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The following commentary was written by Tyler H. Norris, who leads Southeast development for one of the country’s largest renewable power companies, Cypress Creek Renewables. Norris served as a special advisor to the U.S. Secretary of Energy in the Obama administration and served on Gov. Roy Cooper’s Carbon Policy Working Group. See our commentary guidelines for more information.
This week, major bipartisan climate legislation will be enacted in the nation’s ninth largest state. North Carolina’s new law, which mandates carbon neutrality for electric power by 2050 and a 70% reduction by 2030 below 2005 levels, represents what is likely the most ambitious carbon policy of any purple or red state in the country.
In many respects, North Carolina is a political microcosm of the nation. A purple-to-red leaning state, its Democratic governor and GOP-controlled legislature are normally in gridlock: The state has been unable to pass a budget since 2018, when the legislature overrode the governor’s budget veto.
The state’s climate breakthrough was hardly assured. The legislation, which built on nearly two years of painstaking stakeholder negotiations, almost collapsed in the state Senate and was salvaged at the 11th hour by the governor and Senate leadership, who forged a grand compromise that was previously unthinkable for the current legislature.
Ever since U.S. public confidence in government peaked after Sept. 11, a defining feature of American life has been continually downgrading one’s expectations for what is politically possible. As Gallup documents, public trust in government to solve domestic problems fell steadily from 78% in 2001 to 51% in 2012, cratering thereafter to an all-time low of 35% in 2019.
Cynicism is justified. Bipartisan breakthroughs are rare, even when it comes to widely popular issues like infrastructure investment, let alone more divisive ones like climate policy — and when they do occur, they rarely please every stakeholder.
North Carolina’s new carbon mandate is notable in several respects. Whereas many carbon and clean electricity mandates allow utilities to abrogate their targets via alternative compliance fees, North Carolina’s law does not include a cost cap or other out provision based on compliance costs. Rather, cost control is achieved by requiring that the utilities commission determine a resource plan to achieve the carbon mandate at least cost, which is broadly anticipated to entail competitive procurement.
The law provides flexibility based on the timing of the carbon reduction targets, albeit under specific conditions: The carbon reduction deadlines can only be exceeded by more than two years if the commission approves construction of one or more large-scale wind or nuclear facilities that require additional time to complete, or if the commission determines an extension is otherwise required to preserve grid reliability.
In essence, the GOP legislature has determined that deep decarbonization of the electric power sector is a fundamental public interest that is worth the potential cost, provided that grid reliability is maintained.
The laws puts the utilities commission front and center, providing broad commission discretion to develop and implement a resource plan to achieve the carbon goals. The commission is required to develop a plan by the end of 2022 with utility and stakeholder input, with additional authorization to direct near-term renewable procurement. This resource plan will consider generation, grid upgrades, storage, energy efficiency and demand-side management, and emerging technologies, subject to biennial revision.
Achieving ambitious climate policy in a Republican legislature required trade-offs, and the bill has material shortcomings. While most attention has focused on the law’s multi-year ratemaking provision and its potential rate impacts, the most anti-competitive aspect of the law is how it limits market access for independent power producers. In particular, the law is the first known instance in the U.S. to require 100% utility ownership of standalone energy storage. As an early-stage industry, this will stifle innovation and market development.
The notable exception here is for solar and solar-plus-storage resources, where the state’s independent solar industry, once the second largest in the country, preserved 45% ownership share of all new generation via third party power purchase agreements. The prior House-passed version of the bill provided 55% of all new renewables via independent generators and empowered the utilities commission to determine ownership after an interim period, but the final version eroded this ownership share and fixed it into statute.
The large majority of new generation anticipated under the carbon plan through 2030 is anticipated to be solar and solar-plus-storage, due to the state’s favorable solar conditions. Specifically, a recent study by The Brattle Group found that a 70% carbon reduction from North Carolina’s power sector would involve approximately 14,000 megawatts of new solar capacity and billions of dollars in cumulative generation cost savings through 2035. Since utility-owned renewable resources remain more expensive than independent power, as noted in the same Brattle study, there will be ongoing pressure from ratepayers to amend the law and provide more independent power production.
Preserving a strong independent power industry is important for reasons beyond ratepayer savings and market innovation. In states like North Carolina, independent power producers often play an essential role in advancing regulatory implementation of pro-clean energy policies, especially given the high expenses of regulatory litigation. To lose an independent industry is to risk hollowing out the checks and balances we will need to ensure our carbon targets are achieved.
North Carolina offers hope for U.S. climate progress and important lessons for state and federal action to follow. To preserve public confidence in the energy transition and ensure its cost efficacy, policymakers and advocates must remain vigilant to uphold the principles of open markets and competition, as the politically impossible becomes the politically inevitable.
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