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Dec 30, 2013

Buying Renewables Through Utilities

Duke Energy Gives Customers What They Want

 

Duke Energy officially has the green light from the North Carolina Utilities Commission to launch a new renewable energy program in North Carolina. The program will enable select large customers to secure up to 100 percent of new electricity needs from renewable energy sources.

This development was foreshadowed in April, when Duke and Google, a key customer seeking expanded renewable energy options in North Carolina, announced Duke’s commitment to develop the program. In the eight months since the initial announcement, Duke worked to develop a program that responds to an increasingly prevalent trend: influential customers stepping forward to urge utilities to expand clean energy programs.

Data centers represent one of the fastest-growing sectors of electricity consumption, and leaders in this space such as Google, Apple, and Facebook have taken bold steps to match their energy-hungry operations with renewable energy sources, such as when last month Facebook announced it would pair a new Iowa data center with a now-under-construction 138-MW wind farm. In most cases (like the Facebook Iowa example), the solution has been a single renewable energy project or portfolio of projects, sized to match the electricity needs of a particular data center or other large customer, and negotiated directly with the utility serving the data center.

Duke’s program, in contrast, would be available to any customer that meets the program criteria, and Duke would take on the duties of building or securing the renewable resources that the customer desires. This is noteworthy since few customers have the combination of money, influence, ambition, and energy market sophistication to pull together power purchase agreements (PPAs) and other arrangements for off-site renewable energy projects and negotiate unique deals with their utility.

“While the renewable facility output is not being used directly to power a Google data center, the PPA arrangement assures that additional renewable generation sufficient to power the data center came on line in the area,” Google said in an April 2013 statement. “The downsides are that these PPAs require us to actively manage purchases and sales of power on the wholesale energy markets, which can be a complex process.” That doesn’t have to be the case.

Enter the new offering from Duke. “The most straightforward way … is for utilities to offer a renewable power option for companies that request it—something that’s not currently offered by most utilities,” wrote Google’s director of global infrastructure Gary Demasi earlier this year on the company’s blog.

Duke’s program will allow customers to run their operations with 100 percent renewable energy, made up of a portfolio of renewable resources that they can customize, without having to take on the duties of developing or operating those projects. The customer—whether Google or another company—can basically outsource its renewable energy desires to the experienced utility, which would handle all the complexity of making it happen.

To be sure, Duke’s program has a number of associated restrictions. For now this is a program for a select set of customers and not the masses. Nonetheless, it is a very significant step forward from single customers pulling together complex deals directly with their utility. The restrictions that Duke has established are meant to address key issues, in hopes of getting the program approved and in play swiftly—a successful move, given NCUC’s approval earlier this month.

One of the key issues that Duke faced in designing this program was to assure key stakeholders such as consumer advocate groups that the program would not raise rates for any non-participating customers. And at a point in time where the costs and benefits of renewable resources are a widely debated and contentious topic, Duke took what is arguably a belt-and-suspenders approach to ensure that non-participating customers would not be harmed.

For instance, a key restriction on the program is that only new customers (or new load from expanded operations of existing customers) can participate in the program. On one hand, this could be seen as an innovative economic development incentive to attract customers to Duke’s territory. But on the other hand, restricting the program to only new load avoids concerns of the utility willingly and voluntarily “removing” existing load from its rate base and shifting costs to the remaining existing customers. Duke’s program matches participating new load with new renewable resources, thus eliminating any rate impacts (positive or negative) to remaining customers in future rate cases.

Other restrictions include:

  • Making the program available only in the North Carolina portion of its Duke Energy Carolinas footprint (that is, portions of central and western North Carolina)
  • Allowing customers only on select rate schedules to participate
  • Capping the customer’s energy and capacity bill credit from the renewable resources so that it can never be higher than the cost of those resources, in effect ensuring the customer’s bill will be higher than it would have been had they not enrolled in the program
  • Imposing requirements on participants ranging from application fees, charges for administrative costs, and credit requirements to ensure that Duke and/or its non-participating customers aren’t left “holding the bag” if a participating customer goes bankrupt or closes its local operations

Collectively, these restrictions are meant to ensure that Duke’s program satisfactorily addresses concerns from influential voices in the state that diligently watch costs that the utility passes along to customers, while also ensuring that customers who apply are serious, so Duke’s efforts under the program are more likely to result in meaningfully-sized additions of renewable energy resources in the state. And despite the restrictions, Duke has received positive indications from a number of customers that they are supportive and eager to enroll upon approval.

Additionally, the program is not all that small, as it will accommodate up to 1 million megawatt-hours of new annual renewable energy production. To put this in perspective, if the entire program were filled out with solar photovoltaic projects in North Carolina, this program alone could yield over 700 megawatts of new solar, more than five times the state’s installed solar capacity as of year-end 2012 (although less than the amount announced or under development given the state’s recent and ongoing solar boom). Not too bad for an “experimental pilot program,” as Duke called it in the application.

While Duke has made no commitments to expand the program beyond the current application, it is not hard to imagine that either Duke or its customers would seek to expand it in some way if this pilot proves successful. That could be opening the program to customers in other Duke Energy territories, expanding the program to customers on additional rate schedules, opening the program to existing (rather than just new) load, or developing more generous methods of crediting customers for the renewable resources while still demonstrating that non-participant bills are not being detrimentally impacted.

As the nation’s largest utility, Duke certainly has many customers across its six-state regulated utility footprint that would likely want something like this available to them, so here’s to hoping the pilot program that they have filed is a success and that it leads to continued innovation and expansion of renewable energy options for customers.

A version of this article also appeared on Greenbiz.

Image courtesy of Shutterstock.

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