North Carolina Utilities Commission Maintains Key Power Purchase Agreement Terms for Solar Investments

Co-author Jeff Karp

The North Carolina Utilities Commission (the Commission) recently entered an order in its biennial rate proceeding rejecting requests by Duke Energy and other utilities seeking to alter standard contract terms that are vitally important to solar developers and investors in North Carolina.

North Carolina has been a booming market for solar over the last few years, currently ranking third in the nation for energy investment. In February of 2014, Duke Energy issued an RFP, which ultimately committed the utility to purchase $500 million of independent distributed energy in North Carolina. Much of the past success (and future prospects for investment) are founded on the Commission’s standardize contract terms and rates for power purchase agreements, which have provided certainty of economic returns over 15 year time horizons.

But shortly after issuing its 2014 RFP, Duke and other NC utilities sought Commission rulings that would reduce the standard PPA term from 15 down to 10 years, and reduce the eligibility from the current 5 megawatt project ceiling down to 100 kilowatts. Fortunately for solar developers and investors, the Commission rejected Duke’s arguments, finding that the current standard contact term of 15 years and availability to projects up to 5 MW are well supported and appropriate.

The contrast between Duke’s actions before the Commission and its market initiatives seeking to grow distributed energy is reflective of conflict within the utility industry broadly and within Duke itself. Many utility executives have recognized the need to embrace new technologies and business models and support the financial mechanisms supporting their deployment. Others, such as Duke CEO Lynn Good, view distributed generation as a direct competitive threat, and are not hesitating to use public commission proceedings in efforts to protect their profit margins.

We expect this debate will continue and intensify in proceedings throughout the country as utilities continue to react to shrinking revenues and perceived competitive threats. In the meantime, solar developers in North Carolina at least will have a reprieve and ongoing PPA certainty for the next few years.

If you have any questions about the Commission’s ruling, or other distributed energy resources policy matters or transactions, please contact any of the members of S&W’s Energy Finance practice.