Introduction
Updated as of January 2020.
Electricity is a basic human need. Rich or poor, it doesn’t matter. But electricity prices have a greater affect on the poor because they spend a larger proportion of their income on this necessity.
North Carolina has the infrastructure right now in place for cheap, efficient electricity, but its laws and policies effectively promote higher costs than necessary.
The cheapest, most efficient sources of electricity are power plants that are already paid for. Existing power plants have lower fixed costs, and component replacement can go on indefinitely. Existing nuclear power plants have a regulated lifespan of 60 years that can expand to 80. State law, however, effectively disincentivizes utilities from keeping paid-for, working power plants on the grid by incentivizing new plant construction with accelerated depreciation schedules and guaranteed rates of return for investors.
North Carolina policymakers have pursued aggressive policy interventions in electricity provision all century: Clean Smokestacks in 2002, a 35 percent investment tax credit for renewable energy in 2005, Renewable Energy Portfolio Standards (REPS) in 2007, and an 80 percent property tax abatement for solar energy systems in 2008.
A federal law called the Public Utility Regulatory Policies Act of 1978 (PURPA) makes utilities buy any power generated from qualifying renewable energy facilities in their area, at predetermined prices, regardless of actual need. States decide which facilities qualify, the price that must be paid for the energy, and how long the prices are in effect.
North Carolina dictated the region’s highest contract rates and longest contract terms for qualifying facilities, with avoided-cost rates (the contract price utilities must pay for the renewable energy) 10 to 20 percent higher than even the next most expensive state in the region.
North Carolina’s generous PURPA terms, REPS mandate, subsidies, tax credits, and more resulted in North Carolina having 60 percent of the nation’s PURPA-qualifying renewable energy facilities. Government policies, not geographic distinctions, make this state “second in solar.”
This rapid expansion threatens serious problems for utilities and their customers. Forcing utilities to pay extremely high rates for all energy generation from a notoriously intermittent source (solar) could cause customers to pay over $1 billion dollars more than necessary for electricity and soon threaten even baseload generation.
To prevent that, Session Law 2017-192 struck a major compromise between utilities and solar energy facilities. It lowered the size of PURPA-qualifying facilities in exchange for guaranteeing solar energy facilities a full seat at the table competing to provide electricity to North Carolinians.
Gov. Roy Cooper dramatically altered this compromise, forcing Duke Energy to contract with 240 solar companies under the older, costlier provisions. Duke needed the Cooper administration to approve key permits for the Atlantic Coast Pipeline. WBTV has raised questions about a possible connection between the solar contracts and a different project, the Atlantic Coast Pipeline, reporting that Cooper and senior staff “use[d] the pipeline permit as leverage to force Duke into cutting a deal with the state’s solar industry.”
Gov. Cooper’s actions will cost consumers at least $100 million more than necessary for electricity, and that’s not even counting the grid costs. A significant factor in Duke’s original multibillion-dollar plan to rebuild much of its electricity grid was connected to being required to incorporate so much more solar into its energy mix under the state’s must-take obligations.
Taken together, these mandates and actions are pushing North Carolina toward a self-inflicted energy crisis with major long-term repercussions for ratepayers, small businesses, industry competitiveness, public schools, local governments, nonprofits, churches, and more. The proper, responsible course of action in this uncertain environment is to step back and assess the situation, rather than continuing to make and incentivize unstudied changes.
Key Facts
- Nuclear is North Carolina’s top source of electricity, producing 33 percent of our energy in 2017 (most recent data available). Natural gas (30 percent) and coal (26.8 percent) follow close behind. Solar provides only 4 percent of the mix.
- The levelized cost of energy from existing nuclear power plants is just one-third the levelized cost of energy from new wind and solar plants plus their required backup generation. It is just two-thirds the cost of a new natural gas plant.
- Relicensing and maintaining existing nuclear plants is complex. Policymakers should study how best to incent utilities to retain existing nuclear plants.
- Energy-based emissions in North Carolina have fallen dramatically. Since 2000, carbon dioxide emissions are down 37.5 percent, nitrous oxide is down 74.2 percent, and sulfur dioxide is down 91.8 percent. Price-competitive, comparatively low-emissions natural gas from fracking is a major reason.
- At the beginning of 2000, nearly two-thirds of the state’s electricity generation was from coal (62.1 percent). By 2017, nearly two-thirds was from zero-emissions nuclear and low-emissions natural gas (63 percent total).
Recommendations
- Study how to promote the retention of existing, zero-emissions nuclear plants. Their levelized cost of energy is by far the lowest of any source. Their loss would lead to higher emissions and much more expensive electricity.
- Institute a moratorium on new solar and wind facilities and incentives until further study. The potential unintended impacts on the grid, ratepayers, and even the environment are too great to risk. The prudent course is to pause and take stock.
