North Carolina Solar

Author: Keith Martin Publication | August 2017

North Carolina opened the door to more solar energy while imposing an 18-month moratorium on new construction permits for wind farms.

Both actions are in a bill the governor signed in late July.

The solar provisions cut both ways.

North Carolina is second in the nation in terms of solar generating capacity with a little over 3,000 megawatts.

Solar developers have been able to enter into standard-offer contracts with North Carolina utilities to sell them electricity from small solar projects of up to five megawatts in size. The sales are at the utility’s “avoided cost” the utility would have to pay to generate the same electricity itself. The bill reduces the project size to qualify for such contracts in the future to just one megawatt, and the size limit for contracts with individual utilities will drop to 100 kilowatts once the utility has signed 100 megawatts of standard-offer contracts after November 15, 2016.

Past standard-offer contracts had terms of 15 years. Future contracts will have terms of “up to” 10 years.

Developers with larger projects can negotiate directly with utilities, but any such power purchase agreements signed cannot fix the electricity price for more than five years.

In better news, the bill orders North Carolina utilities to issue requests for proposals to buy “energy and capacity from renewable energy facilities in the aggregate amount of 2,660 megawatts.” The procurements are supposed to be spread over a 45-month period. Only projects of up to 80 megawatts can bid.

Utilities are allowed to build up to 30% of the 2,660 megawatts themselves. The rest must come from buying projects from developers or signing power purchase agreements with terms that are initially expected to run 20 years. The bill directs the North Carolina Public Utilities Commission to explore additional procurements after the initial 45-month period.

Independent generators will also have a third option. The bill directs each North Carolina utility that had more than 150,000 retail customers as of January 1 this year to set up a program where military bases, the University of North Carolina and other nonresidential customers with electricity loads of at least one megawatt in a single location or an aggregate of at least five megawatts at multiple locations can arrange directly with an independent generator to buy electricity, but then run the purchases through the utility.

The contracts would have standard content and run between two and 20 years. The utility must offer a range of contract terms; the customer can choose the length it prefers. The customer can also negotiate with the supplier over price.

A customer would not be able to contract for more than 125% of its peak load. Each covered utility must offer the program for five years or through 2022, whichever is later.

North Carolina utilities would not be required to enter into more than 600 megawatts of such contracts. Of that amount, at least 100 megawatts must be reserved for any major military base in the utility’s service territory and at least 250 megawatts across all utilities must be reserved for the University of North Carolina. The military bases and the university have until the end of 2020 or three years after approval of the program, which is later, to subscribe for their full allocations. If not used by then, then the allocations can be used by other customers.

The utility would give the customer a bill credit to use against its bundled service from the utility for the contracted electricity. The bill credit cannot exceed the avoided cost the utility would have to spend to generate the electricity itself.

The bill opens the state to rooftop solar companies that want to offer solar leases. Such companies may only lease rooftop solar systems to customers; they may not sign power agreements with customers to sell them electricity.

This will make it challenging for the rooftop companies to do business with schools, hospitals and other government or tax-exempt entities, since solar equipment leased to such entities does not qualify for a federal investment tax credit or accelerated depreciation. Any “lease” to such an entity will have to be structured so that it qualifies as a “service contract” for federal income tax purposes to avoid losing the federal tax benefits.

The total solar leases signed in a utility service territory cannot amount to more than 1% of the utility’s peak load on average over the previous five years. Customers can reserve space under the cap, but cannot transfer the reservation to someone else.

Any solar rooftop company proposing to engage in the leasing business must get approval from the North Carolina Public Utilities Commission.

Utilities may also offer solar leases.

One thing that has made the solar rooftop business work is net metering, where a customer with solar on his or her roof can sell any extra electricity generated during the day to the local utility. The electric meter runs backwards, so that the effect is for the customer to sell at the local retail rate.

The bill requires each North Carolina public utility to file a revised net metering rate for use with customers who own or lease solar systems. The new rates are to be established after “an investigation of the costs and benefits of customer-sited generation” and must be at a level that ensures the customer pays its “full fixed cost of service.”

Owners of rooftop systems that are already connected to the grid before any new net metering rates are approved can still do net metering through 2026 at the rates in effect when their systems were connected to the grid.

The bill would also open North Carolina on a limited basis to community solar.

In a community solar project, an independent developer builds a utility-scale solar array and sells subscriptions to local residents, businesses, schools and other potential customers. Community solar projects were originally conceived as a way for customers who cannot put solar panels on their roofs to benefit still from solar. The electricity from the array goes to the local utility. The subscribers receive bill credits from the utility for their shares of the electricity from the community array.

The bill requires each utility to file a plan for a 20-megawatt pilot community solar program in its service territory. An array cannot be more than five megawatts in size. Each subscriber must subscribe for at least 200 watts of output. There must be at least five subscribers per array. No one subscriber can subscribe to more than 40% of the output.

The subscriber must be in the same county as the array, but the regulatory commission can approve exceptions where arrays are up to 75 miles from the subscribers.

The subscribers will receive bill credits at the utility’s avoided cost.

Finally, the bill imposes a moratorium through 2018 on issuance of new permits to build wind farms or expand existing ones while the state assesses what effect existing wind farms are having on military installations in the state. The moratorium does not apply to any new project or expansion of an existing project that received a written “Determination of No Hazard to Air Navigation” from the Federal Aviation Administration, or for which a completed permit application was filed with North Carolina, by January 1, 2017.

The governor, Roy Cooper, is unhappy with this part of the bill. He instructed North Carolina agencies to work with wind developers so that their projects are ready to move quickly once the moratorium is lifted.


Contacts

Keith  Martin

Keith Martin

Washington, DC