Duke Drops Largest Solar Project in North Carolina Procurement — Its Own

Monopolies and market competition can make for uneasy bedfellows.

North Carolina completed its initial competitive solar solicitation at April, as called for at a leading energy compromise that the legislature passed in 2017. Unlike nearly anyplace else, the legislation stated that regulated monopoly Duke Energy, in addition to its own innocent renewables developer arm, could compete at the usefulness ’s house land against independent power producers. Duke could even buy jobs from its rivals in the procurement.

GTM covered the results at the time, but the story took another twist, since Duke continued its biggest project within about two weeks of winning it. Though the contract had Duke's name on it, the utility has been going to get it out of a third party programmer.

“We thought it was an attractive cost,” Duke Energy spokesperson Randy Wheeless said of this developer's bid. “When they went back and double-checked several numbers, they realized they couldn’t come in at the price they’d promised.”

High-profile projects occasionally fall through, and usefulness and programmers alike have expressed satisfaction with the way the process unfolded overall in North Carolina. Nobody is complaining about the roughly $260 million that the solar procurement is anticipated to save ratepayers over the next 20 decades.

However the canceled project raises questions concerning the unconventional arrangement of the solicitation, which sees the usefulness competing with different programmers while also interacting with them as a power purchaser and a possible acquirer.

The solicitation rules exempted Duke from submitting a security deposit for the canceled job, which could have cost a different programmer $1.6 million.

Too good to be true

From the solicitation completed in April, Duke took home 270 megawatts of their 602 megawatts awarded, almost 45 percent.

That equates to”a solid reflection of how competitive we are in the emerging market in constructing renewable energy jobs,” Duke Energy Renewables President Rob Caldwell stated in the media release. (Oddly, in a later release from the North Carolina Clean Energy Business Alliance, Executive Director Chris Carmody said that the effect”underscores once more how private business continues to induce North Carolina’s direction in solar energy.”)

Duke's tally included the 80-megawatt job to be acquired from an unnamed programmer in Onslow County, in land controlled with its Duke Energy Progress unit. This was the biggest project in the overall procurement and the maximum size permitted to compete.

Then the project fell through.

Exactly how Duke signed up for a job priced too low to provide hasn’t been disclosed, but the reports from separate secretary Accion Group, that selected the winners, sign at the size of this discount.

The two original Duke Energy Progress jobs — the 80-megawatt development, along with a 7-megawatt job — had an average cost per proposition of $31.24 per megawatt-hour. That’s greater than the nation’s lowest PPA costs, that might be hitting the low $20s each megawatt-hour, however it’s significantly cheaper than Duke Energy Carolinas territory, where the average cost was $36.93 per megawatt-hour.

Duke Energy Progress land encompasses property east of Raleigh, in which the cost of conducting business is usually lower than the more wealthy counties to the west, Wheeless said. That will explain some of this discrepancy.

Following Duke stopped and the award went to a 78-megawatt job from Cypress Creek Renewables, the average bid price to Progress land rose to $38.30 per megawatt-hour, according to the latest filing.

This delta from before to after reflects a considerable discount which Duke's initial pricing provided compared to the next most competitive bid. That reduction proved too great to be true.

Security needed, but maybe not for everyone

Canceling a bid in North Carolina's solicitation carries real costs for many developers, because doing so forfeits the safety deposit required for participants to enter the last competition.

Just one other developer withdrew a bid a 50-megawatt project that carried a $1 million security deposit.

The point of needing a security deposit, based on Accion, was to discourage “11th hour” Upgrades and promote applications such as “shovel-ready” projects.

That condition applied to all participants, except Duke Energy: “The RFP expressly waived the Proposal security necessity for usefulness self-developed Proposals,” the final Accion report says. Dependent on the 80-megawatt endeavor size, Duke Energy would have sacrificed a $1.6 million deposit if it had needed to file one.

“In consequence, the DEP/DEC Team and the programmer had a completely free option to draw at any moment, which the [Independent Administrator] considers was an unanticipated result,” the report notes.

There was a qualitative justification for not requiring Duke to post collateral: “DEP/DEC would be unable to acquire a letter of credit where DEP/DEC was the beneficiary and applicant/obligor. ” The safety deposits visit the utility when a developer drops, and apparently it did not make sense for Duke to allocate money for the purpose of paying itself. 

Put differently, allowing a monopoly utility to compete for the chance to sell power to itself can turn regular contracting matters into embarrassing conditions.

Wheeless acknowledged this was a problem, noting that”people didn't enjoy the optics of it,” and said the rule could change before another round of bidding opens in October. Accion Group echoed that in its own report.

Who has the benefit?

Considering that the cancellations, the surviving winners of the procurement complete 550 megawatts, together with Duke now set to deliver 34.5 percent, a more modest achievement than the one documented in the April press release.

This 's still a substantial market share going to the utility, and it seems to transcend the brink written into law. 

“No more than fifty per cent (30%) of an electrical public utility's competitive procurement requirement might be fulfilled through the usefulness 's development of renewable energy facilities offered by the electric public utility or any subsidiary of the electrical utility that is within the electrical utility's service territory,” HB 589 stipulates, as it lays the framework for competitive renewable procurement.

Projects totaling 34.5 percent would seem at first glance to exceed a maximum limit of 30 percent. The next sentence of the law, but exempts”any renewable energy facilities obtained through an electric public utility” 

The 80-megawatt plant was to be acquired rather than developed by Duke. Even following the acquired project would have abandoned Duke developing 31.4 percent of the first winning portfolio.

But that 30 percent cap applies to jobs developed by Duke over the class of North Carolina's complete solicitation, Wheeless said. The procurement will continue to get a total of three or four tranches, therefore extra utility ownership now might be balanced out in later rounds.

The first-round outcome indicates that Duke's controlled company can compete in the market with developers, Wheeless said. Wondering if Duke has a structural advantage in competing to supply its own land, the spokesperson noted that seasoned developers like Cypress or Strata Solar deliver their own valuable understanding to the table.

“We’ve got knowledge of our system, however they have a good deal of knowledge they've gained in the last few years building these projects and getting them on line,” Wheeless said. “They've assembled a great deal of projects, way over our controlled utility.”

The competition will resume this autumn, as usefulness and programmers alike use what they learned from the very first round and press for advantage in the next bout, with even more capacity at stake.

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