Energy Round Table August 2012
North Carolinaís energy industry has harnessed innovation and drive to emerge as a leader in conventional- and renewable-energy technologies.
How healthy is the energy industry?
Baldwin: Iíve been in the natural-gas business for 28 years. Itís never been as good as it is today. The primary reason is the increase in supply of natural gas. The good news is that itís all domestic. Itís not driven by technology but by innovation. Itís utilization of a couple of technologies that have been around and in play for years and years and years of horizontal directional drilling and hydraulic fracturing. Now that natural-gas prices have decreased to 40% of what they were as recently as 2008, itís changed the playing field. The electric-generation market is utilizing natural gas for generating electricity, but not in ways that companies did in 2008 when they only used natural gas for peaking plants. Now they are using natural gas for plants that operate 30% to 40% of the time and are considering base-loading some of their facilities that use natural gas to generate electricity. So business is good, and thatís the game-changer for the natural-gas industry.
How about the solar-energy business?
Habul: Weíre very busy here. Corporate America would be about half of our business. The other half of our business is building systems that we own and operate and some that we build for groups of investors. We are very proud of our rooftop segment. We more or less dominate the Southeast in large-scale rooftop solar arrays. We made a decision to move more into large-scale ground mounts. Our LED business is really part of a wider plan of energy efficiency, and we see that as equally important as generation to save power. Commercial buildings are responsible for 35% of the power consumption in the United States, so we have an interest in more efficient commercial buildings and residential construction. LED is a more stable transition to a new technology.
How is business at Lime Energy?
Castro: Weíre very, very excited about our go-to-market strategy. We build hard-to-reach-market programs, primarily to small businesses. We have found the Holy Grail of how to actually deliver to that market. We look for the manufacturers that are delivering solutions and are packaging those solutions for our customer base.
What role is Central Piedmont Community College playing in Charlotte reinventing itself as an energy hub?
Zollinger: We are all about workforce development, so we need to be very close to our business partners and determine what your needs are ó your short-term needs, your five-year needs ó and create the workforce so that you can remain successful. Over the last 18 months we created new academic programs based on sustainability and STEM ó science, technology, engineering and math ó areas. We have linked those into our K-12 partnerships to create these pipelines, because this is a long-term investment for us as well. We are in the planning stages of a new building. The top floor will be a sustainability area. We are working with several business partners to help us create that. We are adopting and expanding an apprenticeship program that we have created here with our European partners. They are getting ready to roll out a new apprenticeship program, which is sort of the American model of apprenticeship for individuals and companies as well.
How does the N.C. Solar Center fit into the energy picture?
Kalland: What weíve found over the years in energy is that there is absolutely nothing that you can do with one skill set. It really does take a lot of different pieces of the puzzle being put together to get something done. When we started, we did a lot of technology demonstration work, that being kind of our roots. But over time, weíve really grown to try and fill different gaps that we see in the marketplace. What we are seeing is really good activity on the renewables side. Solar in particular is quite hot right now in the state. Natural gas has been a great thing for the renewables industry as well. A lot of folks are concerned that gas prices make renewables less competitive. But what we find is, particularly in solar and wind, more gas out on the network actually means more flexibility to supplement our intermittent resources.
How involved are utilities in improving energy efficiency?
Baldwin: Efficiency is probably one of our early targets. Itís the least expensive and most beneficial thing to do. In 2012, there are new energy code requirements from North Carolina for the commercial and residential sector for new construction. And as I recall, commercial must be 30% and residential 15% more energy-efficient than they were before. These are big steps. They cost money for the builders and the purchasers of these homes on the front end, but itís the responsible, more sustainable path for North Carolina.
What is the industry doing on the energy-efficiency front?
Kalland: The only people that have had any real success in trying to reach out to consumers in the efficiency arena have been utilities, both the gas companies and the electric companies. But energy efficiency is a big boon to renewables because the more you can do with energy efficiency, the less you have to do with renewables, and that, frankly, is the cheapest way to go about it. The only real risk on the horizon, in my mind, is that we might get out in front of some extra base-load generation too fast. You know, if we went out and built a very large plant, or a couple of very large plants, what you wind up doing is creating more supply than the system needs at a given time. It kind of sucks all of the air out of the balloon for energy efficiency and distributive generation.
What new technologies pose particular challenges or opportunities for the industry?
Kalland: One of the technologies that we see a lot of potential in is combined heat and power systems, or CHP. This is a set of technologies that basically takes existing generation ó mostly small generation at industrial facilities but increasingly commercial-scale generators at hospitals and other places that maybe need more reliable backup power systems ó and takes those systems and captures the heat that would have just been wasted and recycles it back into the process.
Baldwin: Itís very similar to distributive generation. In fact, the siting of these facilities may indeed help electrical grids because there may be a spot on the grid where thereís not sufficient electricity. Instead of building a central generation facility and moving the power across the state, you can use a CHP unit. An industrial manufacturer would utilize electricity, take the processed water off the engine and sell back any excess electricity.
Castro: I think one of the key differentiators for us in terms of lessons learned is not to run into the compact-fluorescent type of play, where it took 20 years for compact-fluorescent lamps to replace incandescent. I think the evolution of LEDs is a lot faster, but we have to maintain that. Letís say the rock is starting to roll, and weíve got to all push to make sure that it doesnít stall out like the CFL programs.
What other challenges do you see?
Habul: What I would like to see is better education with the utilities. Is there a department there for, letís say, energy efficiency? Can I call a 1-800 number at this utility, and they will tell me what incentives I get for using LED, for example? So for me, Iím selling my product, but for somebody else that wants to buy the product, they want to know, whatís the rebate? I donít know how you get to the utilities to help them increase the resources in that department. Maybe thatís something the N.C. Utilities Commission can have a play in in the future.
Castro: Itís definitely regulatory.
What else would you like to see happen to promote the industry?
Habul: There should be another body in the state thatís the energy-efficiency body, where you call this number and they will help talk you through it and help educate you. And thatís something the state should pay for. I donít know if thatís exactly the Solar Centerís job. And if it is to become their job, they need more resources. Thatís where the state needs to help.
Castro: I think some of the challenges are on the legislative and regulatory side. The utilities have a pretty big challenge in regard to trying to deliver. They are not decoupled; they donít receive any specific revenue from creating energy efficiency. And then simultaneously they are not really allowed to charge customers. The utilitiesí hands are tied to a certain extent because of the fact that they donít have instruments to create success.
Baldwin: I agree with you. Deregulation is a regulatory term, and really what it means is it decouples margin from volumetrics. Traditionally in a utility ó whether it be electric or natural gas ó the more energy you sold, the more money your shareholders made. In North Carolina, the natural-gas utilities are decoupled. So we can promote energy efficiency without a downside to our shareholders. And thatís why weíve been more active in that space.
What are some of the lesser-known benefits of the stateís energy industry?
Baldwin: I think we all recognize that natural-gas prices are low. But the challenge is we havenít been able to get the general public to connect the dots. The reason the prices are low is because of this technology. Just to paint a picture for you, our customers in our three states over the last three years have collectively saved $125 million on their natural gas. Thatís an economic driver that has often gone unseen, and we the industry need to talk about that a little bit more.
Kalland: Well, there are technology questions in both directions. Certainly solar has been one of the more expensive resources historically. But in the last 18 months, we have seen such a dramatic drop in the price of solar technology that itís now favorably competing with a lot of the other resources out there, which is one of the reasons we are seeing so much solar get installed right now. But that didnít happen overnight. That happened because of the large investments in technology when it was more expensive to build economies of scale.
Whatís the next big opportunity in renewable energy?
Kalland: Probably offshore wind. North Carolina has more wind potential than most of the rest of the East Coast combined, and weíre located in a good spot to take that energy and bring it into the grid and use it for population centers on the Eastern Seaboard. But that energy is going to be more expensive to get at, and we may have even pushed it out a little bit because of the drop in gas prices. The big plus is that we might capture a whole new industry. The manufacturing associated with offshore wind is a totally new set of companies that doesnít exist in the U.S. You have to build these things close enough to the water that you can ship them on a barge. But if we donít make those first moves to invest in the technology and attract that industry to North Carolina, itís going to be just as happy to go to Massachusetts or New York or Delaware.
What kind of workforce training is required to take advantage of new energy technologies?
Zollinger: What we started creating is really strong partnerships with emerging industries, because we are all about jobs. As technology emerges, we scale up and create a program so that we start having pipelines and adding these connections.
Baldwin: I think itís kind of remarkable in this economy that there is such a shortage of technical employees. The community colleges are stepping up, but a lot of the manufacturers have taken the initiative on their own. They are developing initiatives and inviting community colleges to help them out. And they are starving for qualified employees. We want to retain these businesses in North Carolina and in the Charlotte area. In order to do that, weíve got to support these efforts. And we do that through our economic-development regional partnerships. There are budgeting challenges each year. This is one of the reasons we march to Raleigh and say, ďYouíve got to fund these operations.Ē
What type of workers does the energy industry need most?
Zollinger: The skills sets for certain industries are usually on two extremes. There are the highly specialized ones, like the nondestructive-evaluation program, which is highly costly. Then on the lower end, how many people can do the mathematics that your jobs require? A lot of the people that work in these industries donít need specific energy skills. But what they need is project management, Six Sigma, critical-information analytics, blueprint reading and all of these kinds of things. With that knowledge base we can determine some very short-term kind of academic programs, which we have successfully done with, for example, Siemens Energy.
What are your companies looking for in terms of employees? Do you find your employees locally, or do you recruit them from across the country?
Castro: Our last 10 employees actually came out of N.C. State University. We utilize UNC Charlotte as well. Obviously the mechanical engineers have specialized in energy efficiency. But the most recent three hires have been folks that have come out of the sustainability environment where they are going to Europe and looking at best practices on things that are going on in Germany, Spain and France as it relates to solar and wind.
Habul: I need executive-level people. We have installers, and generally we find that there are some resources there. But the big thing thatís lacking here is people who understand the business. I donít need people to just put panels in the ground. I need people that understand the strategic direction of the energy industry. I donít know how you get educated for that, but there need to be more programs.
What kind of educational programs are available?
Kalland: The Solar Center recently rolled out a new certificate program, a weeklong course called the Certificate in Renewable Energy Management. Itís not a replacement for going through a full academic program like CPCC has or an academic engineering program. Itís really an add-on for folks who have a certain skill set but need to get a better picture of a broader set of activities and skills that are involved in the sector.
Habul: Weíre past installer training. We need management and executive training. And letís face it: There are a lot of legal issues with solar and energy in general. We seem to be at the forefront of coming across the problems, because we are building larger systems in newer areas and educating municipalities that donít know anything about avoided costs. There is a big hole there.
Castro: Itís like weíre trying to go to the moon on the Apollo spacecraft without ever being there before, but weíre trying to put a dishwasher on the moon. We are learning as we go along. So thatís definitely a challenge in regard to finding some of those thought leaders who are driving the technology or driving the solutions. There is definitely a need, and there is a gap there.
For those of you with energy companies, why did you decide to locate in North Carolina?
Castro: In regards to Lime Energy, you want to be where the seed has dropped, the watering is beginning, and you are seeing the start of the stem of that flower that is about to grow. Our organization would rather be at that initial growth versus already having all of the flowers. What weíre doing is not easy. But itís not rocket science. North Carolina has given us the opportunity to tap some of the resources from the nuclear era and move forward looking at energy efficiency.
Habul: It was also a lifestyle choice. We love the mountains. We love the beaches. Itís a good place for children. In terms of business ó to be quite frank ó we feel like there is less competition here and generally fewer hurdles and less red tape to starting and growing a business here. I think this business would be more problematic to operate in the Northeast.
How else has the state encouraged development of the energy industry?
Kalland: We have a very strong state renewable-energy tax credit. For the solar industry and the wind industry and everybody else in renewables and efficiency, there are tax incentives here in North Carolina. And that has really strengthened the market, especially when combined with federal incentives. And so we see utility-scale projects going into North Carolina that are actually going forward without renewable-energy credits at all, which is a little shocking to me.
Are any policies on the horizon that might drive the development of more energy businesses?
Kalland: Probably the biggest is something called opening the door to third-party sales, creating a window in which small-scale renewables could actually have a relationship directly with a customer. So a developer like Kenny could work with a big-box store thatís got a large roof, and they could install that system and sell that energy directly to the customer. In much of the country where electric markets have been deregulated that is already available. But here in North Carolina, you canít sell your electricity to a third party. You have to sell it to the electric utility. Just the transaction cost of having to go through that process increases the cost of these systems to where smaller and midtier systems donít fit any more.
Whatís the next step to growing the energy industry?
Baldwin: Charlotteís Energy Inc. initiative has been around for three years. Itís been very successful. But now there is an interest in moving forward on some policy discussions. Energy Inc. has been primarily economic development-oriented, with little movement in workforce development. And so as Energy Inc. looks forward, itís going to expand its scope and geography.
This article originally appeared in the August 2012 issue of Business North Carolina magazine.