such starkly opposite proposals from solar advocates and the utilities, the NCUC may instead take the position recommended by NCUC Public Staff – no change at all.
Whatever the outcome of these proceedings, which are anticipated to continue for several months, we will be keeping an eye on state-level solar policy developments, in North Carolina and elsewhere, as regulators are faced with balancing the benefits of increasing growth in the solar industry with the challenges such growth places on current industry norms and infrastructure.
If you have any questions about these North Carolina Utilities Commission proceedings, or want to discuss other industry or regulatory developments in energy law affecting your company, please contact one of our energy lawyers.