12 p o p u l a r g ov e r n m e n t

M any factors influence develop-ment of renewable energysources: a state’s energy prices,

energy infrastructure, energy demand, andenergy intensity. Some encourage devel-opment, others discourage it. In the past,energy production in North Carolina hasfavored a dependence on imported fossilfuels. The dependence has been based onlow energy prices, lack of statutory man-dates to encourage development of re-newable energy sources, and a fairlyenergy-intensive economy. It has beenbuoyed by reliable, secure energy sources.

However, in the face of higher energyprices and harm to the natural environ-ment from local air pollution and globalclimate change, North Carolina andmany other states have turned to renew-able energy sources. These states havelegislated a “Renewable Energy Port-folio Standard” (REPS), a mechanismrequiring electric energy suppliers toproduce from renewable sources aspecific percentage of the electricity thatthey sell to retail customers. As suchstatutory mandates are passed, stateshave an opportunity to encourage thegrowth of a nascent renewable energyindustry and its supply chain. To takefull advantage of this opportunity,though, North Carolina must address avariety of technical, regulatory, finan-cial, and political challenges.

This article describes North Caro-lina’s traditional choices of energy sup-ply, including the state’s past productionof renewable energy. It also outlines cur-rent state policies that encourage devel-opment of renewable energy sources,

and discusses North Carolina’s renew-able energy capacity in the form of windpower, biomass fuel, and solar power.The article concludes with lessons fromother states, and challenges and oppor-tunities for North Carolina to grow itsuse of renewable energy resources.

North Carolina’s TraditionalChoices of Energy Supply

Historically, North Carolina hasdepended on imports from other statesfor nearly all its energy supply. The stateneither produces nor has reserves offossil fuels—coal, oil, natural gas, anduranium—on which its energy sectorpredominantly relies. Further, the statehas no crude oil refinery capacity. Thecost of imported fossil fuels representsroughly 28 percent of the total cost ofproducing electricity for North Carolinabecause of the state’s complete relianceon energy supplies from other states.1

The majority of the coal that NorthCarolina burns comes from Kentuckyand West Virginia; the majority of therefined fuel oil and natural gas, fromTexas and Louisiana; and the majorityof the uranium, necessary to producenuclear energy, from West Virginia.2

The Energy Information Admini-stration (EIA) database offers thefollowing snapshot of North Carolina’senergy supply in 2005 (for a graphicpresentation of the data, see Figure 1):

• Petroleum provides the largestshare, 39 percent, devoted almostentirely to transportation.

• Coal provides 31 percent, withnearly all of it related to electricitygeneration.

• Nuclear power provides 16 per-cent. (North Carolina is one of thetop nuclear-power-producing

states, ranking sixth among thethirty-one with nuclear capacity.Nuclear power provides about 19percent of electricity for the UnitedStates as a whole, but 34 percent of electricity in North Carolina.)

• Natural gas provides 9 percent.

• Renewable energy sources make upthe smallest share, 5 percent.

Continued reliance on fossil fuels forNorth Carolina’s energy needs has at leasttwo drawbacks. First, reliance on oil frompolitically unstable countries has strongnational security implications. North Car-olina residents are vulnerable to fluctu-ations in gasoline prices as a result ofmacroeconomic and geopolitical shocks.In a July 2007 report prepared by the Na-tural Resources Defense Council, NorthCarolina ranked twenty-first in percentageof annual per capita income spent on gas-oline. The average North Carolina driver

Renewable Energy in North CarolinaDiane Cherry and Shubhayu Saha

Cherry is manager of policy initiatives at theInstitute for Emerging Issues (IEI), NorthCarolina State University (NCSU). Saha is aPhD student at NCSU and a former graduatefellow at IEI. Contact them at diane_cherry@ncsu.edu and ssaha2@unity.ncsu.edu.

P O P U L A R G O V E R N M E N T

Figure 1. Contribution of VariousSources to North Carolina’sEnergy Supply, 2005

Source: Data from Energy Information Admini-stration, “Table 7: Energy Consumption Estimatesby Source, Selected Years, 1960–2005,”www.eia.doe.gov/emeu/states/sep_use/total/use_tot_nc.html.

Nuclearpower

(uranium) 16%

Renewable sources 5%

Coal 31%

Natural gas 9%

Petroleum 39%

s p r i n g / s u m m e r 2 0 0 8 13

spends $1,373 per year.3

This statistic raisesconsiderable concern,given the recent esca-lation of gas prices.

Second, NorthCarolina is vulnerableto the environmental impacts of the con-tinued use of fossil fuels for energy pro-duction and use. Some likely effects area rise in sea levels on the developed coast-line, more extreme weather events, andincreased air pollution from automobilesand coal-fired power plants. Air pollu-tion already has reduced visibility in theNorth Carolina mountains, imposed fre-quent ozone-alert days on the state’scities, and harmed public health—forexample, through the increased inci-dence of childhood asthma.

Given these drawbacks to reliance on conventional energy sources, manystates have turned to renewable energysources to meet energy demand.

The majority of North Carolina’srenewable energy has historically comefrom hydroelectricity owned by utilitycompanies. From 1990 to 2006, the

amount of electricitygenerated by each ofNorth Carolina’s fuelsources was fairly steady(see Figure 2).4 Thedistribution will lookdifferent in the future,

given recent action by the North Caro-lina General Assembly (discussed later).

In 2003, the North Carolina UtilitiesCommission approved the establish-ment of NC GreenPower as a statewideprogram of green energy financed bythe state’s investor-owned utilities andadministered by Advanced Energy, anindependent nonprofit corporation. Thegoal of NC GreenPower is to add greenenergy to the state’s power supply. Theprogram accepts financial contributionsfrom North Carolina citizens andbusinesses. For every $4 contributed tothe program, it pays $3 (in the form of100 kilowatt hours of renewableenergy) to independent producerssupplying green power.5

The program has had some smallsuccess, but it has not done much toexpand the renewable energy market in

the state because it is voluntary anddepends on contributions. Historically,NC GreenPower producers have gen-erated roughly 20 million kilowatthours per year, but this contribution isminuscule compared with that fromconventional energy sources.6

North Carolina’s Current Energy Policies

As noted earlier, North Carolina’s renew-able energy production can be enhancedor mitigated by several factors: prices,infrastructure, demand, and intensity.

The primary factor influencingchoice of energy supply is price, whichis determined by supply and demand inthe context of existing knowledge,technology, and regulations. Relativeprices drive production, consumption,and investment decisions and explainwhy North Carolina, like the rest of thenation, has historically relied heavily onfossil fuels: they are less expensive.Because renewable energy technologiesare newer and not widespread in com-mercial application, the cost of gener-

North Carolina depends on fossil-fuel supplies fromother states.

14 p o p u l a r g ov e r n m e n t

In terms of industrial makeup and com-petitiveness, the benchmark states iden-tified in Figure 3 are similar to NorthCarolina and should be a basis forcomparison. To the extent that NorthCarolina will compete for industrialcompanies against these states, energyprices may be a consideration.

The energy infrastructure also affectspotential production and use of renew-able energy sources. North Carolinadoes not yet have the infrastructure for“distributed generation”— generationof energy close to the point of use —which is critical to expansion of renew-able sources. Further, all the existingtransmission lines are owned by thestate’s largest electric utilities. Indeed,the whole southeastern regional grid ismaintained through the monopolisticmarket, making a change in the generationand transmission system difficult. So thestructure of the electric industry may bea barrier to distributed generation.

Regarding demand, North Carolinaexpects nearly four million additionalresidents by 2030, so it will have to ac-commodate energy demand from a grow-ing population. Increased energy demandwill cause higher prices and may makerenewable energy more attractive com-pared with conventional choices.

Figure 2. Contribution to Electricity Generation in North Carolina, by Fuel Source, 1990–2005

Source: Data from Energy Information Administration, “Table 12: Electric Power Sector ConsumptionEstimates: 1960–2005, North Carolina,” www.eia.doe.gov/emeu/states/sep_use/eu/use_eu_nc.html.

Figure 3. Average Retail Price of Electricity in All Sectors, by State, 2006

Source: Adapted from Dan Peaco, La Capra Associates, “Competitiveness under Constraints: The Electric Utility Industry, National Context andLessons from Other States” (paper prepared for the Institute for Emerging Issues, April 27, 2007). “Benchmark states” are North Carolina’scompetitors, those with which it compares itself.

ating them, it is argued, is relativelyhigher than the cost of generating thetraditional sources.

The state’s existing infrastructuresupports the conventional supplies ofenergy. It is a major constraint facing

North Carolina as policy makers con-sider the state’s future energy course.

North Carolina’s energy prices arelower than the national average buthigher than those of its neighbors, Vir-ginia and South Carolina (see Figure 3).

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Benchmark StatesIndianaVirginiaArkansasSouth CarolinaColoradoGeorgiaWisconsinMichiganPennsylvaniaFlorida

North Carolinaranks 25th

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Natural gas

Average US price

s p r i n g / s u m m e r 2 0 0 8 15

Finally, the “energy intensity” of astate—that is, how much existing in-dustrial customers rely on energy perunit of gross domestic product (GDP)—also affects the attractiveness of renew-able energy compared with conven-tional sources. In the United States,North Carolina ranksthirty-fourth in energyintensity, meaning thatonly seventeen otherstates have moreenergy-intensive econ-omies. By and large,these states’ economiesrely on fossil fuels fortheir energy needs (see Figure 4). Lowelectricity prices often discourage adop-tion of energy efficiency and renewableenergy. States such as California andMassachusetts, long recognized asleaders in energy efficiency and the useof renewable energy, cannot be easilycompared with North Carolina becauseNorth Carolina’s economy is much moreenergy-intensive and the state enjoyslower energy prices.

The aforementioned impacts on useof renewable energy naturally affect for-mation and implementation of energypolicy in North Carolina. North Caro-lina’s energy context consists of above-

average energy prices for the Southeast,a historical reliance on conventionalenergy sources, and an industry fairlyenergy-intensive compared with that inother states.

Against this backdrop, in 2007, NorthCarolina became the first state in the

Southeast to pass aREPS.7 The standardis based in part on ananalysis from anoutside study by LaCapra Associates andothers, commissionedby the state Environ-mental Review Com-

mission.8 A REPS is achieved throughphased-in requirements of a target per-centage of renewable energy. It helpssupport the market for renewable energysources within a state because it mandatesthat electricity providers use a certainamount of renewable energy over time.The statute applies to all investor-ownedutilities, electric companies, and ruralcooperatives. The federal governmenthas considered a number of REPSproposals and amendments, but to date,neither the House nor the Senate haspassed one.

North Carolina enacted a variant ofthe REPS that promotes energy effi-

ciency as well as renewable energy. Thestatute has three distinct goals:

• To diversify the resources used tomeet the energy needs ofconsumers

• To provide greater energy securitythrough use of in-state resources

• To provide improved air quality forcitizens of North Carolina

The requirements are meant to bephased in over time, with a 12.5 percentrequirement for investor-owned utilitiesto be met by 2021 and a 10 percent requirement for electric membership corporations and municipalities that sellelectric power in the state, to be met by2018. For Duke Energy and ProgressEnergy, the two principal investor-owned utilities in North Carolina,energy efficiency measures can provideup to 5 percent of the REPS.

In addition to creating these bench-marks, the REPS provides for set-asidesfrom three other renewable energy sources:solar power, 0.2 percent total gener-ation by 2018; swine waste, 0.2 percenttotal generation by 2018; and poultrylitter, 900,000 megawatt hours by 2014.

Many REPS programs, including the one recently established in North

Figure 4. Megawatt Hours Consumed per Million Dollars of Gross Domestic Product, 2006

Source: Adapted from Dan Peaco, La Capra Associates, “Competitiveness Under Constraints: The Electric Utility Industry, National Context and Lessonsfrom Other States” (paper prepared for the Institute for Emerging Issues, April 27, 2007). GDP = gross domestic product. “Benchmark states” are NorthCarolina’s competitors, those with which it compares itself.

North Carolina's energy prices are lower than the U.S. average but higher thanthose of neighbors Virginia and South Carolina.

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DC AK CA NY CT MA RI NJ HI NH CO DE VT IL ME UT MD MN NV MI US NM PA VA WA SD AZ OR WI FL TX OH GA KS NC MO IA NE OK ND IN MT TN LA ID WY AR MS WV SC AL KY

Benchmark StatesColoradoMichiganPennsylvaniaVirginiaWisconsinFloridaGeorgiaIndianaArkansasSouth Carolina

North Carolinaranks 34th

Average US energy intensity

16 p o p u l a r g ov e r n m e n t

Carolina, use tradable “renewable-energy certificates” (RECs) to increasethe flexibility and reduce the cost ofcompliance with the standard, and tofacilitate tracking of compliance. AREC is created when a megawatt hourof renewable energy is generated. It canbe traded separately from the electricitythat is generated. REC transactionscreate a supplemental revenue streamfor owners of renewable energy businessesand allow suppliers to demonstratecompliance with the REPS by purchas-ing RECs rather than purchasing renew-able electricity directly. A strong RECmarket encourages the development ofa renewable energy industry within astate because a financial payoff is evi-dent for investments made by a devel-oper of a renewable energy source.

Renewable Energy Capacity inNorth Carolina

The La Capra study highlighted the po-tential capacity for additional renewableenergy in North Carolina beyond theexisting base of approximately 2,000megawatts of electricity, consisting pri-marily of 1,400 megawatts of utility-owned hydroelectricity. The studyestimated that an additional 3,400megawatts could feasibly be developed,primarily from onshore wind powerand from “biomass fuel” (fuel createdfrom wood and agricultural waste).9

This estimate does not include anyoffshore wind or solar energy potentialbecause of the lack of authorized (per-mitted) offshore facilities in the UnitedStates and the high costs associated withsolar energy resources.

The challenges associated with devel-opment of North Carolina’s renewableresources are many. Successful implemen-tation of the REPS statute will requireconsiderable attention to overcomingthese obstacles.

Wind PowerAmong all renewable energy technologies,wind power is currently the most cost-competitive when compared with tra-ditional technologies for production offossil-fuel-based energy. In fact, aroundthe world, wind power is the fastest-growing energy source. Denmark hasthe most experience with wind power.

Half of its energy comes from offshorewind facilities.10

According to the American WindEnergy Association, at the beginning of2007, the United States had a total of2,600 megawatts of installed wind powercapacity, equivalent to about three orfour large coal-fired power plants. In-stallations in the last quarter of 2007brought the year’s total to 5,244 mega-watts. Between 2000and 2007, the amountof electricity that thecountry got from windmore than quadrupled,but wind projects stillgenerate less than 1percent of the nation’selectricity. Texas has the greatest wind-energy production of any state, fol-lowed by California, Minnesota, Iowa,and Washington.11

North Carolina offers one of the mostpromising locations on the East Coastfor wind power. Locations along ridge-lines in its mountains and near its soundsand coastal areas show the greatestpotential (see Figure 5). But despite theexcellent opportunities of each region,challenges exist in siting wind turbines.

The first challenge is a regulatorybarrier called the North CarolinaMountain Ridge Protection Act, whichhas restricted building on North Caro-lina’s mountain ridges above 3,000 feet.Although the intention of the law is tomaintain the natural beauty of NorthCarolina’s mountains, it creates obstaclesfor wind energy, given an interpretationof the original statute issued by the NorthCarolina Attorney General’s Office. The

best wind areas in western North Caro-lina fall into zones protected by the Moun-tain Ridge Protection Act. No otherstates have laws resembling North Car-olina’s law as it has been interpreted.States such as Maine and Vermont haveallowed mountain projects. These statesare attempting to address wind projectson ridgelines in a broader way thanproject by project. Ridges are sensitive

in any state, but hav-ing a broad law thatprohibits wind energyis another matter.

While NorthCarolina state law-makers debate thefuture of wind power

and the impact of the Mountain RidgeProtection Act on such development,local lawmakers have begun takingmatters into their own hands. In August2006, Watauga County became the firstin the state to address the siting of windfacilities, with development require-ments and a local permitting process for limited turbine development.

Also in 2006, a firm called North-west Wind Developers proposed NorthCarolina’s first commercial-scale windfarm, in Ashe County. This 50-megawattdevelopment—enough electricity topower 15,000 homes—would haveincluded 25–28 wind turbines, witheach turbine extending nearly 400 feetfrom the base to the tip of the blade.Ashe County does not have any zoningordinances, and the proposed windfacility did not have to comply with anylocal land-use zoning. However, like allpublic projects, the project had to ob-

Figure 5. Potential of Wind Power in North Carolina

Source: Data from NC OneMap (accessed November 27, 2007), www.nconemap.com/default.aspx?tabid=286.

Wind energy in North Carolinahas great potential but faceslegal restrictions.

Excellent Good Marginal

s p r i n g / s u m m e r 2 0 0 8 17

tain a certificate of public convenienceand necessity from the North CarolinaUtilities Commission. Eventually, theUtilities Commission dismissed the pro-ject because it was incomplete, but oppo-sition came from local residents whofeared that the giant turbines woulddamage tourism and harm real estatevalues. In the aftermath of that event,the Ashe County commissioners adopteda new ordinance regulating the size andthe placement of wind power systems inunincorporated areas of the county.

In June 2007, the western NorthCarolina resort town of Blowing Rockbanned wind turbines because of con-cerns that the towers would obstructmountain views. Other counties mayfollow suit, compounding existingstatutory barriers with a low level ofpublic acceptance of wind developmentprojects in western North Carolina.

Wind facilities can be sited in threeother locations: the coastal plain, statewaters, and federal waters, offshore.Each location has its own local, state,

and federal jurisdictional requirements. The best potential for wind power

in North Carolina is near the ocean orthe sound close to transmission lines for electricity distribution (see Figure 5).However, high winds and water turbu-lence can easily damage ocean-basedand coastal wind turbines. Thus, inlandcoastal regions or sites around thesounds are much more attractive.Making sounds even more appealing is the ease of acquiring permits for thelargely undeveloped land.

Any offshore (more than three milesout) wind-power project in North Car-olina would trigger federal permittingrequirements, administered by the U.S.Army Corps of Engineers and by theU.S. Environmental Protection Agency(through the Clean Water Act), as wellas North Carolina’s regulatory mechan-ism (through the Coastal Area Manage-ment Act, CAMA). To date, there has notbeen a successful offshore wind projectin the continental United States, but theproposed Cape Wind project off the coast

of Massachusetts is currently in the per-mitting process. If successful, it wouldbegin manufacturing and constructionof turbines in 2010. Offshore wind poweralso has been pursued in Delaware,where Bluewater Wind wants to buildthe country’s biggest offshore wind farmseveral miles out from Rehoboth Beach.Further, a New York–based firm hassubmitted the first proposal for a majorwind farm off the Rhode Island coast.Projects off the coasts of New York andTexas are in various stages of planningand development, so the first UnitedStates offshore wind project will prob-ably be forthcoming in two to three years.

Onshore wind-power projects inNorth Carolina require permittingthrough the CAMA process and mustmeet any county zoning and construc-tion requirements. North Carolina iscurrently considering three such projectsaround Morehead City. Most recently,the Golden Wind Farm has sought per-mission from the North Carolina Util-ities Commission to build three windmillsin Carteret County that would generate4.5 megawatts of electricity, for aboutnine hundred residences. In the wake ofthose proposals, in March 2008 theCarteret County Commissioners issueda nine-month moratorium on issuingpermits to build windmills, to allow thecounty time to develop and considerregulations. But whether wind powerwill become a viable renewable resourcein North Carolina remains to be seen.

Biomass FuelNorth Carolina has abundant under-used biomass distributed across thestate. The La Capra study found woodand agricultural waste to have the

Figure 6. Potential for Biomass Fuel in North Carolina, by County

Source: From Alex Hobbs, “Use of Agricultural and Forest Waste as a Distributed GenerationPower Resource in North Carolina” (Raleigh: North Carolina Solar Center, April 27, 2005),www.energy.appstate.edu/reed/docs/hobbs.pdf.

Dry Tons of Biomass

120,000 or less

120,001–240,000

240,001–360,000

18 p o p u l a r g ov e r n m e n t

largest potential to contribute to a REPS.12

According to an assessment by the NorthCarolina Biomass Council, woody bio-mass and agricultural waste could providealmost 1,100 megawatts of electricalcapacity.13 Even though the practicalpotential for wind power in North Carolina may be greater in terms ofmegawatt capacity, biomass facilities,with a higher “capacity factor,” arelikely to contribute a larger share of theenergy. The capacity factor of a powerplant is the amount of energy it actuallyproduces, divided by the total amount of energy it could have produced op-erating at full capacity over a specifiedtime period.

Many counties in North Carolinahave biomass potential (see Figure 6).The counties with the lowest per capitaincome tend to have economies based onagriculture and therefore stand to benefitthe most from biomass fuel development.

The wide distribution of biomass inNorth Carolina makes clear that the future of distributed generation musttake center stage. Distributed generationimplies smaller plants close to thesource of input.

Unlike midwestern states such as Iowa,where corn and soybeans are currentlythe biofuels feedstock of choice, NorthCarolina has a comparative advantagein “lignocellulosic biomass”—plant

fibers containing lignin and cellulose—and animal waste. In total forest acre-age, North Carolina ranks fourth in thecountry. According to 2004 statistics,North Carolina ranks second in hogand pig production (behind Iowa).14 Ofthe potential energy that could be gen-erated using biomass, 57 percent couldcome from forest resources, and 10 per-cent from animal waste (see Table 1).

Solar EnergySolar energy is not as cost-effective aswind power, but it is likely to gain na-tional market share in the years aheadand within North Carolina, given theset-aside requirements in the REPS.

Table 1. Key Biomass Resources in North CarolinaTotal

Biomass Energy† Ethanol Biodiesel Electricity§

Resources Quantity Units (Trillion BTUs) (Gallons/year) (Gallons/year) (MW)

Softwood 1,894,305 Tons/year 32.20 314

Hardwood 2,061,063 Tons/year 35.04 342

Pulpwood 4,779,566 Tons/year 81.25 382,365,280‡

Wheat Straw 60,413 Tons/year 0.94 9

Corn Stover 963,494 Tons/year 14.26 139

Corn Grain 78,125,000 Bushels/year 15.04 195,312,500

Sweet Potato 24,500,000 Bushels/year 1.39 18,014,000

Soybeans 39,420,000 Bushels/year 7.16 60,480,000

Yellow Grease 115,000,000 Pounds/year 1.18 10,000,000

Animal Rendering 323,400,000 Pounds/year 5.10 43,120,000

C&D Wood Waste 897,784 Tons/year 15.26 149

MSW Wood Waste 836,779 Tons/year 14.22 139

Poultry Litter 1,415,988 Tons/year 10.77 105

Hog Waste 9,900,000 Hogs 9.53 93

Landfill Gas 30 Landfills 15.44 150

Total 259 595,691,780 113,600,000 1,440

% of NC Consumption (fossil energy, gasoline, diesel, and electricity respectively)10.25% 10.12% 7.70% 6.00%

Energy Crops*

Canola 300,000 Acres 4.26 36,000,000

Hulless Barley 300,000 Acres 4.23 54,480,000

Industrial Sweet Potato 35,000 Acres 1.95 25,360,000

Switchgrass 263,132 Tons/year 4.21 21,050,560

Hybrid Poplar 302,909 Tons/year 5.15 50

New Total 277 696,587,046 146,600,000 1,490

New % of NC Consumption (fossil energy, gasoline, diesel, and electricity respectively)10.95% 11.83% 10.20% 6.60%

Table 1 includes the biomass resources available in North Carolina and potential energy crop production. *Derived from replacing 1/2 of North Carolina’swinter wheat acres with canola, the other 1/2 with hulless barley, doubling the sweet potato acreage with industrial types, and planting all 104,000 acresof conservation land with switchgrass and hybrid poplar. †Only the energy content of the gallons produced was included for biofuels feedstock. ‡If ethanol isproduced at 80 gallons per ton. §Note that more power could be produced per unit of biomass if the biomass is co-fired, but that was not included here.

Source: Reprinted from Ben Rich, The North Carolina Biomass Roadmap: Recommendations for Fossil Fuel Displacement through Biomass Utilization(Raleigh: North Carolina Biomass Council, 2007), 12, www.saferalliance.net/renewsouth/North%20Carolina%20Biomass%20Roadmap%202007.pdf.

s p r i n g / s u m m e r 2 0 0 8 19

Solar energy can be used to heat homeswith panels on the roof (either throughthe photovoltaic effect or by the heatingof a transfer fluid to produce steam torun a generator) and through hot watersystems or other heating technologies.

As of 2006, the total installedcapacity of solar hot water systems was105 gigawatts-thermal, and growth was10–15 percent per year. China is theworld leader in deployment of solar hotwater systems, with 80 percent of themarket, but Israel is the per capitaleader in use of solar hot water, with 90 percent of homes using this tech-nology.15 As with wind energy, the UnitedStates is significantly behind othercountries in the use of solar energy.

Solar energy faces considerablechallenges, though. First, on average,every square meter exposed to directsunlight will receive about 1 kilowatthour of solar energy per hour. However,sunlight provides useful energy for only

about six to seven hours per day be-cause during the early and late hours of the day, the angle of the sun’s light is too low. This circumstance creates a need to store energy.

Second, the capital cost of instal-lation of solar panels and hot waterstorage and piping is high. The financialpayback may be two to three years outfor solar hot water heaters, longer forsolar photovoltaic systems.

Third, many do not regard solarpanels on the roof as attractive. Withthe passage of the REPS statute, how-ever, homeowner associations may notuse convenants or other provisions torestrict solar panels on roofs, as theycould in years past.

According to Michael Shore, co-owner of FLS Energy, a solar techno-logy company located in Black Moun-tain, North Carolina, three or fourcompanies in the state operate solarenergy on a commercial scale doing

large projects, and about twenty-fivesmall companies install solar energy as a byproduct of their business.16

FLS Energy, in fact, recently com-pleted installation of one of the nation’slargest hot-water systems at the Prox-imity Hotel in Greensboro, North Car-olina. Designed to become the greenesthotel in the country, the Proximity hasone hundred solar panels on its roof.

FLS Energy is working with home-owners, businesses, and others in thewestern part of the state to make solarhot water a mainstream option. Shorebelieves that business owners neededucation to realize the benefits of asolar system. Financial incentives throughthe renewable energy tax credit (dis-cussed in more detail later) and a federaltax credit are making solar energy moreattractive. North Carolina, though, stilltrails behind California, Colorado, andNew Jersey, which are poised to becomemajor solar-power states.

Figure 7. States with a REPS or a Renewable Energy Goal, 2007

Source: Updated from La Capra Associates, GDS Associates, and Sustainable Energy Advantage, Analysis of a Renewable Portfolio Standard for theState of North Carolina (Boston: La Capra Associates, 2006), www.ncuc.commerce.state.nc.us/rps/NC%20RPS%20Report%2012-06.pdf. REPS=renewable energy portfolio standard. MW=megawatts. IOUs=investor-owned utilities. Co-ops=cooperatives. Munis=municipally owned utilities.

MT: 15% by 2015 ND: 10% by MN: 25% by 2025 WI: 10% by 20152015 (goal)

WA: 15% by 2020

OR: 25% by 2025 (large utilities);5%—10% by 2025 (small utilities)

CO: 20% by 2020

NV: 20% by 2015

CA: 20% by 2010

AZ: 15% by 2025

NM: 20% by 2020

ME: 30% by 2000

NH: 23.8% in 2025

VT: equal to load growth 2005—2012 (goal)

MA: 4% new by 2009 + 1% annual increase

RI: 16% by 2020

CT: 23% by 2010

NJ: 22.5% by 2021

PA: 18% by 2020

DE: 20% by 2019

MD: 9.5% in 2022

DC: 11% by 2022

VA: 12% by 2022 (goal)

NC: 12.5% by 2021 (IOUs); 10% by 2018 (co-ops & munis)

MO: 11% by 2020 (goal)

TX: 5,880 MW by 2015

HI: 20% by 2020

IA: 105 MW IL: 25% by 2025 NY: 24% by 2013

REPS states

States with goals

Non–REPS states

20 p o p u l a r g ov e r n m e n t

Lessons from Other States:Challenges and Opportunities forNorth Carolina

Given this backdrop on renewable en-ergy resources in North Carolina, whatcan the state learn from other states’experience?

Renewable Energy MarketsREPSs now have been enacted in morethan twenty states (see Figure 7). Thestatutes differ substantially from onestate to the next, and the standards varyon the basis of structure, size, application,eligibility, and administration. Thestandards typically apply to regulatedinvestor-owned utilities and energy ser-vice providers. More than half of theREPS states are in “deregulated markets”—that is, markets with a new regulatoryframework for the retail sale of electric-ity that covers the production of powerand separates the sale of energy fromthe delivery of it. However, REPSs areincreasingly appearing in monopolymarkets as well, as is the case in NorthCarolina. Approximately one-third toone-half of the electricity portfolio mixin the United States now is covered by astate REPS or a required renewable

energy percentage.17 Operating experi-ence with the policy is growing, but fewstates have more than five years’ exper-ience. The potential impact, however, isseveral thousand megawatts of newrenewable energy capacity.

The most successful states in renew-able energy have several characteristicsin common, such as new developmentof renewable energy sources, a strongenforcement mechanism, and reason-able and stable costs. These states in-clude Texas, with several thousandmegawatts of wind power installedsince its statute was enacted in 1999,and Iowa and Minnesota, both ofwhich have met wind power and bio-mass fuel mandates.

North Carolina faces two challenges,which may limit the overall success ofits REPS. First, the majority of stateswith REPS have set aside funds to sup-port renewable energy sources on alarge scale. North Carolina has notdone so. Massachusetts and New York,for example, have a public benefits fundin their statutes, which raises revenuethrough a small surcharge per kilowatthour for investment in renewable energytechnologies. North Carolina’s invest-ment in renewable energy technologies

will depend on the actions of DukeEnergy and Progress Energy and thefindings of current research at the state’shigher education institutions.

The second challenge is the enforce-ment mechanisms in the North Carolinastatute. Although the statute requiresthe North Carolina Utilities Commissionto promulgate rules regarding enforce-ment, without a clear commitment fromthe commission to enforce the statutewith monetary penalties, the statute willfunction more like a goal than a re-quirement. Some states require utilitiesto make “alternative compliance pay-ments” if they do not procure sufficientamounts of renewable energy, withpenalties ranging from $20 per mega-watt hour to more than $50 per mega-watt hour. States with these enforce-ment mechanisms naturally have bettercompliance and often are the ones thathave long-term contracts with renew-able energy suppliers.

Two other factors, though, willpositively affect North Carolina’s futuremarket for renewable energy: (1) risingcosts of production for conventionalenergy sources and (2) tax credits forrenewable energy. North Carolina canexpect energy demand to begin to out-pace energy supply (assuming that no ef-ficiency measures are successful) by about2015. What role renewable sources willplay in the future mix of energy supplyremains unknown, but the rising cost ofcoal and nuclear energy sources makesrenewable sources more attractive. Highercosts for traditional power plants willbe passed on to ratepayers, and renew-able sources will become more cost-competitive by comparison.

For example, in late 2004, Duke En-ergy started planning a pair of coal-firedpower plants to replace several builtyears ago at Cliffside. In May 2005, the company told the North CarolinaUtilities Commission that it wanted tospend approximately $2 billion to buildtwo 800-megawatt units. But eighteenmonths later, Duke Energy said that thecost had risen to $3 billion. The NorthCarolina Utilities Commission event-ually agreed to Duke Energy’s buildingonly one of the plants. In May 2007,Duke Energy said that one coal plantwould cost $1.83 billion, an increase ofmore than 80 percent from the original

Figure 8. Effect of a REPS on Average Annual Electricity Rates

Source: Reprinted from Daniel Hansen, Laurence Kirsch, and Michael O’Sheasy, “An Analysis ofthe Effect of Renewable Portfolio Standards on Retail Electricity Prices,” 4, www.caenergy.com/downloads/Hansen_Kirsch_OSheasy_RPS_Price_Effect.pdf. RPS = REPS, renewable energyportfolio standard.

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s p r i n g / s u m m e r 2 0 0 8 21

estimate.18 Nuclear-power constructionprojects would face the same fate be-cause the required building materials—copper, nickel, stainless steel, andconcrete—are rising in cost.

North Carolina hasa renewable energy taxcredit that helps fi-nance an installedsystem (35 percent ofthe cost of the installedsystem, up to $2.5 mil-lion per project), andfederal tax credits are available as well.Both the rising costs for conventionalenergy sources and the tax credits pos-itively affect the market for renewableenergy. However, the state will fall farshort of its potential in the renewableenergy market because of (1) the lack ofa public benefits fund for developingpromising technologies into commercialapplication, (2) the uncertain future of aREC market—an important tradingplatform for renewable energy firmslooking to finance their investment—and (3) the unknown future of distri-buted generation, energy storage tech-nologies, and the management of asoutheastern regional grid.

Rate Impacts of North Carolina’s REPSState REPS policies could have substan-tial impacts on electricity markets,ratepayers, and local economies. Unfor-tunately, the actual costs (and benefits)of state REPS policies have not beencompiled in a comprehensive fashion, in part because of the early stage ofpolicy implementation and limited data.Nonetheless, in most instances, thereis little evidence of a sizable impact onaverage retail electricity rates.

The impact of a REPS on retail elec-tricity rates in North Carolina is a con-tested issue. According to the La Caprastudy, a 5 percent REPS would increaseaverage retail electricity rates by less than1 percent.19 Other reports looking atretail-rate impacts of renewable energyadoption offer a similar conclusion. Forexample, a “meta-analysis” (a systema-tic study of the results of prior studies)conducted by the Lawrence BerkeleyNational Laboratory found that 70 per-cent of states that had adopted a REPSforecast increases in retail electricityrates of no greater than 1 percent.20 The

general conclusion that may be drawn isthat most studies thus far do not foreseedramatic increases in retail electricityrates after REPS adoption. These pre-dictions corroborate the conclusions of

the La Capra study.The EIA has

investigated thepossible impacts ofexisting state REPSprograms on aregional basis. Itprojects modest

electricity price impacts both regionallyand nationally—plus or minus 1 percentwhen compared with a case in which noREPS has passed.21

For a comparison of average elec-tricity rates for REPS and non–REPSstates, see Figure 8. The bars at thebottom of the figure show the numberof REPS states in each year. Both REPSand non–REPS states experienced anincrease in average prices starting in2000. However, the rate of increase forREPS states was higher following theyear 2000.

Often, though, states that have facedhigher electricity prices have adoptedREPS legislation. As an example, naturalgas prices have increased substantiallysince 2000, and the increase has encour-aged California and several states in NewEngland to turn to the REPS as one so-lution. Southern states as a whole,though, have historically had lowerelectricity prices and therefore are no-tably not well represented among theREPS states in Figure 7.

Energy Efficiency The Southeast is presented with animportant opportunity to take action on energy efficiency to supplement itsefforts to develop renewable energysources. A recent report by the Amer-ican Council for an Energy-EfficientEconomy developed a comprehensiveranking of state-level energy efficiencypolicies, the State Energy EfficiencyScorecard for 2006. The scorecardgraded each state on actions taken toadopt energy-efficient programs andranked states on the basis of their pro-gress in eight categories of energy efficiency policy: (1) spending on utility and public benefits programs; (2) energy-efficiency resource standards

(which require utilities to meet targetsfor electric and gas energy savings); (3) combined heat and power (use of apower station to generate electricity and power; in cogeneration, thermalenergy is not wasted); (4) building energy codes (codes for energy effi-ciency in constructing and maintainingbuildings); (5) transportation policies;(6) standards for efficiency of appli-ances and equipment; (7) tax incentives;and (8) state investment in research and development.22

According to the report, the top tenstates for energy efficiency investmentsare California, Connecticut, and Ver-mont (tied for first); Massachusetts;Oregon; Washington; New York; NewJersey; and Rhode Island and Minnesota(tied for ninth).23 The clear winners arein the Northeast and on the West Coast,in part because of their limited in-statesupplies of conventional energy re-sources. By contrast, the states that areranked lower (which include most ofthe Southeast, including North Carolina)have an abundant supply of inexpensivetraditional energy sources. However, asthe prices of coal, oil, and natural gascontinue to rise and as global climatechange gains traction in the publicconsciousness, more and more stateswill turn to energy efficiency as a soundinvestment measure.

North Carolina’s largest investor-owned utilities have recently madetremendous investments in energyefficiency. Duke Energy has proposed to reduce growth in power demand by1,700 megawatts in four years througha program called Save a Watt. Customerswill pay for the program with an energyefficiency “rider” that will be includedin their power bill and adjusted annually.Energy efficiency programs will costcustomers only about 90 percent ofwhat a new power plant would cost. As energy efficiency results are realized,Duke Energy will retire up to 800megawatts of older coal plants.24

For its part, Progress Energy has announced that it will displace 2,000megawatts of power through demand-side management and energy efficiencyprograms. In addition, it will not propose any new coal plants during atwo-year period of energy efficiencyevaluation.25

The top ten states forinvestment in energy efficiencyare in the Northeast or on theWest Coast.

22 p o p u l a r g ov e r n m e n t

Economic Development Opportunitiesin the New Energy EconomyNorth Carolina can and should capitalizeon the economic development opportu-nities inherent in the new energy economy.This economy will likely create new indus-tries, companies, and jobs while helpingaddress important environmental prob-lems. The public and private sectors mustengage in a discussion that leads to ex-plicit strategies for state and local govern-ment involvement in the transformation.

Evidence suggests that policies such asREPSs, energy efficiency requirements, andbiofuels standards can expand the econ-omy and increase employment through a reallocation of resources away fromimported energy. New energy sourcescultivated within the state (such as bio-mass and solar power) and increasedmeasures of energy efficiency are morelabor-intensive than the traditionalsources they displace. “Sector-specific”economic opportunities—development

Notes1. Todd Cherry, “Energy Supply

Issues in North Carolina” (paper preparedfor the Institute for Emerging Issues, April2007), http://ncsu.edu/iei/programs/energy-environment/resources/documents/energy-supply.pdf).

2. Ibid.3. Natural Resources Defense Council,

Addicted to Oil: Ranking States’ Oil Vulner-ability and Solutions for Change (New York:Natural Resources Defense Council, July 2007),http://docs.nrdc.org/air/air_07061901a.pdf.

4. For more information about the data,visit www.eia.doe.gov/cneaf/electricity/st_profiles/north_carolina.html.

5. For more information about NCGreenPower, visit www.ncgreenpower.org.

6. Ibid.7. S.L. 2007-397, Act of Aug. 20, 2007,

available at www.ncleg.net/EnactedLegislation/SessionLaws/HTML/2007-2008/SL2007-397.html.

8. La Capra Associates, GDS Associates,and Sustainable Energy Advantage, Analysisof a Renewable Portfolio Standard for theState of North Carolina (Boston: La Capra

Aspects of Energy Use and Capacity in North CarolinaDennis Grady and Jason Hoyle

Chart 7. Historical and Projected Needs for Electricity-Generating Capacity in North Carolina, 1995, 2000–2015

The potential output of electricity-generatingequipment is called “capacity.” In 2007, North Carolina companies had about48,000 megawatts (MW) of capacity. Thatis, if the entire capacity were to operate forone hour, it would generate 48,000 megawatt-hours (MWh) of electricity. As the stategrows, the demand for electricity increases,so the state’s capacity to generate or ac-quire electricity must increase. The “Unde-fined” portion of the figure reflects capacityneeds anticipated by electric service pro-viders. The “REPS” portion reflects renew-able energy and energy efficiency capacityas mandated in SL 2007-397, the state’snew law on standards for renewable energyand energy efficiency. Duke Energy and Pro-gress Energy together have about 95 percentof the electricity-generating capacity in thestate, serving 1,730,000 and 1,200,000customers, respectively. Dominion NorthCarolina Power serves about 116,000 cus-tomers and generates about 5 percent ofstate power. Nineteen percent of sales areto wholesale markets, mostly cooperativesand municipally owned electric utilities.

60,000

50,000

40,000

30,000

20,000

10,000

0

1995 2002 2005 2008 2011 2014

Sources: Data from North Carolina Utilities Commission, Annual Report of theNorth Carolina Utilities Commission Regarding Long Range Needs for Expan-sion of Electric Generation Facilities for Service in North Carolina (Raleigh:North Carolina Utilities Commission, October 2007), www.ncuc.commerce.state.nc.us/reports/report.htm; S.L. 2007-397, ncleg.net/Sessions/2007/Bills/Senate/HTML/S3v6.html. Capacity is displayed in terms of summer peak demand.

REPS

Undefined

Current

Meg

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ts

of entirely new areas of comparativeadvantage at the state level, based onproduction and delivery of low-carbonenergy sources—including researchnetworks, manufacturing, constructionand installation, and maintenance, aswell as associated services such asfinance, legal arrangements, and thebrokering of RECs, can make NorthCarolina a leader in the Southeast andbring jobs to the state.

The states and the region that havebeen successful in this endeavor—California, Texas, and New England—have the following characteristics incommon: strong demand, adequatephysical infrastructure, a local laborpool, access to early-stage equityinvestment, a supportive tax and regu-latory environment, and appropriateroles for state government in buildingup these foundations. North Carolinahas the ability to lead if it capitalizes onthe opportunities before it.

s p r i n g / s u m m e r 2 0 0 8 23

Associates, 2006), www.ncuc.commerce.state.nc.us/rps/NC%20RPS%20Report%2012-06.pdf.

9. Ibid.10. For more information on the Danish

wind industry, visit www.windpower.org, the website of the Danish Wind Association,a nonprofit group whose purpose is to promotewind energy within Denmark and abroad.

11. American Wind Energy Association,“Installed U.S. Wind Power Capacity Surged45% in 2007: American Wind EnergyAssociation Market Report” (press release,January 17, 2008), www.awea.org/newsroom/releases/AWEA_Market_Release_Q4_011708.html.

12. La Capra Associates et al., Analysisof a Renewable Portfolio Standard.

13. Ben Rich, The North Carolina Bio-mass Roadmap: Recommendations for FossilFuel Displacement through Biomass Utiliza-tion (Raleigh: North Carolina Biomass Coun-cil, September 2007), www.saferalliance.net/renewsouth/North%20Carolina%20Biomass%20Roadmap%202007.pdf.

14. See, for example, the history of North

Carolina’s hog industry at www.duke.edu/web/mms/90hogfarming.

15. Worldwatch Institute, Renewables2007: Global Status Report (Paris, France:Renewable Energy Policy Network for the21st Century, December 2007), www.ren21.net/pdf/REN21_GSR2007_Prepub_web.pdf.

16. Michael Shore (co-owner of FLS Energy),interview by Diane Cherry, October 2007.

17. U.S. Department of Energy, EnergyEfficiency and Renewable Energy, State Activities and Partnerships, “States with Renewable Portfolio Standards” (June2007), www.eere.energy.gov/states/maps/renewable_portfolio_states.cfm.

18. Matthew Wald, “Costs Surge forBuilding Power Plants,” New York Times,July 10, 2007, www.nytimes.com/2007/07/10/business/worldbusiness/10energy.html.

19. La Capra Associates et al., Analysisof a Renewable Portfolio Standard.

20. Ryan Wiser et al., “The Experiencewith Renewable Portfolio Standards in the United States,” Electricity Journal 20,no. 4 (May 2007): 8–20; Ryan Wiser et al.,“Renewables Portfolio Standards: A Factual

Aspects of Energy Use and Capacity in North CarolinaDennis Grady and Jason Hoyle

Chart 8. Difference Between Electricity Generation and Capacity, by Source, 1995, 2000, and 2005

Electricity generation depends on how oftenand how long each unit of electricity-generatingcapacity operates. Electric utilities deter-mine how much electricity to generate onthe basis of the demand for electricity, theprice of fuels, and other factors. Electricitysources with a negative value in the figurehave a higher share of generating capacitythan of overall electricity generation. Coal andnuclear electricity-generating equipmentrepresents “base-load generating capacity,”or equipment that typically operates aroundthe clock. Additional generating capacity, called“peak-load capacity,” is used to meet short-term fluctuations in demand, such as thosefrom air conditioners in the summer. Themajority of peak-load capacity is fueled bynatural gas, as demonstrated by the lowrates of capacity use in the figure.

15%

10%

5%

0%

–5%

–10%

–15%

–20%

Coa

l

Nuc

lear

Oth

er

Oth

erre

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s

Pet

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Nat

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Source: Data from U.S. Department of Energy, Energy Information Administration, “North Carolina Electricity Profile,” table 5, “ElectricPower Industry Generation by Primary Energy Source, 1990 through 2006,” www.eia.doe.gov/cneaf/electricity/st_profiles/ north_carolina.html.“Other” includes nonbiogenic municipal solid waste, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, tire-derived fuels, andmiscellaneous technologies. It also includes “pumped storage hydroelectric,” which is “hydroelectric power produced during times of peakpower demand using water that was pumped to a reservoir during times of low power demand.” “Glossary,” www.eia.doe.gov/glossary/glossary_p.htm. “Other renewables” includes biogenic municipal solid waste, wood, black liquor, other wood waste, landfill gas, sludgewaste, agriculture byproducts, other biomass, geothermal energy, solar thermal energy, photovoltaic energy, and wind.

1995

2000

2005

Introduction to Experience from the UnitedStates,” LBNL-62569 (manuscript submittedto Electricity Journal, April 2007), http://eetd.lbl.gov/ea/EMS/reports/62569.pdf.

21. Energy Information Administration,Impacts of a 15-Percent Renewable PortfolioStandard, Report no. SR-OIAF/2007-03(Washington, DC: Energy InformationAdministration, 2007), www.eia.doe.gov/oiaf/servicerpt/prps/index.html.

22. American Council for an Energy-Efficient Economy, “State Energy EfficiencyScorecard for 2006,” www.aceee.org/pubs/e075.htm.

23. Ibid.24. Duke Energy, “Energy Efficiency Joins

Nuclear, Coal, Natural Gas and Renewablesto Meet Duke Energy’s Growing CustomerDemand” (press release, May 7, 2007),www.duke-energy.com/news/releases/2007050701.asp.

25. Progress Energy, “Progress EnergyCarolinas Sets Goal of Doubling EfficiencySavings to 2,000 MW” (press release, June 1,2007), www.progress-energy.com/aboutus/news/article.asp?id=16202.

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