Duke Energy’s plan to build gigawatts’ worth of new natural-gas plants over the next 15 years in its core territories of North and South Carolina has hit a snag with state regulators. Clean-energy advocates are hoping the resulting rewrite of Duke’s long-range energy plans will bring more solar, batteries and other carbon-free resources into its future energy mix.
This week, South Carolina’s Public Service Commission (PSC) issued a 98-page order detailing how Duke must revamp its integrated resource plans to pass muster with state law. The order comes on the heels of the PSC’s 4-to-1 vote earlier this month to reject the 15-year plans for Duke Energy Carolinas and Duke Energy Progress, which serve about 800,000 customers in the state.
“Duke's process unfairly skews the model against solar and storage and in favor of natural gas generation,” the PSC’s order states. That’s welcome news to the environmental groups, consumer advocates and business organizations that have filed protests against Duke’s plans in both South and North Carolina.
Opponents claim that Duke’s plan would saddle its ratepayers in both states with costlier and dirtier power than what they could get from solar power paired with energy storage, along with more aggressive investment in energy efficiency and grid-responsive energy management to reduce the peaks in electricity demand that drive how much new generation is needed.
At the heart of the dispute between the utility and its critics is the question of what mix of resources can most cost-effectively meet those peak demands, while still keeping Duke on track to meet its self-imposed goal of halving its carbon emissions by 2030 and reaching net-zero carbon emissions by 2050.
In a March filing with the North Carolina Utilities Commission, which has yet to issue a ruling on Duke’s plan, the Southern Environmental Law Center, the Natural Resources Defense Council, Sierra Club and the Southern Alliance for Clean Energy submitted their own third-party analysis from Synapse Energy Economics. That analysis indicated that Duke has inflated future demand and underestimated the value of zero-carbon resources to meet winter peak loads, which Duke expects will drive its resource needs in the next 15 years.
Similar critiques were filed with the South Carolina PSC. Its order this week gives Duke 60 days to resubmit its integrated resource plans with a number of modifications to ensure it represents “the most reasonable and prudent means of meeting Duke’s energy and capacity needs.”
Among its chief demands are for Duke to recalculate the cost of supplying natural gas to the 9.6 gigawatts' worth of power plants its preferred resource portfolio would build in North and South Carolina over the next 15 years, as well as the costs of solar power and batteries that could replace them.
“They are mandating either changes to assumptions or new sensitivities that I think could reduce the amount of gas that Duke has in its resource plans,” Maggie Shober, director of utility reform at Southern Alliance for Clean Energy, said in a Wednesday interview. “And that’s what we’re looking for.”
Dispute over the long-term cost of natural gas vs. cleaner alternatives
One of the key problems the PSC identified is Duke’s method for forecasting how much natural gas will cost for its proposed power plant fleet. As a vertically integrated and regulated utility, Duke can earn guaranteed rates of return from its ratepayers for the capital costs of building these plants. But how expensive their future electricity supply will be is also highly dependent on the cost of the fuel to power them.
According to testimony from Kevin Lucas, senior director of utility regulation and policy for the Solar Energy Industries Association, Duke’s method of calculating those future costs relied on prices it was able to obtain for contracts to deliver a small portion of its natural gas needs a decade from today.
“Ten years is simply too long [a timeframe] to rely on contracts priced on highly volatile financial derivatives,” Lucas said in testimony as an expert witness for the Carolinas Clean Energy Business Association. “It is wholly inappropriate to base 10 years of future fuel prices on what is essentially a toss of the dice.”
South Carolina’s PSC cited this testimony in its order for Duke to recalculate its reliance on natural gas as a primary fuel. It also found that Duke’s “assumption of a ready firm supply capacity for natural gas to its facilities without regard to pipeline risk is questionable,” given the cancellation of the Atlantic Coast Pipeline and the potential that the Mountain Valley Pipeline will not be built, which could leave Duke without ample supplies of fuel for any future natural-gas plants.
As for solar, Duke’s plan does call for building a massive amount of new solar over the next 15 years, ranging from 8.6 gigawatts in its base case to more than 16 GW in its “no new natural gas” case. But the PSC found fault with Duke’s approach to forecasting the cost of solar, largely because it failed to include the possibility of projects developed by third parties in its planning process, Shober said.
“In its original [integrated resource plan], Duke assumed all solar would be owned by the company,” she said. But both North and South Carolina have opened up solar development to competition from independent power producers as well as Duke Energy, and two major procurements over the past two years have seen third-party developers win bids alongside the utility.
The costs of utility-built and -owned solar in Duke’s plan aren’t directly comparable to prices secured through competitive bidding. Still, the PSC found that “the levelized cost of energy assumed by Duke for the cost of generic solar resources was far higher” than the average price of $38 per megawatt-hour that both of its South Carolina utilities were able to procure through competitive solicitations. The PSC ordered Duke to use that cost as a proxy for modeling solar costs in future years.
The PSC also found that Duke “undervalued the capacity of solar and storage to reliably meet the needs of Duke's system — both separately and in combination — and by doing so obscured their ability to reduce system costs and ratepayer bills.” It ordered the utility to model both resources in ways that will reveal how storing solar in batteries, and discharging it after the sun goes down, could increase their combined value to meet peak grid demand. Duke’s plan now calls for building between 2.1 GW and 3.4 GW of energy storage in the next 15 years.
South Carolina’s decision also orders Duke to increase the amount of solar power and batteries it plans to interconnect to its grid from 500 megawatts per year to 750 megawatts per year, which could increase their value in meeting system needs, Shober said. Additionally, it orders Duke to use new battery price data provided by the U.S. National Renewable Energy Laboratory’s annual technology baseline, rather than original cost figures the PSC found to be “unreasonably high.”
A new wrinkle in a complicated battle over Duke’s future energy mix
Duke’s latest setback on its integrated resource plan comes amid a contentious legislative session in North Carolina. Earlier this month, Republicans in the state’s House of Representatives unveiled an energy policy bill, HB 951, that was quickly attacked by critics as a giveaway to the utility. It contains clauses that could allow Duke to replace coal plants it intends to shutter by 2030 with natural-gas plants without seeking state regulator approval.
That bill is now being renegotiated in the face of opposition from many of the same environmental and business groups that have been fighting Duke’s integrated resource plan, as well as objections from Governor Roy Cooper (D). Cooper has championed a broader overhaul of energy regulations, including a push for a state mandate to reach 70 percent carbon-free energy by 2030. That is not expected to win favor with the Republicans who control the state legislature.
Other aspects of the energy reform package promoted by Cooper, but not included in HB 951, have won broader support from consumer and business groups. Those include proposals to allow independent power producers to compete with the utility to build new power plants, decouple utility revenue from electricity sales and subject Duke and other investor-owned utilities to performance-based ratemaking regulations that tie revenue to hitting certain measures of how well and reliably they serve their customers and meet public policy goals.
Large power buyers in the state including Google, Apple, Amazon, Starbucks, Target and Walmart have also expressed support for exploring shifting the state from a vertically integrated utility regulatory structure toward a more competitive wholesale energy market. South Carolina lawmakers passed a bill last year to study the possibility of such a shift, but a similar bill in North Carolina has failed to move out of committee. It was attacked by a Duke-linked political action group in Facebook ads equating the proposal with a “big tech giveaway” and a threat to grid reliability.
On Tuesday, the North Carolina Utilities Commission extended its timeline for considering Duke’s plans for its utilities in the state, noting that it has “identified several topics of interest” that “warrant additional exploration and further consideration.”
Duke spokesperson Bill Norton said in a Wednesday statement that the utility welcomes the commission’s “continued engagement on our comprehensive [integrated resource plan], which is focused on a cleaner energy mix while maintaining affordability and reliability for our customers.” He noted that all of the six alternative scenarios laid out the plan would reduce carbon emissions by 50 percent by 2030, add more solar and batteries, and move more quickly to close coal plants.
“We are in the midst of an unprecedented, long-term transition from a fleet that included coal generation toward a new mix of cleaner generation, including renewables, battery storage systems, carbon-free nuclear and efficient natural gas across the system,” Norton said. “In light of this transition, the 2020 integrated resource plans support a diverse energy mix to ensure that we are meeting the reliability needs of the system and prioritizing customer affordability.”
(Article image courtesy of the American Public Power Association)
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