The differences between renewable energy and renewable power in North Carolina

Michael Giberson

Under North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard, poultry waste burned to boil water to generate steam to turn a turbine generating electricity will earn RECs which can be sold to electric utilities needing to meet the state’s new renewable energy standard. Also under the law, poultry waste burned to boil water to generate steam to be used directly as process heat in factories does not qualify to earn RECs. The distinction may frustrate plans to use the poultry waste as an industrial fuel.

The Raliegh, N.C. News-Observer reports:

An energy company that wants to burn poultry waste for fuel has lost its bid to use the bird droppings as a green energy resource because of a quirk in North Carolina law.

A ruling by the N.C. Utilities Commission means that Peregrine Biomass Development will scrap plans for now to build several industrial boilers in the state. The company had planned to burn chicken droppings as an organic fuel to generate steam for factories and other industrial applications….

Peregrine’s business model had counted on a dual revenue stream. The company had planned to sell steam to industrial customers and at the same time sell renewable energy certificates from the projects to Progress Energy, Duke Energy or regional power agencies. The renewable certificates are a subsidy to encourage development of the state’s renewable sector. Electric companies and power agencies are required to buy a certain amount of the certificates to meet the state’s renewable energy targets.

The state’s 2007 renewable energy law considers poultry waste a type of renewable resource – but only as long as the poultry waste is used to generate electricity. Peregrine’s use of poultry litter didn’t qualify as a renewable, the utilities commission ruled Friday, because the company planned to generate steam or boiling water, not electricity.

An irony here is that Peregrine’s projects would qualify for the REEEPS subsidy if they planned to boil water to generate electric power and then use the electric power to boil water, even though the extra step would involve significant additional up-front cost and be a much less efficient use of the energy source.

John Whitehead at Environmental Economics wonders what “bureaucratic-political rent seeking led to this decision” by regulators, but I suspect it is just an example of how hard it is to provide simple incentives in a complex world. State lawmakers were trying to encourage the electric power industry to rely more on renewable energy sources, so they wrote a law about electric power.  Peregrine’s approach was outside their immediate scope of interest at the time. Perhaps Peregrine can incorporate a cogeneration component to their projects, and claim a subsidy that way, or if the projects will reduce overall energy consumption they might qualify as energy efficiency programs.

By the way, the energy efficiency component seems to me to be a – what is a nice way to say “scam” – in the making. In the regulatory rule-making process at the state utility commission, Duke Energy argued that because it will take time to measure and verify energy efficiency results the utilities should be able to rely on estimates of reduced energy consumption in annual compliance reports, with “actual results” incorporated into subsequent reports. The commission added the following language to the regulations: “REPS Credits for energy efficiency may be based on estimates of reduced energy consumption through the implementation of energy efficiency measures, to the extent approved by the Commission.” (p. 60 in this NCUC order).

So essentially, a utility can get credit for its estimated reductions in energy consumption due to energy efficiency plans implemented, and maybe (though the changes to the regulations say nothing about this) eventually, a subsequent report will list “actual results.” At the least this mechanism allows a way for the utility to borrow credits from future years (by over estimating results now and then over-complying later to make up for the post-verification adjustment), but nothing in the rule governs this potentially significant program component other than the phrase “to the extent approved by the Commission.”

The whole thing is a mess, and not just because of the poultry waste.  Better policy pursues the externalities associated with electric power production – the law here mentions diversity among energy resources and improved air quality as among the policy goals – and let producers and consumers sort out the complexities.  Sure, implementing Pigovian taxes and Coasian bargains can be messy, too, but then sorting out the mess seems to be more about identifying and solving problems rather than about how to fit nicely into the economic framework imagined by lawmakers and regulators.

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3 thoughts on “The differences between renewable energy and renewable power in North Carolina

  1. Hear hear! Thanks for bringing this up. Worth noting that this is particularly problematic for cogeneration projects that make both heat and power, especially to the extent that they are designed in a way (as many are) to preferentially shift their output in real time between heat and power in response to economic signals. Renewable energy policies that place all the “clean” incentives on the power side have very real, otherwise irrational impacts on the way those generators are designed and dispatched. Some jurisdictions have started to address this, but too few.

  2. On the topic of energy efficiency EM&V, the utilities in California have argued the same thing as Duke. To an extent, at least in California, the argument that investors need to see some immediate “return” on EE investments was considered reasonable. The solution by the CPUC was to allow partial recovery based on the interim report (i.e., ex ante numbers) that would be trued-up (ex post) after the program cycle ended (the program and funding cycles last 3 years). Since the North Carolina program is based, at least on some part, on the California EE incentive program, it is not at all surprising to see an attempt to game the system.

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