Energy Round Table June 2014
Renewables have shown their importance to the North Carolina energy industry, but their growth requires clearer policies and better technology.
CPCC was the host sponsor for the round table, which was moderated by Peter Anderson, Business North Carolina’s special projects editor. The following transcript has been edited for brevity and clarity.
How much of North Carolina’s energy generation comes from renewables?
Kelvington: Renewables are about 2% of generation in the state. Solar is increasing, especially in the last year. There also is hydroelectric, which has been around for some time. North Carolina ranks second or third in renewables growth in the country. The challenge will be matching the peak curve of renewable generation and the curve for peak demand. For example, solar generation comes close to matching demand during the summer. But it can’t put enough electricity on the grid to meet high demand during winter mornings.
McCorkle: Despite the buzz it’s creating, solar is less than 1% of the portfolio. There isn’t any utility-scale wind generation in the state. There is some electricity from wind being put on the grid, but it’s a fraction of a percentage.
Olsen: There are two ways to look at power generation. The first is generation capacity. The second is how much energy is supplied and consumed. Renewables have always been less than 10% of generation, but their rapid growth is causing pre-emptive fear and action about how they will plug into the grid. They’re coming, but we need to integrate them to benefit ratepayers, shareholders, renewable-energy companies, private-sector competition, businesses and jobs. Renewables are part of the portfolio and key to the future. The assumption is renewables are expensive. That’s incorrect. We’ll see renewables become less expensive.
Enslin: Many power plants — especially coal-fired ones — will soon be retired. They will be replaced with better, safer and cleaner technology. Nuclear is clean, so we anticipate existing nuclear being replaced with new nuclear. Coal needs to be cleaner to have any chance in the future. There are interesting clean-coal technologies, but they are expensive and still in development. A positive about renewables, at least photovoltaic, is they can be added to the grid incrementally. You don’t have to invest billions of dollars at once but rather a few million periodically.
What are the benefits of renewables?
Olsen: On Jan. 7, the polar vortex hit. The sky was clear. Demand was the highest ever recorded for the hours between 9 a.m. and 2 p.m. We had scheduled equipment maintenance that day, but Duke Energy called and asked, “Please, don’t turn off your invertors, we need every kilowatt hour.” North Carolina has 300 megawatts of solar capacity, so Tar Heels didn’t endure the brownouts that occurred in South Carolina, which has almost no solar generation. In the future, having the energy will be important but so will how quickly it can meet demand. If the polar vortex hits between 7 and 8 a.m., when solar generation is limited, we can’t wait for a dam to open or turbine to spin. Energy must flow immediately to avoid brownouts. That’s why storage is important. It can collect energy generated during the best of times so it can be released whenever demand calls. As renewables grow, the grid will evolve. That will spawn new companies. There is an energy-storage company in Charlotte that builds lithium-ion battery components. Renewables will push innovation. North Carolina can continue to lead the energy industry, especially with the research universities in our state.
Enslin: It costs about $2,500 per kilowatt to install a large nuclear plant, so it’s expensive. That’s about the same cost to build energy storage. You can do photovoltaic for much less; natural gas costs about $700 per megawatt. Storage is expensive technology, but you can do more with it and add it incrementally, even a few hundred kilowatts in your garage. Electric vehicles are an interesting model. If you couple one with residential photovoltaic, your home is its own grid. We’re still figuring out how to make that business model work and have automakers accept them, but putting that together will develop storage and integration.
McCorkle: On 100-degree days, when everyone’s air conditioning is running, chances are the sun is shining and solar will save the day. Natural gas will save other days. The industry needs to provide technology, and policymakers have to recognize that it exists so we don’t put all of our energy eggs in one basket.
Where does the state stand on renewables? Where should it?
Kelvington: North Carolina implemented air-quality regulations a few years ago, which forced a decision: upgrade coal plants to meet the new standards or close them. At the same time, natural gas production in the U.S. was increasing, which cut its price. Both of those led to more natural-gas power plants, making utilities the largest natural-gas consumers in the country in 2012. Combined, coal and natural gas generate about 60% of electricity. But the balance between the two is shifting toward gas. What happens when natural gas costs more? Having multiple generation sources tempers fuel-cost changes and keeps customers content with consistent utility bills. Reliable and affordable energy is important to North Carolina and so is protecting its residents and environment. The state Energy Policy Council is looking for ways to balance those long term.
McCorkle: The governor and legislators have many competing priorities such as health care, education and tax reform. But the energy industry needs a policy signal from them. North Carolina has to decide on its energy future. Are we willing to pay more for better, secure and cleaner energy? Because it’s not only about cents per kilowatt-hour. Politicians love to debate the merits of the renewable energy and energy-efficiency portfolio, tax credits or if ratepayers should contribute to a nuclear plant before it’s online. But that ignores the bigger issue of doing something. We’re working under constant uncertainty. Sam Watson, general counsel for N.C. Utilities Commission, recently announced the renewable energy and energy efficiency portfolio standard a success. So let’s give that a checkmark and move on. North Carolina has to decide whether it wants to continue to be an exporter of new energy technologies. If we go backwards, South Carolina, Georgia, Tennessee and Virginia will blow past us and take jobs with them.
Olsen: There is a state tax credit that incentivizes renewable energy growth. It’s set to expire at the end of 2015. Many tax incentives for legacy energy industries such as oil and gas are built into the tax code and don’t expire. In the Southeast, the power-generation industry is a regulated monopoly. Competition is limited, and that’s why we haven’t seen as much innovation in that industry as in others.
How do we develop workers for the evolving energy industry?
Heitman: Schools and employers need to communicate because curriculums are market-driven. North Carolina has one of the best community-college systems in the country, and it’s the tip of the workforce-development spear. Many of the colleges, including Central Piedmont Community College, work with companies to develop training programs. Between now and 2018, the largest shortfall will be in what Harvard University calls middle skills — those between a high-school diploma and a four-year degree. They are in CPCC’s wheelhouse. The college just conducted a skilled-trade survey of 22 Charlotte-region companies that employ more than 15,000. Their feedback — which covers occupations important to them over the next five years — identifies what knowledge, skills and abilities their workers will need. That information reveals training gaps, which community colleges will fill. Community colleges and four-year schools such as UNC Charlotte are tremendous assets that can be applied to workplace needs. It’s not just for today’s job skills but what’s projected five years from now. We need to communicate with students in middle schools, high schools and colleges about job skills and career paths. Employers need to clearly define requirements for entry-level jobs and where workers can go from there. Programs such as Middle College, where Charlotte Mecklenburg School District juniors and seniors take CPCC classes for free, brings that message to students.
Enslin: UNC Charlotte’s Energy Production and Innovation Center, which was started to address workforce and innovation in the energy industry, needs to deliver the type of engineers that companies want. We can’t develop workers just for today because jobs are evolving. We’re talking about all these interesting things — storage, energy analytics, big data — that are coming to the energy industry. Engineers need a strong fundamental skill set, so they can address future needs. But this goes hand-in-hand with developing the industry because we need jobs. Many university graduates aren’t hired fresh out of college. Some of them have engineering degrees, which would traditionally have been akin to a guaranteed job. Those days are gone.
Why is it important to diversify energy generation?
Kelvington: President Obama’s climate plan, which isn’t finalized, will drive many energy decisions. There’s a push to put a price on carbon-dioxide emissions as a way to reduce their negative environmental effects. The U.S. Energy Information Agency estimates that if the cost gets to $30 per ton, coal-fired generation would disappear, and electricity would be generated from 75% nuclear and 25% renewables. There would need to be a transition to get there, as the president announced in his State of the Union address, and natural gas, which has half coal’s carbon-dioxide emissions, would be that bridge. Will environment or economics drive a change to renewables? Is that good for North Carolina? There is much uncertainty, but we have to decide.
McCorkle: Entrepreneurs and innovators who take risks need rewards. There are many of them in clean energy. It’s innovators such as Joel who are finding the financing and doing the development. When he builds a solar farm he takes 100% of the risk. If his workers don’t show up, the weather delays construction or his financing disappears, he is on the hook. On the flip side, if a large utility builds a solar farm and it doesn’t work out, the impact is limited because it can amortize that cost across its many customers, who pay a penny or two more on each power bill. There’s a lot of talk about renewables standing on their own without subsidies, but we have to take a step back. We’re talking about risk and reward. In absence of a true free market, we should incentivize responsible risk-taking. That will get us to a more diversified, safer and economically stronger energy portfolio.
Will renewables change the landscape of the energy industry?
Enslin: Scale is important to decrease costs. Large utilities provide reliable, low-cost energy for many. We will see smaller players join the industry, doing signature type of renewable portfolios. I don’t see larger utilities disappearing. Even in California, where there is a long history of renewables, there are still three large utilities. Smaller companies help with innovation, pushing new technology into existing utilities. Developers may link to one industry such as data centers. Residential may see the community power source model. It would make sense for a rural community with a lot of solar and a little battery to decide when it needs grid power. That scenario is coming. We need to make the technology and finances of that work.
Olsen: The energy industry is based on pre-World War II regulations, which quickly push power to populations. Today, utilities have to own everything — from power plants to distribution networks — to make the most profit. That model has to be updated so utilities can thrive without owning everything. It also needs to include decommission costs. It may cost up to $10 billion to remove coal ash from every Duke Energy site in the state. That was never incorporated into the Dan River plant’s cost or any others. Maybe we should encourage innovation and private-sector investment and competition in the market rather than a regulated monopoly.
Heitman: North Carolina’s collaborative spirit makes it a leader. It’s found statewide, examples being the work at EPIC and the Center for Energy Training at CPCC. They both bring together employers and training. Companies — often competitors — know it’s important to sit together at those tables to advance the fortunes of the sector.
How does the energy industry need to change to incorporate renewables?
Heitman: If we assume that gridlock and deficit reduction are going to be the marquee items in the federal government for the foreseeable future, then where does that leave workforce development? It probably drops back a little bit. How do you make up for that at the state level where all workforce development is local? That’s where employers have to step up. They have to become even more engaged with universities and community colleges such as UNC Charlotte and CPCC because we can’t wait for the federal government. Capitalism demands that you do it better and faster than your competitor, and that includes creating the best workforce-development programs to maintain and attract industry. That’s why I think the industry in this state, if CPCC’s local market is any indication, recognizes that and is willing to partner with the college and develop training. That will get them to where they want to go — with or without the federal government.
Enslin: You have to calculate the lifecycle costs of each form of energy — nuclear, natural gas or renewables. You have to be straightforward and know what each really costs society long term and not say, for example, let’s use natural gas because it’s cheap right now. What are we going to do in 50 years? If we want mostly renewables by then, now is the time to invest in those technologies so we get there. That’s what the Germans are doing. They have no clue how they will operate a grid with close to 100% renewables. But they took a bold step and said, “We’re going to do it. We’ll figure it out.” We need some of that here sometimes. We’ll put our heads to it and get it done.