TODAY’S STUDY: HOW NEW ENERGY SAVES NO CAROLINA’S RATEPAYERS’ MONEY

The Economic, Utility Portfolio and Rate Impact of Clean Energy Development in North Carolina

February 15, 2013 (North Carolina Sustainable Energy Association)

Executive Summary

North Carolina is a leader among Southern states in developing public policies to foster statewide clean energy development. Between 2007 and 2012, clean energy investment increased 13-fold and generated or saved more than 8.2 million MWh of energy through a combination of renewable energy and energy efficiency projects.

Although these energy impacts have been documented in national energy surveys, the impact the expanding clean energy sector has had on the North Carolina economy has yet to be quantified. To fill the knowledge gap, RTI International and La Capra Associates, Inc. conducted an economic, utility, and rate impact analysis of clean energy development for the North Carolina Sustainable Energy Association (NCSEA).

The analysis had three broad components:

1. RTI reviewed North Carolina’s business and investment climate for clean energy development, including the effects of three key state policies: Renewable Energy and Energy Efficiency Portfolio Standard (REPS), renewable energy tax credit, and Utility Savings Initiative.

2. RTI performed a retrospective economic impact analysis of renewable energy and energy efficiency investment on the state economy between 2007 and 2012.

3. La Capra analyzed the rate impacts of clean energy development to date and expected in the future.

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Our research findings are as follows:

 North Carolina’s clean energy and energy efficiency programs achieved the following:

– Spurred $1.4 billion in project investment statewide between 2007 and 2012. This was supported by the state at an estimated $72 million.

– Contributed an estimated $1.7 billion between 2007 and 2012 to the gross state product, including secondary effects. This estimate includes renewable energy project construction and operation benefits, state costs and incentives, reduced conventional energy generation, utility customer fees, and energy efficiency benefits.

– Created or retained 21,163 job years from 2007 to 2012.

 There is no appreciable rate impact to residential, commercial, and industrial customer groups through 2026 resulting from state renewable energy and energy efficiency policies. By 2026, this switch to clean energy will lead to $173 million in cost savings.

 Over the 20-year period since the start of clean energy policies in North Carolina, rates are expected to be lower than they would have been had the state continued to only use existing, conventional generation sources.

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Prospective Rate Impacts of Clean Energy Policies

In this section, we discuss the rate impacts of North Carolina’s clean energy policies. Although we analyzed and calculated rate impacts throughout the entire study period (2008 to 2026), this analysis combined both retrospective (2008 to 2012) and prospective analyses (2013 to 2026). As a result, we compared two scenarios—one where existing clean energy policies are in place throughout the study period and one where only the energy policies prior to 2007 are in place…

Developing The Clean Energy Portfolio

The first step in developing the Clean Energy Portfolio was to determine the amount of renewable energy capacity already installed that is eligible for REPS compliance as a “new renewable energy facility.”

We began with existing (as of 2012) renewable resources and energy efficiency measures identified in the economic impact analysis. We assumed that sufficient renewable resources would be added from 2013 to 2026 to ensure compliance with REPS (given additional assumptions as described below). We did not assume a leastcost approach to REPS compliance; rather, we assumed a combination of wind, biomass, and solar PV resources would be added from 2013 to 2015 as projected in Duke Energy Carolina’s 2012 Integrated Resource Plan (IRP). Thus, the rate impacts shown below would decrease if lower cost REPScompliant resources, such as onshore wind, were deployed instead of higher cost resources, such as solar. However, we did assume that solar resources built to meet the general REPS requirement (after achieving full compliance with the solar setaside) would be “utility scale” and thus enjoy scale economies compared with smaller facilities. The cumulative installed capacity of “new” renewable resources in the Clean Energy Portfolio is shown in Table 4-2.

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We estimated REPS requirements through 2026 based on data and projections in utilities’ latest REPS compliance reports and the 2012 North Carolina Utilities Commission (NCU**C) Report on Long-Range Resource Needs. REPS requirements differ for three groups of utilities. Dominion North Carolina Power is allowed to purchase RECs) from out-of-state facilities for 100% of its compliance. Electric membership corporations and municipalities have a slightly lower requirement than investorowned utilities (IOUs) and have more resource options for compliance—notably from existing renewable energy facilities, including allocations made by the Southeastern Power Administration. Duke and Progress (and, going forward, the merged Duke Energy) are the only utilities required by REPS to meet a portion of the REPS general requirement with energy from new renewable energy facilities.We also assumed that utilities would use out-of-state RECs (which are anticipated to continue to be cheaper than in-state RECs) to the maximum allowed percentage of the compliance requirement.

Energy efficiency is a critical element of the Clean Energy Portfolio. We relied on RTI data for energy efficiency savings achieved through 2012. For 2013 to 2026, we used projections from the 2012 IRPs of Duke, Progress, and North Carolina Electric Membership Corporation. We then estimated the prorated North Carolina share of system-wide energy efficiency savings based on retail sales. Based on our review of the IRPs, we project that IOUs will exceed the maximum energy efficiency savings that can be used toward compliance with REPS.

Developing Conventional Portfolio Alternative

We developed a Conventional Portfolio alternative to the Clean Energy Portfolio by assuming that no renewable energy resources are built as a result of REPS and no energy efficiency measures are initiated after 2007. The energy that is assumed to be generated or saved by these resources in the Clean Energy Portfolio is replaced by a least-cost portfolio of conventional resources. We assumed that biomass co-fire generation and nondispatchable renewable generation13 would be replaced by additional dispatch at existing coal plants, which adds further conservatism to our cost estimates of the Conventional Portfolio. Table 4-3 provides a summary comparison of the Clean Energy and *Conventional Portfolios. Because the analysis is based on a levelized cost approach, we did not make any assumption about capacity (MW) build-out in the Conventional Portfolio.

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Estimating Incremental Portfolio Costs

We estimated the annual cost of the incremental portfolios by multiplying the assumed annual output (or savings) from each resource type by the levelized cost for the resource typ*e in the year it came online. The sum of levelized costs for all resources online in a given year is the incremental generation cost of the portfolio. We estimated total North Carolina generation supply costs using the latest Department of Energy projections (Energy Information Administration [EIA], 2012) for the Virginia/Carolinas region. Figure 4-3 shows that the incremental cost of the Clean Energy Portfolio is a very small portion of the total generation costs needed to serve North Carolina’s electricity needs.

It is important to note that the red bar in Figure 4-3 does not represent the rate impact of clean energy policies. Rather, the red bar represents the cost of the incremental production associated with clean energy policies. These costs would not go away in the absence of clean energy policies because this production would have to be replaced by other resources, which we show in the next figure.

Figure 4-4 compares the incremental costs of the Clean Energy Portfolio and the Conventional Portfolio. The costs of the two portfolios are quite similar through 2016, but thereafter the Clean Energy Portfolio begins to show a lower cost trajectory than the Conventional Portfolio. By 2026, the Clean Energy Portfolio provides about $173 million in generation cost savings compared with the Conventional Portfolio. These cost savings are largely due to expansion of energy efficiency programs, which are forecasted to continue to be cost-effective compared with existing, conventional supply resources.

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Rate Impact Analysis

The rate impact of the Clean Energy Portfolio compared with the Conventional Portfolio was calculated by dividing the difference in total generation costs by projected North Carolina retail sales. The result is an estimate of the cents per kilowatt-hour impact customers can expect to see in their bills as a direct result of clean energy policies. As shown in Figure 4-5, in all but a few years customers can expect savings in the generation portion of their electric bills as a result of clean energy policies such as REPS, state and federal tax credits, and energy efficiency incentives. For a typical North Carolina residential customer, the monthly savings amount to almost $0.50 in 2012 and more than $1.00 by 2024.

Figure 4-6 shows the expected rate impact as a percentage of total end-use electricity costs for various customer classes. Rate impacts as a percentage of supply prices are greatest for industrial customers because industrial customers enjoy lower per-kWh rates than commercial and residential customers (as defined by EIA).

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Figure 4-7 shows a comparison in levelized cents per kilowatthour of the clean energy rate impact to total projected end-use electricity prices over the 2008 to 2026 study period. The data show that over the 20-year period since the start of clean energy policies in North Carolina, rates are expected to be lower than they would have been had North Carolina continued to only use existing, conventional generation sources. This result is primarily due to the specific design elements of REPS and other clean energy policies and the utilities’ plans for expansion of energy efficiency.

Overall, we conclude that the rate impact of clean energy policies is quite minor, and, based on the assumptions in our analyses, generally results in savings for North Carolina ratepayers over the study period. Of course, changes in certain assumptions, such as the specific renewable build-out and availability of energy efficiency, will affect the actual rate impacts, but even accounting for possible changes in these values, it appears that the REPS, as currently enacted and implemented to date, leads to no appreciable rate impact on North Carolina ratepayers.

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