By Ben Bradford
In the span of five years, the solar industry in North Carolina has grown from nearly non-existent to fourth-largest in the nation, behind California, Arizona, and New Jersey. The pace is accelerating, with solar capacity set to more than double in the state, at least this year. The state’s powerful electric utilities are pushing changes that could blot out the industry in North Carolina.
Sheep graze on a field. They wander in between arrays of dark blue solar panels glinting in the sun.
“They maintain the grass,” explains Joel Olsen, managing director of O2 Energies, a solar company in Cornelius. “We have a local farmer that puts sheep on all the farms and then the sheep roam, free-pasture, and then Whole Foods buys them. And they’re the only North Carolina sheep in North Carolina Whole Foods.”
The Ararat Rock Solar Farm in Mount Airy is one of seven O2 projects in North Carolina. The company, started in 2009, has another 10 in development. That growth parallels the North Carolina industry as a whole; a combination of falling technology costs, favorable tax credits, and a sunny climate has turned solar energy from a novelty to a viable business.
A dull whine comes from an inverter at the heart of the installation — the only sound other than the “baa” of sheep. It converts the electricity from DC electricity (think Thomas Edison) to AC (Nikolai Tesla). From here, power goes into the electric grid.
Duke Energy has to buy the power. A federal law, passed after the 1970s oil crisis, requires it. The idea was to create space for small companies in a sector dominated by monopolies, and to encourage renewable energy.
Any project under five megawatts — generating enough solar power for roughly 500 homes — gets paid what it would cost the utility to provide the energy. Over five megawatts, the utility does not have to pay a set rate. It can negotiate price.
The state Utilities Commission is reviewing its implementation of the law. Duke and Dominion Power want the Commision to set the threshold 200 times lower, to the federal minimum.
“The way the rules are right now, if you bring on a solar farm under five megawatts, we have to take on that energy whether we need it or not,” says Duke Energy spokesman Randy Wheeless. “We’d like to lower that threshold to allow us more flexibility to negotiate contracts in hopes we can get better prices for our customers.”
But O2’s Olsen, and many solar advocates, say that change would have dramatic consequences.
“It would effectively kill the industry in North Carolina,” says Olsen.
Nearly all solar projects in North Carolina use the set rate. John Morrison of Strata Solar says his company would prefer to build larger farms, but needs the certainty the rate provides.
“It allows us to have a very predictable schedule for our projects, because we don’t have to introduce the uncertainty of the negotiation process,” Morrison says.
That negotiation process is uncertain. State numbers show that of more than 60 projects over five megawatts, only three reached an agreement. One, an O2 Energies project, required arbitration from the utilities commission, while another belongs to Apple, Inc., off-setting a company data center in Maiden, N.C.
Utilities also want to cut the maximum length of contracts from 15 years to 10, which could drive away funding.
“We certainly wouldn’t entertain financing, and I don’t think many banks would,” says Peter Pequeno, chief lending officer at Surrey Bank and Trust, a community bank in Mount Airy. Surrey has financed five projects.
The changes “would pretty much drive anybody who wants to provide any type of solar power out of business, because the economics don’t work,” Pequeno says. “You can’t recover your cost and you can’t earn a decent return on investment.”
The utilities argue the longer contracts let solar companies lock into rates when energy prices are high.
“Developers will come in when the trend line looks good for them, and when the trend line starts to look not so good they don’t come in. The risk of overpaying is kind of borne by the customers,” says Wheeless.
Duke argues shrinking the contracts will protect ratepayers. But the totality of its positions involving solar companies—the desire to force rate negotiations which rarely succeed, the push for contracts that may prevent financing, opposition to the solar tax credits the companies rely on—and some environmental advocates say a picture emerges of a big company trying to squash smaller competition.
“Solar power is cutting into profits, and Duke and a few other utilities around the country have been working really hard to stop that process,” says Jim Warren, executive director of environmental group NCWARN.
When Duke generates power, it earns a return, approved by the Utilities Commission, which includes the cost of building its plants. When private developers generate the power, the company makes no money.
The additional power could also hurt Duke’s future revenues, by pushing out the need to build more plants.
Nor can Utilities take the same advantage of the solar tax credits private companies can, providing little incentive to support private developers or to build solar themselves.
“This is not Duke trying to throttle solar in North Carolina; we’re very active purchasers,” says Wheeless. “But we still want to make sure we craft the rules going forward correctly to meet our needs and our customers’ needs.”
Wheeless counters that companies have applied to develop ten times the state’s current solar capacity, perhaps more energy than needed right now. Duke would have to buy it.
It is unclear what the utilities commission will decide. The Public Staff, a state body appointed to represent ratepayers, has recommended no change. Often, the commission will approve a settlement between the utilities and the staff. O2’s Olsen says the decision will impact far more than the solar industry.
“All the electricity we use today comes from an infrastructure we put in place 50 years ago or more,” he says. “All of those power plants are going to have to be retired or replaced.”
Whatever gets built over the next few years will power North Carolina well into the middle of the century.