John Locke Update / Research Brief

Why Aren’t We Benefitting From Falling Costs of Solar?

posted on in Economics & Environment, Energy & Environment
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It’s a feature in reporting about solar energy to discuss how dramatically its costs have declined. That tends to be misleading because solar is a completely unreliable resource on its own. As Strata Solar disclosed in its application to build a solar farm on Gov. Roy Cooper’s Nash County property: “Solar is an intermittent energy source, and therefore the maximum dependable capacity is 0 MW.”

Properly accounting for the cost of solar energy means taking into account the cost of the backup generation that has to accompany it. Taking that into account, the levelized cost of new solar plants is far more expensive than the levelized cost of existing power plants (including nearly three times more expensive than the most efficient zero-emissions source, nuclear).

Duke Energy’s request to the N.C. Division of Air Quality showed why this additional cost has to be factored in, in the course of illustrating the ironic environmental cost of adding solar.

Source: Dan Way, North State Journal

As Dan Way explained in his August 14 North State Journal article, “Duke Energy application points finger at solar for increased pollution“:

Under its current permits in the heavily regulated market, Duke must completely shut down the backup combustion turbines when solar peaks under a full sun, then restart them when the sun recedes.

Duke wants the N.C. Division of Environmental Quality to issue new permits allowing combustion turbines to throttle up and down from a “low load” idling operation instead of switching completely off and on as solar waxes and wanes. In its permit applications, Duke said that would lower pollutant emissions and reduce stress on equipment.

In a series of e-mail exchanges for this article, Crawford provided information from a team of Duke subject matter experts confirming NOx emissions would be lower if there were no solar power on the electric grid.

Without any solar power in the mix, “a typical combined cycle combustion turbine emits NOx at approximately 9-11 lb/hr, assuming 24 hours of ‘normal’ operation,” Crawford said. That is equivalent to 264 pounds of NOx emissions daily. When those same plants are operated to supplement solar power facilities, daily emissions more than double to 624 pounds a day, based on a table in Duke’s application.

If DEQ agrees to Duke’s alternative operating scenario, a combustion turbine would emit 381 pounds of NOx daily — still 44% more pollution than operating without any solar power on the grid.

It’s because solar is intermittent and can’t be relied upon (a “maximum dependable capacity of zero”) that the utility has to have a reliable, traditional fuel source ready to supplement and take over during the few hours in the day solar could be producing. In addition to making the utility use the traditional fuel source inefficiently, leading to greater emissions than under normal use, it’s more expensive. Those costs are passed through to the consumers.

Billions of dollars in unnecessary overpayment

New research from the Edison Electric Institute by Emma Nicholson and Michael Kagan of Concentric Energy Advisors shows that electricity consumers are getting overcharged by billions of dollars for solar and wind power from PURPA qualifying facilities (QFs) as compared with competitive market rates for solar and wind power. This study uses proprietary data from utilities to compare solar to solar and wind to wind.

Utilities are required by PURPA (the Public Utility Regulatory Policies Act of 1978) to buy any and all power generated by qualifying solar and wind facilities in their areas, without any regard to whether the utility needs the power at the moment. This law makes electricity utilities buy overpriced electricity they don’t need, and those costs are passed directly to the consumer.

These graphs from the report show how the “avoided-cost” rates awarded the PURPA QFs generally far outstrip the competitive market rates won by other facilities providing energy from the same source (solar or wind):

Source: Emma Nicholson and Michael Kagan, “An Empirical Analysis of Avoided Cost Rates for Solar and Wind QFs Under Purpa,” Edison Electric Institute, November 2019

But look again: you can also see the decline in costs to provide solar and wind power over time. That’s the reported good news, but there’s a catch for consumers. Look back at those higher QF rates and realize another thing: where those contract rates are fixed (and the contracts last for several years) consumers will continue to be forced to pay those super high rates even as the actual cost of generating the electricity has been falling.

North Carolinians are really stuck because we have:

  • the highest rates in the Southeast for QFs
  • the longest contracts in the Southeast for QFs (it’s now 10 years, but it was 15)
  • yes, they’re fixed rates
  • 60 percent of the nation’s QFs (the first three bullet points go a long way toward explaining this one; the North Carolina Utilities Commission might as well be flying a banner saying “PLEASE GAME OUR SYSTEM”)

Let’s not forget that Gov. Cooper “improperly used the influence and authority of his Office” to pressure Duke Energy into contracting with 240 solar companies under the older, higher-rate, 15-year contracts. Those companies otherwise would have been subject to competitive bidding. Instead, we’ll be overpaying them more and more through the year 2033.

The Federal Energy Regulatory Commission (FERC) has proposed giving states more flexibility to let PURPA rates to qualifying renewable energy facilities vary according to market conditions. That would be a good standard to adopt for North Carolina. We don’t need to be held hostage to high rates lasting 10-15 years while actual costs are declining.

Cost savings ought to be shared.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. As director of regulatory studies and research editor at the John Locke Foundation, Jon gets in the weeds of all kinds of policy… ...

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