Solar and green groups buy into Duke’s net-metering plan in North Carolina

Duke Energy customers in North Carolina are poised to get a revamped net-metering regime for new home solar systems — one that would closely tie the value of rooftop solar power to how much households can shift their energy generation and consumption to times that are most opportune for the grid. Duke, the utility serving most of the state, came to an agreement with solar companies and environmental groups on the proposed net-metering changes on Monday.

The agreement, which will go into effect in 2023 if approved by the North Carolina Utilities Commission, would make major changes to the net metering policy of Duke’s two North Carolina utilities, Duke Energy Carolinas and Duke Energy Progress. Today, solar customers are paid the retail electricity rate for solar that is generated in excess of their usage.

In some ways, the new plan represents a ​“solar-plus” approach to net metering, said David Neal, senior attorney with the Southern Environmental Law Center, one of the groups supporting the plan.

First, the plan encompasses time-of-use rates, which value power differently at different times depending on how much it’s needed. When demand is high and the grid is under stress, customers with rooftop solar would earn more for the power they send to the grid but also pay more for what they consume. When power is plentiful, they’ll earn less for their exported solar but also pay less for what they pull from the grid.

The regime would also include upfront incentives for homes that use electricity for heating and enroll in Duke’s smart-thermostat program, which automatically adjusts home temperatures to reduce the amount of energy used for heating and cooling.

Rooftop solar systems would likely have lower value to homeowners under the new regime than under Duke’s existing net-metering rates, which are based on flat fees for electricity across all hours. But modeling done by the Southern Environmental Law Center indicates that combining solar and smart-thermostat incentives with the net-metering credits that they can earn during high-price hours would allow owners of newly installed solar systems to recoup their costs quickly enough to encourage continued growth for the rooftop solar industry, he said.

The plan incentivizes all-electric homes by giving them lower electricity rates, which is likely to benefit them as most rooftop-solar owners still buy more power from the grid than they send to the grid. For all-electric homes, rates would be 5.6 to 7.7 cents per kilowatt-hour for off-peak hours and significantly more during times of peak demand — 16.9 cents per kilowatt-hour from 6 to 9 p.m. in the summer and 6 to 9 a.m. in all other periods of the year. Homes that aren’t all-electric would have rates ranging from 6.1 cents per kilowatt-hour for off-peak hours to 19.2 cents per kilowatt-hour for peak hours.

At critical times when demand for power surges and threatens to outstrip supply, rates would rise to 35 cents per kilowatt-hour. This would give home solar producers a good opportunity to earn money by sending power to the grid to help avoid blackouts.

The new regime also includes upfront incentives for new home solar systems of 36 cents per watt of installed solar capacity for all-electric homes, along with an initial $75 bill credit. Homes with smart thermostats will also get ongoing $25 bill credits once every year.

“The idea here is that customers who can adapt to those new time-of-use rates could see an opportunity for increased bill savings over time, as well as getting that upfront incentive,” Neal said. ​“Our analysis indicates it will still be a reasonable payback period.”

Lindsey Hallock, Vote Solar’s senior Southeast regional director, said the upfront incentives would provide an important economic boost for solar customers. ​“That’s making a rooftop system more affordable and more accessible to people for whom otherwise the numbers wouldn’t work out,” she said. It’s also an important way to ​“start thinking about solar as energy efficiency.”

This relatively sunny outlook for rooftop solar has brought a number of groups and companies around to supporting the agreement with Duke, including the North Carolina Sustainable Energy Association, the Solar Energy Industries Association, leading U.S. residential solar installer Sunrun, and the Southern Environmental Law Center, which represented nonprofit groups Vote Solar and the Southern Alliance for Clean Energy in agreement negotiations. The same groups supported a similar net-metering plan for Duke Energy’s utilities in South Carolina.

Rooftop solar plus smart thermostats to balance a decarbonizing grid

Lon Huber, Duke’s vice president of strategic solutions, said the net-metering plans in both states, which the utility refers to as ​“Solar Choice,” are part of a broader effort to get customers to play a bigger role in its decarbonization goals.

A law passed in North Carolina last month requires Duke to cut its carbon emissions by 70 percent by 2030 compared to 2005 levels, which will require closing all its coal-fired power plants and reducing its reliance on natural-gas-fired power plants. It will also require customers to play a more active role in reducing their demand for energy when the utility’s grid is facing the most stress using tools such as smart thermostats and appliances.

“We’re adding solar into our standard suite of demand-side management products and measures,” Huber said. ​“Demand-side management” is the utility term for programs that help reduce and shape customers’ electricity demand from hour to hour and season to season, including energy-efficiency measures, programs to reduce demand and distributed energy resources such as batteries and EV chargers.

Specifically, the new time-of-use rates for Duke’s two North Carolina utilities were designed to help manage the most challenging peak grid demands, including hot summer evenings and, more importantly, cold winter mornings.

Those cold morning peaks in demand, created by the preponderance of electric heating in Duke’s service territory, are expected to require gigawatts of new flexible generation capacity in the coming years. Duke wants to build new natural-gas-fired power plants to meet those peaks, but solar and environmental groups including the Southern Environmental Law Center (SELC) have been demanding the utility rely instead on solar and wind power, energy storage and initiatives to reduce peak demand.

The peak hours that Duke has chosen coincide not only with moments when it faces the greatest risk of demand outstripping supply but also with moments when it relies most heavily on fossil-fueled plants to supply power, Huber said. Therefore, ​“as customers respond, they’re going to be saving money but also reducing carbon.”

SELC’s Neal emphasized that the same type of approach could reduce the need for new natural-gas plants as well — incentivizing consumers to boost supply and cut demand during peak periods. ​“We’ve consistently urged the utility to rely more on energy efficiency and demand-side management to resolve those matters.”

“The time-of-use rates, as we envision them, should be a way to integrate other distributed energy resources,” he added. The agreement calls for Duke and stakeholders to consider adding incentives for other efficiency and storage technologies in the coming years, he said.

Those could include batteries that can store solar power for discharge at times of peak grid stress, as well as electric vehicle chargers and other appliances that can be controlled to take advantage of much cheaper electricity during midday hours when solar generation is plentiful.

Duke’s Huber agreed that ​“the future is going to involve clean energy [and] distributed energy resources, and also being able to handle more and more extreme weather.” Technologies like batteries to store and shift solar power to times when it’s more valuable for the grid, and electric vehicles that can be charged during off-peak hours and also serve as home backup during outages, are part of the utility’s roadmap, he said.

Finding common ground on the net-metering battlefield

The consensus reached between Duke and solar and environmental groups in North Carolina and South Carolina bridges a stark divide between utilities and solar advocates. Historically, utilities have fought against net-metering rules that pay customers full retail rates for the energy they produce, lobbying state lawmakers to restrict the growth of rooftop solar and pressing regulators to impose costs on solar customers.

Utilities say that’s because net-metered solar customers can sometimes generate enough power to reduce their monthly bills so low that they fail to cover the fixed costs of providing them utility service. As the number of solar customers rises, this gap between monthly bill payments and fixed costs can lead to a ​“cost shift” that forces utilities to raise rates to cover the gap, with non-solar customers bearing the brunt of those increases.

Solar and environmental groups have in turn accused utilities of ignoring the benefits that rooftop solar provides to the whole grid and of using the cost-shift argument to slow the growth of clean energy and restrict customers’ ability to provide their own power in order to protect utilities’ profits and monopolies over electricity generation.

These disputes have taken on major significance in states such as California, Hawaii and Arizona where rooftop solar has grown the fastest. California, the country’s rooftop solar leader, is now reworking its net metering regulations amid a strident public relations battle between, on one side, rooftop solar industry groups and environmental and community advocates accusing utilities of trying to stifle a fast-growing source of carbon-free energy and, on the other, utilities and some supporting environmental and consumer groups that say the state’s current regime rewards more affluent customers at the expense of those who can’t afford solar.

North Carolina ranks fourth in the country for total solar installations, with 5,836 megawatts (AC) deployed as of the second quarter of 2021, according to the North Carolina Sustainable Energy Association. But most of that has come in the form of large-scale solar projects, with just under 170 megawatts of rooftop solar deployed as of 2020.

The slow uptake of rooftop solar is due in part to the state’s relatively cheap electricity rates, which make selling solar to the grid less attractive for homeowners than in states such as California.

It’s also due to the state’s inconsistent rooftop solar policies over the past decade — which Peter Ledford, NCSEA’s policy director and general counsel, described as ​“the solar coaster.” A state tax credit for rooftop solar was dropped in 2015, leaving the industry in the lurch, and a rebate program created in 2017 was built around annual funding cycles that led to rushes for rebates followed by lulls in activity when funds dried up, he said.

What’s next on the distributed energy front

How the new proposed net-metering regime might affect future rooftop solar economics is ​“hard to quantify, because it’s a bit of an apples-to-oranges comparison,” said Ledford, as customers shift from earning net-metering credits on flat retail rates to credits determined by time-of-use and critical-peak pricing. Customers already on the existing net-metering program would be allowed to stay on it, with an option to switch to the new program starting in 2027.

“A lot of it depends on your load curve,” he said. ​“If you’re able to shift your usage, you can come out ahead, even without batteries.” But the new system would also impose some costs that can’t be bypassed, including minimum monthly bills of $22 for Duke Energy Carolinas and $28 for Duke Energy Progress.

“A lot of it depends on how you size your system,” Ledford added. The proposed program would impose a grid-access fee for systems larger than 15 kilowatts, eroding the value of larger installations.

Ledford hopes the program will be expanded to include homes that aren’t powered entirely by electricity, as roughly two-fifths of Duke customers use natural gas to heat their homes. ​“I think future technologies like battery storage or demand management paired with an EV charger are really important down the road,” he added.

The new agreement also calls on Duke to explore a solar program aimed at low-income customers, who’ve been largely unable to access the loans or lease agreements needed to put solar on their rooftops in most markets.