As another long legislative session drags on in North Carolina, once again the state’s Renewable Energy and Energy Efficiency Portfolio Standard (REPS) – which requires the state’s investor-owned utilities to meet up to 12.5% of their energy needs through renewable energy or energy efficiency – is under attack. Two bills with provisions to freeze the REPS are under consideration, with a likely deleterious impact on solar development in one of the country’s most active markets, and the regional leader in the Southeast.
This year’s session has been notable for the fast-moving changes that have made bills hard to track as they are shunted between committees and passed back and forth between the House and Senate. While the status of any individual bill could change at any moment, a quick overview of key energy bills is provided here to help North Carolinians keep up the pressure on their elected officials to protect the clean energy jobs and economic development that solar and other renewable resources have brought to the state.
North Carolina is a recognized leader in renewable energy, primarily as a result of its fast-growing solar market. The state now has more than a gigawatt (1000 megawatts, MW) of solar, ranking it fourth nationally, and last year almost 400 megawatts were installed, trailing only California. The benefits brought by solar development have been significant: according to a study released by Duke University in February, the state’s solar industry and its suppliers now employ more than 4,300 workers at 450 companies – representing over $2 billion of direct investment in the state, the bulk of which is going to economically-challenged rural areas.
Policies such as the REPS, enacted in 2007, along with a generous renewable energy tax credit and local tax write-off for solar installations, are largely to thank for this economic boom. But the REPS is under attack in the General Assembly, the 35% state investment tax credit is set to expire on December 31st of this year, and North Carolina remains one of only four states that expressly prohibit third-party electricity sales, a growing practice that is driving solar development across the country. All of these topics are being considered in Raleigh.
H760: The Regulatory Reform Act of 2015 (or is it H332?)
The REPS faces perhaps its most viable threat to date, as language to freeze its requirements is now included in two separate bills: H760, the Regulatory Reform Act of 2015, and Energy Policy Amendments bill H332.
An article published on this blog more than a year ago discussed efforts in the last legislative session to repeal the REPS through House Bill 298, which was ultimately voted down in committee. This year’s attack on the REPS is more nuanced, in that it would not repeal the REPS but would instead freeze it at 6% of Duke Energy’s generation, as well as allow energy efficiency to fulfill half of that goal, up from the current 25% allowance in place through 2020. Given that these levels of energy efficiency and renewable energy have already been achieved in North Carolina, the bill would mean the effective end of the REPS.
The REPS freeze language bounced around a bit in the House before being included in H760, which was passed on the House floor and sent to the Senate. When the Senate didn’t move on that bill, the Senate Finance Committee added the same provisions from H760 to H332 and passed it on a controversial voice vote, with opponents claiming that it did not pass the voice vote and Chair Senator Rucho ignoring their calls for division. The bill has not been officially reported out of committee, likely because of the outcry that resulted, but either bill could be sent to the Senate Floor at any time.
Both bills also include a lesser-known threat to solar energy development, a provision that would lower the standard offer contract threshold from the current 5 MW to just 100 kW. The standard offer contract has been an important driver of solar development in North Carolina because it requires the state’s investor-owned utilities (IOUs) to enter into 15-year contracts with any facility smaller than 5 MW to purchase the energy generated by that facility at the standard offer service rate set by the North Carolina Utilities Commission (NCUC).
These contract terms provide economic certainty for solar developers and have driven the bulk of solar development – as of October 2014, 80 percent of the 349 solar projects interconnected in the state had capacities of 3 MW or less. Last December, Duke Energy proposed this exact change in the contract terms to the NCUC. The Commission ultimately ruled against the company’s request, finding that it was appropriate for the state’s three investor-owned utilities to continue offering 15-year contract terms to qualifying facilities under 5 MW.
On May 27, three high-profile technology companies – Apple, Facebook, and Google – that have chosen to establish locations in North Carolina, in part to meet their corporate commitments around clean energy, sent a letter to the President of the Senate and Speaker of the House urging them to continue the REPS and maintain the current contract terms. As they stated in their letter, “our collective experience shows that programs like the REPS can actually reduce the overall cost of energy to ratepayers.”
Solar Investment Tax Credit
Another important driver of solar development in North Carolina is the 35% state tax credit for eligible facility owners; combined with the 30% federal Investment Tax Credit (ITC), these credits provide a significant economic incentive for solar developers. The state tax credit is due to expire this year, but legislators in the House of Representatives have included an extension of the credit – at the current 35% level in 2016 and dropping to 20% in 2017 – in their version of the budget.
The tax credit extension is not included in the Senate budget, nor was it included in Governor McCrory’s budget, which called for letting the solar credit expire while continuing tax credits for other forms of renewable energy. Resolution could be a long time coming, as the budget negotiations are a battleground this year that are likely to extend the length of the session for weeks or months to come. There has already been one continuing resolution, and another one will be needed to avoid a government shut-down if the Governor hasn’t signed the budget by August 14 – a deadline the General Assembly is unlikely to meet.
H245: The Energy Freedom Act
Another bill that has received a lot of attention in this session is H245, The Energy Freedom Act proposed by Representative John Szoka. This bill is similar to one passed earlier this year in Georgia to allow 3rd party sales of electricity to customers who install solar systems on their properties. H245 would open the market to companies that install solar systems on residential or commercial rooftops and sell the power to the homeowners and businesses through a lease or a power purchase agreement (PPA).
North Carolina, along with Florida, Kentucky, and Oklahoma are the only states that expressly prohibit 3rd party ownership of solar systems, which have opened up the market in states where they are permitted by helping customers avoid the high upfront costs of buying the system outright (the average cost for a 5 kilowatt home solar array is just under $20,000). In 2014, this type of financing arrangement accounted for over 70% of all U.S. residential solar installations. Just not in North Carolina, which, despite its status as a national leader on solar overall, has only about 1,700 rooftop systems in the entire state.
What happens now?
The first priority in the General Assembly is to pass a budget, and that process seems likely to drag on for a while longer. There is no deadline for ending the session, and as a reference point, the 1998 session lasted a record 170 days. The budget will eventually have to be passed, hopefully with the solar tax credit extension included, but no movement is required on any other bill – bills that met the Crossover deadline or were exempt from Crossover remain eligible for consideration in next year’s legislative session.
For now, we are watchful and waiting to send out action alerts for specific issues as they arise, so please stay tuned for continuing updates. In the meantime, we urge solar proponents to keep making their voices heard at the General Assembly through phone calls, letters, and even visits to Raleigh.