Solar Makes NC Cleantech Shine, But Tax Credit Expiry Clouds Future

While biotech and software are the sectors commonly associated with North Carolina innovation, cleantech has quietly emerged as its own economic bright spot.

North Carolina’s renewable energy capacity now totals more than 1 gigawatt, making it the fourth state to cross that threshold. Much of the growth has come from solar installations. North Carolina’s 396.6 megawatts of solar installations in 2014 was second only to sunny California, according to the Solar Energy Installations Association.

Solar’s growth in North Carolina is bolstered by two forces: state policies that incentivized renewable energy projects and the rapid price decline of photovoltaic panels, explains a Pew Trusts report. North Carolina remains the only Southeastern state with a renewable energy portfolio standard, a requirement that utilities obtain a certain percentage of their power generation from renewable sources. Solar projects benefit from a 35 percent state tax credit that make new solar installations more attractive investments. Clean energy projects generated more than $2.6 billion in revenue between 2007 to 2013, compared against $135.2 million in state incentives offered for such projects in that period, according to the North Carolina Sustainable Energy Association.

But some in the solar industry now wonder how the loss of government incentives will affect solar’s growth. North Carolina lawmakers did not extend the state’s renewable energy tax credit, set to expire at the end of 2015. Renewable energy projects will also see a reduction in the federal tax credit, which will drop from 30 percent to 10 percent at the end of 2016.

“We don’t know what that’s going to mean,” says Ivan Urlaub, executive director of the NCSEA. “We do know that residential scale and small commercial scale clean energy systems of all types and sizes were eligible for our tax credit and not necessarily eligible for federal incentives, and we’ve seen marked and consistent growth across all of those tech areas … we attribute that to the [state] tax credit.”

Urlaub says much of the growth in solar installations have come from residential and commercial builders taking the initiative to include more solar in their construction. Duke Energy (NYSE: DUK), a longtime target of environmental groups critical of the utility’s coal-fired power generation, has also embraced solar. The Charlotte, NC-based company now operates 21 solar farms—10 in North Carolina—producing more than 150 megawatts of power. Duke’s new solar construction includes a 65 megawatt project in Warsaw, NC, that will become the largest solar farm east of the Mississippi River.

Duke sees growing renewable energy demand from some of its largest customers—technology companies now making reducing carbon footprints part of corporate sustainability initiatives. Apple’s (NASDAQ: AAPL) 20 megawatt solar farm alongside its data center in Maiden, NC, offsets its Duke power consumption. Amazon (NASDAQ: AMZN) is building the Southeast’s first commercial-scale wind farm on a tract of undeveloped land on the northeast North Carolina coast through a contract with Iberdrola Renewables, a Spanish company that operates wind farms in 17 U.S. states. That project will connect to Virginia-based Dominion Resources (NYSE: D).

Urlaub took time to speak with Xconomy during the NCSEA’s annual “Making Energy Work” conference last week. He discussed the expiration of the state tax credit; the prospect for energy storage—such as mega batteries manufactured by energy startup Alevo—to become viable utility-scale technology; and the challenges of developing sustainable energy policies in a state where the law requires rate-regulated utilities to provide the “least cost” energy sources. Portions of Urlaub’s interview follow, condensed and edited for space and clarity.

Xconomy: What are you hearing from solar developers, installers? Are they giving you any indication of where they think things might be going after the tax credit expires?

Ivan Urlaub

Ivan Urlaub: We have so much lag on the regulatory front, because we’re so accustomed to looking at everything we do in electricity in a regulatory manner like it was 20 years ago. Amidst this fully regulated market environment, with regulatory lag and monopoly utilities that are not terribly transparent, I think companies are looking at business model innovations for themselves that go even more aggressively, now directly to the customer. Often people in industry tell me that having to go through the utilities in the Southeast market can kill your business. Solar has taken off because they can build qualifying facilities … With the tax credit going away, that raises the question longer term: What will be that impact?

I think businesses in solar are preparing for transforming their products and service offerings, maybe evolving them, for the 2017 market. Whereas all the other tech are looking to do that for the 2016 market. How do you bundle service, product? Maybe bundling solar and storage, but especially energy efficiency. Bringing more Internet of Things-enabled tech behind the meter to customers. Getting them more data in easy-to-use and easy-to-act-on ways. I think a lot of the smaller companies, smaller system installers, are looking at that. And we have this huge manufacturing ecosystem in the state. Our industry clusters are strong and growing in storage and smart grid. We have the top smart grid clusters in the country. They’re not deploying here as much as they’re deploying elsewhere.

X: Is that a regulatory issue?

IU: It’s not just a regulatory issue. There are aspects of value streams that storage should be able to realize that they’re just not going to be able to [realize] on the current regulatory approach in the Southeast, and maybe in similarly situated regulated states elsewhere in the country. What do the rules of the road need to be for storage going forward, so that people can say North Carolina allows what I need it to allow, and gives me the clarity I need to do deals to deploy storage in this market? If we can find a way to do that that’s consistent with our current regulatory principles, which is almost a singular principle of least cost, then that’s something that could be replicated across half the states in the country and immediately unlock the storage market.

That’s exactly what we did with solar. When solar gets deployed in North Carolina because of a mix of policies in place that enable the revenue streams to flow to the project, it has this net effect of keeping rates lower than they would have been. Back in the middle of the last decade, we intentionally designed policy with the idea that deployment would have the effect of dampening the rise of electricity rates. Our evidence shows that that happened. But the tax credit was a key piece of that.

X: Google has a large data center in Maiden powered by solar. Facebook is pushing for more renewable energy for its data center. Amazon is building a wind farm. To what extent are big tech companies driving demand for renewable energy in the state?

IU: They’ve been a critical voice. They were very vocal this year as well-funded opposition activists showed up and motivated a small handful of really vocal legislators to try to gut all of our clean energy policies. That forced legislators to pay attention and really think through this issue. These well-funded campaigns, by spreading so much disinformation, are their own worst enemy. They created a good opening for large companies, like Google, to do what they’ve been doing, which is to take a really responsible approach to their energy and resource management and engage decision makers in each state where they do business, and say, “Enable us to be good stewards of the local economy and the resources. You’re not enabling us right now if you change your laws, and we’d actually prefer you do some things in the other direction.”

It’s key that [tech companies] don’t just go try to accomplish those operational goals and corporate objectives, but also try to engage society. It created a safe space, politically, for a whole bunch of other large [energy] consumers and employers in our state that are the backbone of our economy to also step up and add their voice, because they all want the same thing.

X: There have been studies done showing the wind energy resource potential in the state. Why has it taken so long to get wind energy projects sited in North Carolina?

IU: North Carolina is blessed with an amazing landscape. In the mountains, a lot of people have decided, culturally, that they don’t want wind turbines. They don’t want to look at them. On the coast, there’s a lot of tourism, there’s a lot of wildlife, there’s a lot of military. We have to be very thorough in the siting process. There are so many considerations we have to grapple with than other states. And our wind speeds are a little slower overall on land. With Iberdrola coming with its slightly larger turbine, they can make more economic use [of the available wind]. The site that they picked, when they made it through the [Department of Defense] clearinghouse, that was the last hurdle they needed to clear that prevented people who were ideologically opposed to wind from being able to stop it.

X: With Iberdrola moving forward with the Amazon project, does that pave the way for more wind energy projects in North Carolina?

IU: It could. Something that’s really critical is that project would not originally have been proposed if it were not for the renewable and efficiency portfolio standard, but the project’s contract does not rely on the REPS. I don’t know if it’s going to use the tax credit or not, but most likely not, since the legislature decided to not extend it. What we’re seeing is because we had the policies in place, it sent enough market signal for Iberdrola, and many other developers, to come to this state and prospect and engage landowners and local government. They were able to continue in both their technology and business model, and find ways to take advantage of what is there in terms of regulatory construct and access to PJM (the regional transmission organization that manages the grid in the region), to get a project done. It’s a massive benefit, not just to the local economy—$400 million investment—but also ratepayers. Now all that wind energy is going to be pumping into the grid in the next year at a really affordable price.

X: What about offshore wind, where the wind energy potential is greater?

IU: We know we have this phenomenal, and the largest, resource potential—even after excluding for all sorts of military, economic, and environmental considerations. We don’t have strong east-west transmission capacity. We have a transmission group of utilities and others that have been looking at that in North Carolina the last couple of years. BOEM [Bureau of Ocean Energy Management] has been taking positive steps forward allowing us to being able to have leased sales out in the ocean. But it seems like we’re still quite a ways away.

X: So the economics still need to be worked out?

IU: Being almost solely a least-cost state in terms of electricity regulation, either they’re going to need to contract with entities outside of the state and be able to somehow move that power to others, like PJM, or come up with some contractual arrangement. Or we’re going to have to find a way to make it work with our utilities in the state. It raises real questions. Duke Energy may be the largest market cap IOU [investor-owned utility] in the country, but they’re one fifth the size of Electricte de France. EDF can build out a whole bunch of nuclear power plants to just to keep their nuclear workforce fresh. When someone shows up and builds several thousand megawatts of independent power, it can fundamentally, deeply disrupt [Duke’s] financial stability and viability as an IOU—even the largest in the U.S.—if they don’t have a role.

We almost had a pilot project for utilities signed off on between South Carolina and North Carolina a couple of years ago. But it came down to the last day and Duke just wouldn’t sign on to it. So North Carolina could arguably be in the initial stages of construction right now on a 40 MW offshore wind farm if Duke had signed on to it, but they didn’t.

X: What’s your sense of the environment for cleantech startups? The Council for Entrepreneurial Development releases an annual report on funding. Cleantech is always at the bottom in terms of number of deals and dollars raised. How do you see the cleantech environment for startups?

IU: That’s not my area of expertise, but I’m learning a lot more—our whole organization is—because we’re partnering more and more with organizations like CLT Joules [a cleantech accelerator based at Packard Place in Charlotte]. What I have spent a lot of time thinking about and talking to our government about for the last few years is raising the question: Why do we see so many of our startups not be able to demonstrate and scale in North Carolina? Quite often our most successful startups in the clean energy space end up deploying product or service outside of the state. You can’t really be an innovation-based economy if you’re just really good at housing startups … if they don’t have a pathway or market opportunity for growth here, or arguably in the Southeast, what’s to keep them here when they start to succeed? Our industry clusters are prominent and strong but they mostly export. At some point, we need to understand what can change, and how.

Frank Vinluan is an Xconomy editor based in Research Triangle Park. You can reach him at fvinluan@xconomy.com. Follow @frankvinluan

Trending on Xconomy