Developer accuses Duke Energy of illegally restricting solar power deals
Cypress Creek Renewables says Duke Energy has abruptly decided to refuse long-term power-purchase agreements for larger, utility-scale solar projects in violation federal and state law.
The California-based solar company filed a formal complaint against Duke with the N.C. Utilities Commission Friday afternoon. In it, Cypress Creek accuses Duke of suddenly refusing to make power contracts for anything more than five years for projects larger than five megawatts as a gambit to promote its own proposal to state regulators for radically changing how N.C. solar projects are developed.
Duke contends that there is no precise definition of “long-term” for the power-purchase agreements at issue in the complaint. And it says it made its decision to go to five-year contracts to protect its customers.
The complaint is the latest round in an escalating battle between Charlotte-based Duke and the solar industry over the future what has been a surprisingly robust industry in North Carolina.
Escalating battle
Duke (NYSE: DUK) wants the commission to end solar development promoted under the federal Power Utility Regulatory Policies Act (PURPA) and replace it with annual bids for projects under the control of the utilities.
This latest turn takes aim squarely at the large-scale projects. Projects that size — commonly 20 to 80 megawatts — are increasingly favored by the largest developers active in North Carolina, such as Cypress Creek and Chapel Hill’s Strata Solar.
Cypress Creek already owns and operates 767 megawatts worth of solar projects in the state. It has almost 2,200 megawatts more in development.
At issue is Duke’s refusal to negotiate power-purchase agreements (PPAs) longer than five years for six Cypress Creek projects, totaling 402 megawatts of solar capacity. They range from Cypress Creek’s proposed 80-megawatt Slender Branch Solar near Lumberton to its proposed 22-megawatt Ruff Solar in Rutherford County west of Shelby.
Negotiable contracts
Cypress Creek spokesman Jeff McKay says Duke’s practice for years had been to negotiate 10- to 15-year contracts for projects larger than five megawatts but not larger than 80.
PURPA requires utilities to negotiate long-term power-purchase agreements to projects built in that size range, but there is not a required contract length.
But Cypress Creek’s complaint notes the Federal Energy Regulatory Commission has ruled that project developers are entitled to contracts “long enough to allow (developers of qualified projects) reasonable opportunities to attract capital from potential investors.”
Cypress Creek quotes N.C. law that asserts purchase agreements “shall be of sufficient length to stimulate development of solar energy.” And it notes that the commission echoes that language in its own rules and regulations that govern negotiations between utilities and developers for projects in that five- to 80-megawatt range.
Duke defense
The complaint says Cypress Creek is “unable to secure financing for construction of any of the QFs based on the five-year PPA term offered by Duke. Notwithstanding ..., Duke has rebuffed all attempts by Complainants to negotiate a term longer than five years.”
Cypress Creek argues that although there is no term length specified by PURPA or North Carolina for projects in the size range at issue, the five-year contract Duke proposes clearly does not meet the general standard set by either the state or federal government. It asks the commission to declare “that a five-year PPA term is insufficient to allow the Solar (developers) to obtain the financing necessary to construct their respective (projects).” And it calls on the commission to direct Duke to enter into contracts “of sufficient length to allow the (projects) to be financed and constructed.”
The company also asks for an expedited hearing in the matter.
Duke spokesman Randy Wheeless says the company has not had an opportunity to review the complaint, which was filed late Friday. But he generally defended Duke’s position.
“Since customers pay the cost of any solar agreement, we are negotiating in their best interest,” he says. “We have received the complaint and will make a formal response in due course.”
Policy changes
Duke has for some time complained that the accelerating growth of solar in the state is being allowed in too haphazard a fashion. It has proposed changes in state renewable-energy policies that solar developers have contended would slow the industry’s growth and increase its own control over development.
Last summer, Duke unilaterally imposed a new requirement on solar projects that seek connection to its distribution grid. Developers complain that the new requirement, called the “stiffness test,” has essentially blocked projects from connecting to any substations on the distribution grid.
This has been a particular problem for projects on the lower end of utility-scale construction, which typically seek connections to such substations. Late last year, Cornelius-based O2 EMC filed a complaint against Duke over the stiffness test on behalf of three of its projects. They were two five-megawatt projects and one 20-megawatt project.
Five-megawatt projects have for years been the bread and butter of the state’s solar industry. In North Carolina, utilities are required to offer such projects a standard contract, which in practice has been a 15-year power-purchase agreement at a specified price, called the utility’s “avoided cost,” set every two years by the commission.
Rapid rise
From 2008 to 2016, North Carolina rose quickly in the ranks of the nation’s most active solar states. Early last year, the state reached second place, behind only the massive solar market in California, in solar capacity installed on its power grid.
Now the industry here is moving to larger projects. The stiffness test does not impact those projects much since most — certainly those above 20 megawatts — are generally connected to Duke’s higher-voltage transmission grid, and developers build their own substations for those connections.
But the latest policy threatens those sorts of projects, too. Cypress Creek calls the five-year contract “a significant departure from past practice.” And the company says “no solar (project) in North Carolina has obtained financing under a five-year PPA term.”
Thus, recent policy changes from Duke appear to have put significant roadblocks up for smaller utility-scale projects with the stiffness test and larger, PURPA-qualified projects with the five-year policy.
Ultimate goal
The ultimate goal, Cypress Creek asserts, is relieving Duke of PURPA requirements to offer solar developers power-purchase agreements and grid connections.
“Duke’s unilateral and sudden refusal to enter into long-term PPAs reflects an effort to modify the current PURPA regulatory regime in North Carolina,” the complaint says.
Noting Duke’s preference for some kind of annual bidding process for new solar projects, Cypress Creek says the new policy was instituted to advance “any necessary approval of such modification and of a competitive solicitation model by this Commission, the North Carolina General Assembly (or) FERC.”
John Downey covers the energy industry and public companies for the Charlotte Business Journal.