Residential Generated Solar Energy in North Carolina Benefits, Viability, and Issues. Kristin M. Athens

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1 Residential Generated Solar Energy in North Carolina Benefits, Viability, and Issues Kristin M. Athens I. Introduction and Background Motivated by the idea that the coal powering Europe s industrial revolution was finite, Frenchman Austin Mouchot was ahead of his time when he invented the world s first parabolic solar collector, harnessing the sun s renewable energy for the first time to power steam engines.1 Due to the exploration and subsequent reliance on oil over coal as a fossil fuel, Mouchot s achievements in solar energy were diminished and seemingly forgotten after Unfortunately, it wasn t until much later (1970 s) when the world realized that our main forms of energy natural gas, oil, coat, and peat were non-renewable and that new, renewable forms of energy were needed to sustain our planet s environment and fulfill our energy requirements. 3 Fortunately, we have now begun exploration in renewable energy resources and identified several options such as solar, wind, biogas, geothermal, biomass, low-impact hydroelectricity, and a variety of other emerging technologies such as wave and tidal power. 4 Through enactment of political policy and environmental regulation, the United States legislature has tried to shift our use of non-renewable energy resources to that of renewable sources, such as solar energy. Specifically, the North Carolina Legislature enacted the 2007 Renewable Energy and Efficiency Portfolio Standard (REPS), making it the first state in the Southeast to enact this type of environmental legislation. 5 The REPS requires a certain 1 Jonathan Gornall, Augustin Mouchot, the Solar Pioneer Whose Moment in the Sun Came too Soon, UAE ENVIRONMENT (March 17, 2013), available at Rep. of the World Comm n on Env t and Dev: Our Common Future, 42d Sess., Aug. 4, 1987, U.N. Doc. A/42/427 (1987), available at 4 EPA, Renewable Energy, TOPICS (Aug. 13, 2014), 5 Gen. Assem. S. 3, Sess (N.C. 2007). 1

2 percentage of electricity produced by public utilities, electric membership corporations, and municipalities in the state to come from renewable energy resources. Along with this, the REPS requires that at least 0.14% and at least 0.20% of all retail electric power in kilowatt-hours sold to retail electric customers in North Carolina come from solar energy sources by 2015 and 2018, respectfully. 6 To help obtain the outlined energy goals of the REPS, the North Carolina Legislature requires that utility companies pay fines for non-compliance. 7 Consequently, utilities currently attempt to meet these REPS solar energy goals by providing solar energy incentives for homeowners. 8 Subsequently, the North Carolina REPS has increased awareness and use of residential generated solar energy by allowing both economic and environmental benefits to pass to residents of North Carolina from the state and participating utility companies. In fact, the REPS has been categorized as a renewables policy that has catapulted North Carolina among the nation s top-ranking solar developers. 9 However, it is important to note that North Carolina has already reached its solar energy 2018 goal of 0.20% production, and that the economic incentives provided for using solar energy will expire in 2015 (and therefore must be reinstated by our legislature before continuing to be available to residents). 10 II. What is Residential Generated Solar Energy? The Environmental Protection Agency (EPA) classifies solar energy as a renewable, environmentally friendly resource; solar energy does not deplete the world of any natural resources nor does it require the burning of fossil fuels which cause air emissions and subsequent 6 N.C. Gen. Stat (d) (2012). 7 8 NC CLEAN ENERGY TECHNOLOGY CENTER, North Carolina Policy, (last visited Nov. 4, 2014). 9 John Murawski, Duke Energy to Seek Reduction Payments to NC Home Owners with Solar Panels, NEWS AND OBSERVER (Jan. 14, 2014), available at

3 environmental degradation. 11 Through the process of nuclear fusion (by which four hydrogen atoms combine to produce one helium atom), the sun creates energy. 12 This energy is then emitted to Earth through the sun s rays. 13 All of the energy that can be produced by the nonrenewable reserves of the world is equaled by just twenty days of sunshine. 14 Solar energy itself comes from using the sun as fuel to create heat or electricity. 15 Solar technologies fall into two categories: passive and active. 16 Passive solar produces heat and provides lighting for structures. 17 Active solar produces electricity using a technology called Solar Photovoltaic (PV). 18 Such solar PV technologies are used in solar panels. 19 Solar energy, however, is an intermittent source, meaning it is not always available. 20 When it is cloudy or raining, the sun is unavailable to provide light, and solar energy systems are unable to produce energy. 21 Therefore, many systems are designed with either some kind of energy storage feature or a backup source of energy, such as the electric grid. 22 These additional features allow the end user to continue to use energy even when the sun is not shining. 23 North Carolina residents can harness solar energy using both active and passive methods. The available and tax-incentive eligible solar technologies include solar water heating, photovoltaics (PV), solar pool heating, active solar space heating, passive solar space heating, 11 E.P.A., Solar Energy, ENERGY AND GLOBAL CLIMATE CHANGE IN NEW ENGLAND (Feb. 28, 2012), 12 What is Solar Energy?, BENEFITS OF RECYCLING (last visited Nov. 4, 2014), EPA, supra note

4 solar thermal process heating, and solar thermal electric. 24 Most North Carolinians use photovoltaics systems (solar panels), though some use solar water heating and transpired solar collectors. 25 The reason for this preference is due to North Carolina s major power company, Duke Energy, allowing this particular type of solar technology on the power grid for the implementations of their North Carolina Solar PV Distributed Generation Program (which began in 2009 following the establishment of the 2007 REPS). 26 Also, North Carolina and the Southeast as a whole does not have the solar resources to support solar thermal systems, and consequently such systems cannot effectively be built on residential homes. 27 Thus, North Carolina residents mainly use solar PV technologies, as they are economically and structurally feasible. Photovoltaic solar technology systems are the common solar panels residents install on their home s rooftops or on large areas of land. 28 These Solar PV systems convert sunlight directly to electricity using PV cells made of semiconductor materials. 29 This direct current electricity must be converted to alternating current electricity through an inverter before it can be delivered onto the electrical grid. 30 Once on the grid, the generated solar power then provides energy back into the home in the form of electricity, thus powering one s electric appliances, lighting, and other in-home electric needs. 31 In a home, the average 2 kilowatt (kw) residential PV system can produce about 3000 kilowatt-hours (kwh) of energy per year, or about one 24 NC CLEAN ENERGY TECHNOLOGY CENTER, North Carolina Policy, (last visited Nov. 4, 2014) DUKE ENERGY, North Carolina Solar PV Distributed Generation Program FAQs, (last visited Nov. 4, 2014) Id 31 4

5 quarter of what a typical residential consumer would use in one year. 32 Residents could acquire solar PV systems through Duke Energy s North Carolina Solar PV Distributed Energy Program, though at the discretion of Duke Energy as the solar panels and generated energy from such are considered sole property of Duke Energy. 33 The other option is buying and managing their own, personal solar PV systems. 34 However, before installing a privately bought system, residents must adhere to all North Carolina rules and regulations, specifically the North Carolina Certificate of Public Convenience and Necessity, and receive permission to interconnect the solar PV system to the main grid. 35 The North Carolina Certificate of Public Convenience and Necessity requires residents to properly complete an application before acquiring the certificate mandated by the N.C. Commission to begin a solar system installation. 36 Once completed, one almost has the required permission to connect to the main power grid of North Carolina; the last part needed is permission and individual inspection by one s utility provider to connect. After being connected to the grid, a personal solar energy system can be configured to the grid s system either by net metering, or selling all of the output generated to the grid. 37 Following all of the above steps, a N.C. resident would be able to generate their own solar energy, and offset their own electricity usage. III. Incentives of Residential Generated Solar Energy As previously mentioned, the 2007 REPS renewable energy goals led the North Carolina legislature to offer incentives to individuals for installing renewable energy efficiency property and for producing electric energy from renewable energy resources. Such incentives are provided DUKE ENERGY, Install Solar Energy System, (last visited Nov. 4, 2014). 36 N.C. Gen. Stat (a) (2013). 37 DUKE, supra note 35. 5

6 mainly through tax incentives and are currently offered for both the installation and use of a renewable energy source. 38 Other incentives (such as payments and credits on one s electric bill) are offered for the production of electrical energy from renewable energy sources and are given by participating utility companies and renewable energy programs. 39 A North Carolina taxpayer who purchases, leases, or constructs any of the above eligible solar technologies is offered a 35% tax credit for equipment, design, construction, and installation costs less any discounts, rebates, advertising, installation assistances, name referral allowances or other similar reductions during any taxable year through However, there are annual tax credit limits depending on the type of solar technology used: solar water heating and solar pool heating have a limit of $1,400; active and passive space heating and combined space and water heating have a limit of $3,500; and PV systems have a limit of $10, Also, such equipment must be installed and placed in service before January 1, 2016 to be eligible for tax credit. 42 Further, under North Carolina s tax code, such tax credit may not exceed 50% of a taxpayer s liability for the year, reduced by the sum of all other credits. 43 In addition to tax credit, North Carolina provides a property tax exemption for solar water heating and active space heating and cooling systems. 44 Property tax abatement is also provided for solar PV systems and exempts 80% of the appraised value of a PV system from property 38 NORTH CAROLINA SOLAR CENTER, Resident Solar Incentives, ENERGY POLICY PROGRAM, (last visited Nov. 4, 2014)

7 tax. 45 Such generous tax incentives enable millions of dollars in investments every year, and [the] REPS creates market certainty for such investments. 46 Besides tax incentives, North Carolina offers several other incentives through programs by NC Green Power and Duke Energy s Residential PV Incentive. NC Green Power offers production incentives for electricity generated by solar PV s connected to the grid. Solar PVs generating up to 5 kw of energy receive $0.06/kWh, plus approximately $0.04/kWh from their utility company purchase agreement, for a total production payment of about $0.10/kWh. 47 Specifically, NC Green Power pays residents for their renewable energy credits. These incentives are paid on a quarterly basis. 48 Duke Energy Progress residential customers receive incentives for installation and generation of energy by solar PV systems directly through the SunSense Program. This is a multifaceted program ; customers receive an upfront payment of $500 for every kw-ac they install on their home via solar PV systems, and a monthly credit on their electric bill of $4.50 per kw-ac. 49 For instance, if a customer installs a 10 kw-ac system, the largest system eligible to participate in the program, the customer will receive a check for $5,000 plus a bill credit of $45 on their monthly bills. 50 However, all renewable energy credits received by the resident for solar energy generation are transferred to Duke Energy for a period of five years, and all PV systems must be connected to the grid with net metering to participate North Carolina Incentives/Policies for Renewables & Efficiency, DATABASE OF STATE INCENTIVES FOR RENEWABLES & EFFICIENCY (Aug. 25, 2014),

8 Net metering is available to all customers owning and operating renewable energy systems. Net metering is utilized when a residential solar system generates more energy than that particular resident uses, leading to the transfer of the excess power generated back onto the public grid. In turn, this benefits the utility company as their overall costs of power are decreased and thus all of their customers bills are reduced. 52 Under the SunSense program, residents are not compensated for their net energy generation. As a condition to the net metering agreement of the SunSense program, the resident must be billed on a time-of-use demand, meaning their electricity rate is a factor of the time of day and year (and not based on a standard, flat rate measured by overall consumption). 53 Overall, residential generated solar energy provides both economic and environmental benefits to users and North Carolinians as a whole. North Carolina tax-paying residents using solar PV systems receive generous tax credits from both state and federal government. These tax credits, along with net-metering programs and others such as NC Green Power and SunSense allow North Carolinians to save an average of $43.00 on their monthly power bills. 54 Further, the net excess generated power allows utility companies and their customers to save money on energy production overall as well as decrease dependency on energy generated from nonrenewable resources. Also, because net-metered solar PV systems deliver electricity at or near the place of consumption, they reduce the need to expand transmission grid capacity, a very long and expensive process. 55 Lastly, residential generated solar energy allows for the development of 52 Net Metering by State, SOLAR ENERGY INDUSTRIES ASSOCIATION (Oct. 22, 2014), 53 North Carolina Incentives/Policies for Renewables & Efficiency, DATABASE OF STATE INCENTIVES FOR RENEWABLES & EFFICIENCY (Aug. 25, 2014), 54 Net Metering by State, SOLAR ENERGY INDUSTRIES ASSOCIATION (Oct. 22, 2014),

9 a solar energy infrastructure market in North Carolina, generating local jobs in construction industries that include roofing and electrical trades. 56 IV. Viability of Residential Generated Solar Energy North Carolina homeowners and businesses installed and connected a total of 335 megawatts (MW) of solar PV systems to the grid in 2013, placing the state third in the nation for 2013 total megawatts installed. 57 Overall, 627 MW of solar energy is currently installed in North Carolina, also ranking the state third nationally overall. 58 This total amount of solar energy generated MW allows for about 68,300 homes to be powered in North Carolina. In 2013, $787 million was invested in North Carolina to install solar energy capabilities for home, business, and utility use. This represents a 156% growth from 2012, and this number is expected to increase throughout Currently, there are more than 140 solar companies in North Carolina who employee around 3,100 people. 59 The North Carolina s REPS and generous tax incentives can be viewed as a direct cause of such economic growth. 60 However, under the REPS, the required incentives (not including tax incentives) for the production of solar generated electrical energy expired on January 1, Subsequently, Duke Energy wants to now reduce how much North Carolina residents are paid (incentivized) for generating electricity from solar PV panels. 62 This is due to the high rise in residentially installed solar panel systems of Duke Energy customers. Duke Energy is responsible for paying back Resident Solar Incentives, NC CLEAN ENERGY TECHNOLOGY CENTER, (last visited Nov. 4, 2014). 61 N.C. Gen. Stat D(d) (2012). 62 John Murawski, Duke Energy to Seek Reduction Payments to NC Home Owners with Solar Panels, NEWS AND OBSERVER (Jan. 14,2014), 9

10 more customers than expected who now generate excess power to the grid through their solar PV systems. 63 Capping the REPS through lessening or dismissing the incentives to residents generating solar energy to the grid could lead to the reduction or plateau of North Carolina s growing residential solar energy production. Solar advocates warn that such a move to reduce payments for solar energy, already underway in other states where the popularity of solar panels has soared, would put a damper on [residential] solar development here. 64 One particular concern for such a cap to be placed on the REPS is related to Raleigh s new program called Solarize Raleigh, which promotes the use of residential solar panels. This program relies on the previous incentive level for electricity generated by solar panels, and is counting on such to be upheld. 65 Thus, without such incentives, the program would not be seen as attractive as initially planned, as the entirety of the program relies on volume-based discounts that cannot be achieved without appropriate incentives. Although residential generated solar energy has and will likely continue to be a growing renewable energy source for North Carolina, there are several other issues threatening its overall vitality. V. Issues Concerning of Residential Generated Solar Energy For a North Carolina resident to generate the incentivized types of residential solar energy available, they must first and foremost own a home or property. Currently, only about 67.1% of North Carolinians old enough to own a home do so. 66 Further, within that percentage, an even smaller percentage of people own homes with the required roof or ground space to implement residential solar technologies. On average, one panel generating 2 kw requires at North Carolina, UNITED STATES CENSUS BUREAU (Jul. 8, 2014), 10

11 least 200 square feet of space either on a roof or level ground area. 67 Therefore, apartment owners, renters, and smaller sized homeowners are unable to use residential generated solar power. Even if a North Carolinian has the required space and ownership to implement residential solar power, they must first follow North Carolina state law requiring that their residential solar power project satisfy the North Carolina Certificate of Public Convenience and Necessity before beginning construction. 68 Such government certification requires sufficient time and planning to one s residential solar project. Also, if such certificate is not granted, a resident cannot go forward with installing a solar energy system. Once a resident has received their certificate, another issue of installation arises. As mentioned above, solar energy is an intermittent, renewable resource that is not always available. Thus, a home site evaluation is required to determine if there is even enough sunlight available for a resident to install an efficient solar energy system. The homes most suitable require a southfacing roof with no shaded areas. Even if one s home meets all of the above requirements, there is still the problem of intermitted weather conditions and obviously, nightfall. Specifically, Duke Energy reports that during North Carolina s peak energy consumption time, that being from 7:00 am to 8:00 am, solar energy is usually unavailable due to lack of sunlight. 69 Besides these technical issues, there is still the underlying policy issue of Duke Energy wanting to lower or dismiss the incentives given to residents generating solar energy (mentioned above). Rep. Mike Hager has proposed a bill that would repeal the 2007 REPS law requiring 67 Install Solar Energy System, DUKE ENERGY, (last visited Nov. 4, 2014) N.C. ADMIN. CODE 11.R8-64 (2014). 69 John Murawski, Duke Energy to Seek Reduction Payments to NC Home Owners with Solar Panels, NEWS & OBSERVER (Jan. 14,2014), 11

12 Duke Energy to use alternative energy sources, because he believes the bill contributes to higher electricity bills for consumers 70. Duke Energy argues that the rise of residential generated solar energy leads them to have higher payment costs to such residents, which in turn, causes all of their customers to experience higher energy bills. 71 James McLawhorn, director of the electric division of Public Staff, agreed that the rapid spread of small [residential] solar producers is making [Duke Energy s] fee schedule a concern, because other customers are subsidizing the higher payments utilities make for power purchases. 72 However, it is important to note that Duke Energy s main form of energy generation is through coal power. 73 Thus, any residentially produced solar power is considered to be competing with Duke Energy s coal generated electricity. This reason could possibly explain why the North Carolina General Assembly had to pass Senate Bill 3 and the REPS to mandate Duke Energy to utilize 12.5% of its energy resources to renewable energy resources. Further, through the requirement, the bill induces Duke Energy to provide incentives to residents generating solar power to reach its required 12.5% goal. Because such generous incentives provided for residents were very attractive, Duke Energy quickly reached its REPS solar energy goal quickly. Therefore, Duke Energy has no reason to benefit from incentivizing customers to generate solar energy over this 12.5% threshold. In fact, Duke Energy actually ends up with an economic loss in the sense that solar power replaces what coal energy they themselves could have generated and sold. It is also important to note that Senator Kay Hagan helped push Senate Bill 3, requiring such investor-owned utility companies like Duke Energy to utilize renewable energy resources Power Generation Portfolio, DUKE ENERGY (Sept. 30, 2014), available at 12

13 for 12.5% of their energy needs by providing tax-incentive and other incentive-based programs. 74 One incentive-based program the bill provides focusses on Green State Power, a solar power developer company based in Greensboro, N.C., which was Hagan s district. The CEO of this incentive based program is also Tiden Hagan, Senator Hagan s son. 75 Other company managers include the senator s husband, Charles Hagan, as well as her son-in-law William Stewart. 76 It has been stated that Green State Power likely would not exist without [Senate Bill 3 and the REPS], which forces companies such as North Carolina energy giant Duke Energy to rely on it for solar panels needed to comply with the renewable energy requirements created by the law. 77 Senate Bill 3 creates a competitive business market for solar panel production because it forces companies to invest in the solar panel market. Because of the mandated usage of solar power, the market has expanded, which has resulted in decreased costs and a more consumerfriendly environment for the solar panel market. Therefore, if the REPS had not been enacted, the market would not have responded with lower costs and would have remained a somewhat economically unavailable market. Senate Bill 3 has effectively expanded the market for solar panels, making it more competitive with the non-renewable resources market. Thus, if the solar energy market is maintained, or even expanded by new, mandated renewable energy requirements (like those of Senate Bill 3), it will result in a more accessible market for consumers, regardless of whether they are associated with Duke Energy. This, in turn, will create 74 Brent Scher, Hagan Passed N.C. L. that Aided Family s Solar Company, RECLAIM OUR REPUBLIC (Oct. 13, 2014),

14 lower costs for both the consumer and the producer, creating a beneficial relationship for both parties and a burgeoning solar panel market. VI. Conclusion Due to North Carolina s REPS, there has been a rise in residential generated solar energy in North Carolina. This is because the REPS allows for residents with small-scale solar systems to receive both state and federal tax incentives, as well as some third-party incentives for generation of solar energy. Because of such attractive incentives, the REPS has further created a residential solar energy industry which has driven down costs and increased installation of such technologies throughout North Carolina. Today, North Carolina is ranked third in the United States for solar energy generation. However, several issues concerning residential generated solar energy exist. First, a resident must own a large enough space with appropriate access to sunlight to install a solar energy system. For a North Carolinian to even install a system, they must also receive a North Carolina Certificate of Public Convenience and Necessity. Further, because solar energy is an intermittent resource, energy is not always available or being produced once installed. Also, the incentives received for solar energy generation could potentially be capped as Duke Energy is pushing to do so. The rise in widespread residential solar energy generation has led to increased payment costs for utility companies, which in turn can cause higher energy bills for customers. Despite such issues, North Carolina continues to be a leader in the implementation and use of residential generated solar energy. 14