Big decisions are coming regarding what resources will fill a looming hole in electricity generation as coal plants are retired and an uncertain amount of new load is added to the grid.

The North Carolina Utilities Commission (NCUC) has an electricity generation “hole” to fill on North Carolina’s road to decarbonization.

Two Looming Questions

We know this hole is coming, but two major questions remain: How big is it? And what should it be filled with?

Question 1: How Big is the Hole?

The hole is caused by retiring coal plants and the need for additional resources to replace that capacity to meet future load growth. The problem with this hole is that no one knows exactly how big it will be at any given time in the future. We do not know how big the hole will be because we don’t know how much of the projected load growth, fueled by data centers and manufacturing onshoring, will truly materialize and when. Grand projects (think Apple’s East Coast headquarters and EV manufacturer VinFast) have been announced over the past few years, only to be scaled back, slowed down, or even canceled. So the anticipated size of the hole shifts. And even if a data center arrives as planned, it could pack up and move to cheaper electricity pretty easily.

Question 2: How Should We Fill it?

The “how to fill it” question has two options:

• Shove a big fossil gas boulder into it that technically fills the hole but also creates a methane-saturated decarbonization roadblock (so what good is that?)
• Fill the hole with layers of flexible and nimble carbon-free resources that assure that the hole is filled – even if its size shifts – but does not block the road to decarbonization or force ratepayers to pay for more than is needed.

The Fossil Gas Boulder: Traditional Gas Plants

The fossil gas boulder in this analogy is Duke Energy’s proposed fleet of new gas plants, including two combined cycle plants in Roxboro and a third in a mystery location, and two combustion turbine peakers at the Marshall coal plant site near Catawba. Duke notes that these plants will be “hydrogen capable.” However, a new report by the Institute for Energy Economics and Financial Analysis (IEEFA) describes these claims as “little more than marketing designed to obscure the myriad of shortcomings and unanswered questions associated with hydrogen in methane-fired turbines.” IEEFA calls out Duke’s proposed plants specifically as “nothing more than traditional gas plants with environmentally friendly verbiage.” In addition, new fossil gas plants would require 20-year contracts with the pipeline company that provides the gas, and fossil gas will only get more expensive and volatile as it becomes a world commodity rather than a US commodity. Between the completely unknown hydrogen conversion costs, the pipeline supply commitment costs, and the likelihood of rising fuel costs, approval of these plants would lock North Carolina ratepayers into a significantly more expensive future. This is fundamentally at odds with the concept of least-cost planning.

Flexible Layers

So what are those layers of flexible, carbon-free resources? First, it is important to note that by the time Duke conceivably completes the first Roxboro combined cycle plant – in about five years – clean energy technology costs will have decreased further, technology advances will have leap-frogged ahead, deployments will continue nationwide, tax credits and direct pay will spur adoption, and the sun and wind will remain free. (Fossil gas technology does not leap-frog, and fossil gas prices will only go up.)

Five Years Will Make a Big Difference for Energy Storage and Offshore Wind

Energy storage, especially, continues to evolve rapidly, and costs continue to decline as technologies scale. Lithium-ion costs are declining in the four-hour peak needs space while flow batteries are gaining traction in the 12-hour space as peaks on the grid are shaved down and flatten out. Iron-air batteries are beginning to be deployed for situations where 100 hours of stored energy meets a grid need. Seasonal storage is rapidly innovating but is not yet showing up in utility grid firming plans. This will change. Long-duration energy storage is the subject of one of the Department of Energy’s Lift-Off Reports, and the Long-Duration Energy Storage National Consortium is working to support and focus these efforts. SACE is a Teaming Partner and a member of the Utility Planning Team associated with this effort. Duke Energy, to date, is not (though neighboring utilities Santee Cooper and Southern Company are, so perhaps this will change).

The outlook for offshore wind will also be very different in five years. Offshore wind technology is widely deployed worldwide, but it is in the early stages of figuring out the business models that will work in the US energy and regulatory environment. Projects that were planned and contracted before COVID became victims of high interest rates and supply chain snarls. Interest rates are coming down, supply chains are becoming more stable, and North Carolina is fortunate to have significant offshore wind resources that can soon be harnessed by wind turbines. This is where the business model becomes important. Offshore wind developers require a certain degree of regulatory certainty in order to invest in the supply chain and to develop and move resources to North Carolina. Offshore wind and our workhorse solar farms are known technologies (unlike hydrogen) — they can be paired with energy storage and grid-forming inverters to provide baseload electricity and grid frequency regulation.

Layer 1 should be the creation of regulatory certainty for offshore wind and long-duration energy storage, combined with encouragement of more solar paired with different intervals of battery storage as determined by grid needs. Wind projects in wholesale markets can sign long-term power purchase agreements with offtakers, including utilities. But in the vertically-integrated Southeast, the projects have to go through the utility, and this requires a level of regulatory certainty from its Commission.

Layer 2 is regulatory innovation. An example of an innovative regulatory construct that has advanced clean energy deployment at scale is Texas’ ERIS (energy resource interconnection service). Under ERIS,  a solar farm is interconnected but curtailed if its output would destabilize the grid, which has allowed more solar resources through Texas’ interconnection queue while transmission upgrades are made and grid-enhancing technologies are added.

Layer 3 consists of distributed resources of all types – energy efficiency, aggregation of demand-side resources, and virtual power plants. Programs can be developed for residential customers, low-income customers, and even large customers. The NCUC has already started this ball rolling when it ordered Duke to develop the residential solar plus battery storage pilot now deployed called PowerPair. But the pilot is small – 60 MW. Demand-side resources such as VPPs have been deployed for the last several years across the country. It is time to move past the pilot phase and tap into clean demand-side generation, efficiency, and peak load curtailment at scale. These programs are the fastest, most cost-effective (deploying private investment), and most nimble of all.

The Bottom Line: We Can Avoid Buyer’s Remorse

The size of the coal retirement/load growth hole is uncertain. But the fossil gas boulder is too big, dirty, rigid, uncertain, and expensive. A layered approach is the more prudent, cleaner, and most cost-effective way to fill the hole while meeting North Carolina’s carbon goals. This approach would consist of several complementary strategies:

• Regulatory certainty for offshore wind and long-duration energy storage
• Solar and battery storage energy-only resources in the near term (while we gain more clarity on the impact and size of load growth)
• Transmission investments that unlock more renewables as well as more access to neighboring utilities and markets
• Aggressive adoption of demand-side generation and response resources

If the NCUC selects the boulder approach, that mistake – a sort of buyer’s remorse – will become obvious within five years. But North Carolina’s ratepayers will be stuck paying that bill for decades.