in Electric Utility Restructuring

Recommendations for Developing Renewables and Reducing Demand
Open Market
Renewable Portfolio Standard (RPS)
Public Benefits Fund (PBF)
Status and Potential of Renewable Energy and Energy Efficiency in North Carolina:
Benefits of Using Renewable Energy and Energy Efficiency
Summary
 

The North Carolina Solar Energy Association (NCSEA) is the primary statewide nonprofit organization advocating for renewable energy and energy efficiency policy. We are honored to present to the Study Commission our position on restructuring North Carolina's electric utility industry.

The current regulated electric industry is not adequately protecting North Carolina's environment or enhancing her economy. We view restructuring as an opportunity to improve North Carolina's economy and environment by opening the market to underutilized energy sources --renewables and energy efficiency. These energy sources are cost effective, beneficial to the environment, and will contribute to the sustainable economic growth of our state. We have studied restructuring issues in the context of North Carolina and looked at ways we can improve on the experiences of other states. We acknowledge that this is only the beginning of a long process that will likely need more study and extensive discussion. We look forward to the involvement of all parties, including the public, after a proposal is drafted by the Study Commission.

NCSEA's response to the eleven questions posed in the "Request for Written Comments" can be found attached to this executive summary. NCSEA's full report presents comprehensive responses to many of these questions and should be read in its entirety to fully understand our position.

NCSEA's goal and the goal adopted by the NC Energy Policy Council in 1992 is to have 20% of all energy in North Carolina generated by renewables by 2010. The Energy Policy Council is the state board charged with making recommendations on energy policy to the Governor and General Assembly (General Statute 113B).

To achieve this goal, NCSEA recommends a three part, coordinated approach:

• Opening the market for competition and green power;
• A Graduated Renewable Portfolio Standard (8% in 2000 and 20% by 2010); and
• A Public Benefits Fund of 2.5 mills.

1. Open Market

North Carolina's electric generation market must be opened to competition and customers given a choice of their electric supplier. With an open, competitive electric industry, unforeseeable and large benefits from technological innovation and new business opportunities can accrue to North Carolina. NCSEA believes that when customers have a choice, "green power" marketing will become a major market force providing a way to achieve a clean, sustainable energy future without requiring enforcement of mandates or continuing subsidy of renewables past a transition period to a competitive market. To establish an open generation market NCSEA recommends the following changes be part of restructuring legislation:

• Provide choices to all customers and allow them to aggregate.
• Establish an easy-to-use and accessible consumer protection service.
• Provide adequate information and education to customers, such as disclosure of generation fuels and emissions and certification of renewable resources, so they can understand and participate in an open and competitive market.
• Provide open access to customers for non-utility, on-site and distributed generators.
• Establish a competitive market for electricity by separating the different functions of the electric utility industry into independent, non-related entities for deregulated generation and regulated transmission and distribution.
• Create a marketplace where distribution companies will sell a complete range of energy services and products by requiring that their fees not be based on the amount of energy sold.

The RPS would require each utility selling power in North Carolina to use renewable energy generation to generate a certain percent of its electricity. The RPS is a flexible, easily verifiable way to guarantee that renewables grow in the new deregulated market. With a RPS included in restructuring legislation we will have a cleaner, sustainable energy future and an improved local economy.

A RPS will help lower the cost and increase the competitiveness of renewable technologies by increasing sales and commercialization and improving the technology. It will help level the playing field. Non-renewable fuels and generation technologies currently have a large market advantage over renewables due to government subsidies and research and development assistance, already capitalized existing generating plants, and possible recapitalization of some plants through stranded cost payments . Additionally, even though wind and micro hydro generation costs are now comparable to other generation technologies, North Carolina utilities have shown little interest in generating electricity with renewables since the middle third of this century when the major hydro dams where built. Most recent renewable investments have been made by independent power producers such as micro hydro investors, industries building cogeneration plants, or consumers installing small solar, hydro and wind systems. For the renewables to grow in an unregulated, lowest cost generation market, a RPS is necessary at least until the 20% goal is reached.

Generating utilities can meet the RPS by building renewable generation, long term purchase contracts for block purchases of renewable power, purchase of credits from other generators with renewable generating capacity in excess of the RPS, or by purchasing credits created by the installation of small renewable energy systems by others.

NCSEA proposes to achieve this goal using the following timetable:

8% by 2000

15% by 2005

20% by 2010.

A PBF is a wire charge applied to the sale of all non-renewable generated electricity and is simillar to the system benefit charge used in other states. It will support smaller scale renewable energy projects, energy efficiency projects not done by the marketplace, training, consumer education, low interest loans and other financing mechanisms as well as funds for low income assistance.

During the transition period to a competitive market a significantly large PBF is necessary because deregulated energy marketers will not provide the necessary funds to continue renewable and energy efficiency investments or low income assistance that NC has supported in the past. As a preview of what will happen in a competitive market, we only need look at the past five years, during which the utilities have abandoned renewables and efficiency to concentrate on producing maximum income from energy sales and commercial investments. A PBF is also necessary because a RPS will favor only today's economical and established renewable technologies. Whereas the PBF will commercialize newer technologies, provide affordable loans for in-state, smaller scale, renewable and efficiency projects creating new local jobs and businesses while at the same time supporting the goal of the RPS. Lastly, a PBF is necessary for the same reasons stranded costs must be addressed: both actions are necessary to correct past mistakes and market imperfections caused by ignoring pollution from electrical generation, decades of regulated monopoly control, and past energy crises.

NCSEA recommends 2.5 mills per kWh ($.0025/kWh), which will generate approximately $240 million annually, plus an appropriate amount for low-income assistance, to be collected starting in 2000 and reduced after 2005. NCSEA also recommends that these funds be administered separately for energy efficiency, renewable energy and low income programs, and that renewables receive at least as much as energy efficiency, in order to assure success for each.

Renewables, in the form of hydroelectric, biomass and solar energy currently contribute about 10% to electrical generation. Much of the biomass contribution is provided by private companies burning wood waste and landfill gas to produce electricity for their on-site electrical needs. Most of these technologies are fully developed or have recently made significant improvements in both efficiency and costs. Existing North Carolina solar installations in residential, institutional and commercial buildings are mainly for active and passive space heating, water heating, and daylighting. In the 1990s, due to falling prices, increased efficiencies and new technologies, solar electric generation (photovoltaics) has begun to tap into niche markets.

Solar Energy: Solar energy technologies may generate electricity or may provide energy that would substitute for electricity or other fuels. Photovoltaics and high temperature solar thermal energy production are suitable for providing electricity, while the others mentioned below displace conventional fuels and electricity that would otherwise be used in buildings.

Photovoltaics (PV): Panels convert sunlight to electricity; either in large arrays, providing energy to the grid, or on a specific building, such as the NC Solar Center's Solar House in Raleigh, the new Applebee's restaurant in Salisbury, the former headquarters building of North Carolina Power in Roanoke Rapids, and the CCB Bank building in Bessemer City.

Solar Thermal: These systems convert sunlight into energy using concentrating collectors and a heat transfer or phase change material. The energy can be used for industrial processes, district heating and cooling, or to generate electricity for the grid.

Passive Solar: This includes natural heating, cooling and lighting for both commercial and residential buildings, using correct building orientation and carefully calculated glass areas, overhangs or shading, and thermal mass. These technologies have been proven for decades to be cost effective and improve the quality of work and living spaces. An example a of successful local daylight school is Durant Road Middle School in Raleigh. A prime example of a passive solar house is the North Carolina Solar Center's Solar House in Raleigh. In North Carolina, there are estimated to be more than 25,000 passive solar houses constructed over the past twenty years.

Active Solar Domestic Water and Space Heating: This technology was used extensively in the early 1900s and has proven to be effective for nearly a century as a way to heat water or provide space heating with no fuel costs. These systems are usually located on a single building and provide up to 80% of a familly's hot water needs, reducing the need for fossil fuels. North Carolina is estimated to have more than 25,000 solar water heating systems in use today, and 10,000 or more active space heating systems.

Wind Power: Since the last wind resource study was done in North Carolina in 1984, costs have dropped significantly; wind power is now available for $.05 to $.07 per kWh. Large-scale wind power is in use in several Midwestern and Western states in the U.S. as well as in Germany, Denmark, and other countries. New technologies use smaller, quieter, and more efficient units than previously tested in N.C. Their reliability has increased from 60% in the 1980s to 98% currently. Four installations in Carteret County are operating currently, providing power to 3 residences and a museum.

Energy Efficiency: End-use efficiency measures have been proven to be very cost-effective for the end user and produce public benefits such as reduced pollution and lower investments in electric infrastructure. Given the high losses incurred in converting fuel to electricity, a unit of energy saved is worth more than a unit of energy generated. The use of higher efficiency equipment for lighting, heating and air conditioning, motors, and manufacturing processes should be encouraged as a means to save money, increase business profits, and lessen environmental impacts of using electricity.

Hydroelectric: Four million megaWatt hours (MWh) are currently in use in the grid, providing 5.9% of the state's electricity. The potential for at least another 4 million MWh from small- to medium-scale existing, unused sites is available.

Biomass: Wood waste generation is primarily site generated; it is estimated to be 2.6% of the state's energy mix, including the Weyerhaeuser 113 MW plant, which is one of the largest in the US. There are also landfill gas facilities in the several areas of the state. Potential exists for using poultry and hog waste and for converting tobacco crops to energy crops. Together these two options could provide an additional 5.4 million MWh of electricity.

• Economic

Renewable energy is our state's only indigenous energy source. Currently, $0.30 of every dollar spent on electricity in North Carolina goes out-of-state for fuel costs. For every dollar spent in-state for renewable energy rather than coal or nuclear fuel, almost $3 is created by a multiplier effect. For instance, when $1.00 is spent for fuel, our economy loses that dollar. If that dollar is spent in-state, it will ripple through the economy, tripling in terms of money spent in the community. Additionally, energy dollars spent in-state for electricity generated by renewable energy and energy efficiency will creating high quality, local jobs and businesses.

• Energy Diversity and Economic Security

North Carolina's energy portfolio should be expanded. With a majority of our electricity generation currently relying on coal and nuclear, we are at risk for price increases and fuel shortages, both of which are beyond the control of the generating companies. If our energy sources are expanded to include indigenous renewable energy, we would have more energy choices to rely on, making our portfolio more secure, much like an investment portfolio that has a large number of investments. Since most renewable energy is immune to fuel price and supply changes, costs would be much more stable for these resources.

• Environmental

Our state's economic and population growth has resulted in more air pollution as utilities burn more coal to meet the demand for more electricity. We can reverse this negative environmental trend by using more renewable energy to meet demand, and by using energy efficiency measures to reduce the amount of new electricity needed. The EPA is expected to list all three of North Carolina's largest metropolitan areas (Charlotte, the Triad and the Triangle) as "non-attainment" areas this year. Currently, we rank twelfth in the U.S. in carbon dioxide emissions, releasing 126.5 million tons into the atmosphere each year. Emissions from utility power plants are responsible for one-third of these releases and are the largest single source of greenhouse gas emissions in the state. Other pollutants resulting from coal burning that have serious health impacts, which are not produced by the use of renewable energy, are sulfur dioxides, nitrous oxides, particulates, ozone, mercury and lead.

• Satisfying Customer Preference:

Extensive polling of consumers in several states has shown that a significant percentage want to buy power that was generated by renewable energy and that they would pay more for this power in return for the beneficial environmental and societal impacts. A poll of North Carolinians should be conducted on this issue.
 

 Summary

While the above recommendations will reorient North Carolina's electricity sector in a major new direction, producing profound economic and environmental benefits for our citizenry, caution is urged. A successful program will require the specific goals of the RPS, funding of the PBF, disclosure of fuel sources and emissions, and opening our market to certified green power. Such a program must be comprehensive. The details of its implementation will be difficult, challenging the best minds in our state and requiring careful crafting. Political fortitude will be necessary to keep the entire process independent and out of the control and domination of any single sector.

Study Commission members and legislators will have to balance the pressures of the next election or balance sheet and act for the benefit of our environment and economy. As the polls and proliferation of green power programs attest, the public is way ahead of us. They know what energy future is best for their children and future generations. NCSEA steadfastly believes this Study Commission will ultimately reach the same conclusion as its constituents and customers that the best future for North Carolina is one that is economically and environmentally sustainable. We encourage the Commission to provide leadership in restructuring the state's electric utility industry in a decisive and courageous manner to create a new and better energy future for our citizens that is increasingly sustainable and efficient because it is based on the use of clean energy sources and reduces the need for future energy supply.

Successful electricity restructuring holds the key to North Carolina's economic growth, environmental quality, and energy security. Restructuring North Carolina's electric industry is much more than lower rates, stranded costs and opening up the retail market. It's about designing the state's energy and economic future.