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Research & Commentary: New Study Says PURPA Energy Contracts Are Needlessly Increasing North Carolina Electricity Bills

July 7, 2017

60 Percent Of All PURPA Projects In The U.S. Are Located In North Carolina

In a new report titled Reforming PURPA Energy Contracts: A Guide to Lowering North Carolinians’ Electric Bills, Jon Sanders, director of regulatory studies at the John Locke Foundation, examines why California is the only state with more solar-energy facilities than North Carolina, which Sanders explains isn’t necessarily a good thing.

The Public Utility Regulatory Policies Act of 1978 (PURPA) is a federal law passed in response to the 1973 Organization of Arab Petroleum Exporting Countries (OPEC) oil embargo and to the once widely-held belief the United States had reached “peak oil” – the view fossil-fuel energy sources are in a terminal and unstoppable decline.

“Among other things,” Sanders writes, “PURPA mandates that utilities buy any power generated from qualifying renewable energy facilities in their area, at predetermined prices, regardless of market need. States set the terms as to which facilities can qualify, what those prices are, and how long they are in effect. … North Carolina’s decisions on those factors differ significantly from other states to the special benefit of solar facilities – and ultimately to the detriment of electricity consumers.”

However, solar facilities were not the intended beneficiary when North Carolina implemented PURPA; hydroelectric facilities were supposed to reap the windfall of the state’s avoided-cost rates and fixed-rate contract terms, which are the highest and longest, respectively, in the Southeast region. The state’s Renewable Energy and Energy Efficiency Portfolio Standard, which was enacted in 2007 and requires each electric utility in the state to generate at least 12.5 percent of its output from renewable-energy sources by 2021, was also expected to benefit wind power more than solar.

Because of the state’s renewable portfolio standard, as well as a recently sunset 35 percent investment tax credit and an exclusion on property taxes up to 80 percent for solar facilities, Sanders reports 60 percent of all PURPA projects in the United States are located in the Tar Heel State. It’s worth noting an astounding 92 percent of solar facilities in North Carolina qualify under PURPA.

“North Carolina’s current configuration of policies to comply with PURPA regulations is producing large unnecessary costs,” Sanders wrote. “[North Carolina-headquartered] Duke Energy estimates that having to pay qualifying solar facilities avoided-cost rates higher than market prices will cost its ratepayers over $1 billion extra in the next 12 years.”

The state’s renewable portfolio standard “only makes matters worse,” Sanders wrote. Electricity rates have increased 2.5 times the national average and by greater than double the regional average increase since its implementation in 2008. Further, a 2014 study by the Brookings Institution found solar power is three times as expensive as the conventional power it replaces, and a 2016 Civitas Institute study determined North Carolina’s renewable mandate will cost $3.9 billion in total value added in 2016, increasing electricity prices by over 10 percent and costing over 17,000 jobs. By 2020, net new RPS costs will reach $1.9 billion, while the total rise in electricity prices will be 42 percent and net job losses will reach over 51,000. By 2025, net new RPS costs will still be over $1.7 billion, and there will be decreased economic output totaling $6.6 billion, a loss of 44,000 jobs, and a 36 percent increase in electricity prices.

Sanders recommends three policy changes to help lower energy costs in North Carolina: rein in PURPA requirements, repeal the Renewable Energy and Energy Efficiency Portfolio Standard, and end the exclusion of 80 percent of the appraised value of solar-energy facilities from property taxes.

Because it would lower electricity prices, repealing the state’s renewable power mandates would raise living standards, stimulate long-term economic growth, and create a substantial increase in net jobs. Economic growth and net job numbers increase because the newly available money spent on additional goods and services creates additional jobs throughout the economy.

The following documents provide more information about PURPA contracts and renewable portfolio standards.

Reforming PURPA Energy Contracts: A Guide to Lowering North Carolinians’ Electric Bills
https://www.heartland.org/publications-resources/publications/reforming-purpa-energy-contracts-a-guide-to-lowering-north-carolinians-electric-bills
This report from the John Locke Foundation examines how PURPA energy contracts are distorting North Carolina’s energy market and are unnecessarily raising electricity prices. Sixty percent of all U.S. PURPA projects are located in North Carolina.

The Market Forces Behind North Carolina’s Falling Emissions
https://www.johnlocke.org/research/the-market-forces-behind-north-carolinas-falling-emissionsnew-research-shows-that-improvements-are-market-oriented-not-government-driven/
This report from the John Locke Foundation shows North Carolina’s carbon-dioxide emissions have fallen by 14.6 percent since 2000, almost entirely due to market-driven technological innovations. North Carolina emissions fell by a rate that’s greater than the rate in more than four-fifths of the 50 U.S. states during the same period.

North Carolina’s Renewable Portfolio Standard: Examining the Economic Effects
https://www.heartland.org/publications-resources/publications/north-carolinas-renewable-portfolio-standard-examining-the-economic-effects?source=policybot
This paper from North Carolina’s Civitas Institute looks at the Tar Heel State’s renewable portfolio standards (RPS) and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

Evaluating the Costs and Benefits of Renewable Portfolio Standards
https://www.heartland.org/publications-resources/publications/evaluating-the-costs-and-benefits-of-renewable-portfolio-standards?source=policybot
This paper by Timothy J. Considine, a distinguished professor of energy economics at the School of Energy Resources and the Department of Economics and Finance at the University of Wyoming, examines the renewable portfolio standards (RPS) of 12 different states and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

Renewable Energy: Lobby’s Report More Fog than Light
https://www.heartland.org/publications-resources/publications/renewable-energy-lobbys-report-more-fog-than-light?source=policybot
This report from the John Locke Foundation examines a North Carolina Sustainable Energy Association study that argues renewables are not the source of rising electricity bills in the state. The John Locke Foundation authors claim an unbiased, thorough, comprehensive study of North Carolina energy policy is still needed.

Research & Commentary: Higher State Support for Green Energy Increases Energy Costs for Consumers
https://www.heartland.org/publications-resources/publications/research--commentary-higher-state-support-for-green-energy-increases-energy-costs-for-consumers?source=policybot
Heartland Institute Policy Analyst Tim Benson discusses an analysis by the Daily Caller News Foundation (DCNF), which found, “States which offered rebates, buy-back programs, tax exemptions and direct cash subsidies to green energy were 64 percent more likely to have higher than average electric bills. For every additional pro-green energy policy in a state, the average price of electricity rose by about .01 cents per kilowatt-hour.” 

The Status of Renewable Electricity Mandates in the States
https://www.heartland.org/publications-resources/publications/the-status-of-renewable-electricity-mandates-in-the-states?source=policybot
The Institute for Energy Research finds states with renewable electricity mandates have on average 40 percent higher electricity rates than those without such mandates. 

What Happens to an Economy When Forced to Use Renewable Energy? 
https://www.heartland.org/publications-resources/publications/issues-2016-what-happens-to-an-economy-when-forced-to-use-renewable-energy?source=policybot
The Manhattan Institute conducted an economic analysis of the effects renewable portfolio standards (RPS) had on the average price of electricity in states with mandates compared to those without mandates. The study found residential and commercial electricity rates were significantly higher in states with RPS mandates than in states without them. 

Study of the Effects on Employment of Public Aid to Renewable Energy Sources
https://www.heartland.org/publications-resources/publications/study-of-the-effects-on-employment-of-public-aid-to-renewable-energy-sources?source=policybot
Researchers at King Juan Carlos University in Spain found each “green job” created in Spain cost about $750,000. Electricity rates would have to be increased by 31 percent to account for the additional cost of renewables. 

Study: Consumers Unwilling to Pay More for Renewable Energy
https://www.heartland.org/news-opinion/news/study-consumers-unwilling-to-pay-more-for-renewable-energy
Relatively few consumers are willing to pay extra for renewable energy offered under voluntary “green” pricing programs, according to a report from the Institute for Energy Research. 

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at john@heartland.org or 312/377-4000.

Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org