New North Carolina regulatory order trims PURPA avoided cost rates

Dive Brief:

Rates paid to developers of renewable energy projects in North Carolina are set to decline under an Oct. 11 order by the North Carolina Utilities Commission (NUC).
In addition to calling for a recalculation of avoided cost rates paid to Qualifying Facilities (QFs) under the Public Utility Regulatory Policies Act of 1978, the NUC order also incorporates changes wrought by the state’s recently passed energy legislation, HB 589.
The NUC order also lowers the threshold for eligibility for standard QF contracts and reduces the term of those contracts. In exchange for the changes to PURPA in HB 589, developers won the opportunity to provide North Carolina utilities with 2,660 MW of renewable energy over the next 45 months through a solicitation.

Dive Insight:

North Carolina’s energy sector is in the midst of major changes. In addition to HB 589 and the NUC’s biennial review of PURPA avoided cost rates, state regulators are also working out details of an upcoming renewable competitive procurement, changing rules for net metering rules and community solar and looking at a “green service rider” that would allow utilities in the state to buy renewable energy for customers.

HB 589, passed in July, enacted several changes in how North Carolina implements PURPA. It lowered the threshold for eligibility for standard offer contracts under PURPA to projects of 1 MW of less, from the previous 5 MW. The law also shortened the length of standard offer QF contracts to 10 years from 15 years.

The payments made to owners of projects above the threshold are still based on avoided costs but will be negotiated between the developer and the utility, and the contracts cannot have a term of more than five years.

The NUC order also directs utilities in the state to recalculate the avoided costs they use to pay QFs. The major input in that formula is the price of natural gas, which has declined in the past couple of years. The NUC order also eliminates capacity payments for QFs in years when the utility’s Integrated Resource Plan does not identify a need for new capacity.

Duke Energy welcomed the commission’s order. “We feel like it generally supported our philosophy of where we should be going with solar,” spokesman Randy Wheeless told the Charlotte Business Journal, adding, “We think there will be more solar going forward.”

Solar advocates were less sanguine. “I think it is concerning that the commission adopted the changes it did,” Peter Ledford, counsel for the N.C. Sustainable Energy Association, told the paper. He said the order would have “a suppressing effect” on prices paid for solar power.