Photo courtesy of Business North Carolina from January 2019 article on the now abandoned Atlantic Coast Pipeline
Duke Energy Plan Could Leave NC Customers Paying Off Nearly $5 Billion for Obsolete Technology
A recent report by the Energy Transition Institute shows that North Carolina utility customers will be on the hook for a minimum cumulative $4.8 billion of stranded assets by 2075 if Duke Energy proceeds on its current spending path. Duke Energy Carolinas (DEC) and Duke Energy Progress (DEP), collectively “Duke Energy,” have continued plans to implement new gas plants in the coming decades. This is incongruous with the utility’s public commitments to net-zero emissions by 2050, as increased natural gas usage will result in heightened emissions, and new gas facilities are set to operate for decades past mid-century. As the prices of renewable technologies continue to outcompete fossil fuels –and if Duke Energy has any plans to meet net-zero targets it has promised its shareholders –ratepayers will be saddled with the unwieldy burden of recovering the obsolete investment.
Duke Energy’s Integrated Resource Plans
In the fall of 2020, Duke Energy filed their Integrated Resource Plans (IRP) for North Carolina. These plans were the first filed since Duke Energy committed to net-zero emissions by 2050—a significant goal, given Duke Energy’s role as the largest electricity generator and second largest utility emitter of carbon dioxide in the United States. Under North Carolina’s regulatory framework, Duke Energy must release an updated IRP every two years that describes how the company will meet its generation needs for the next 15 years. The 2020 IRP, however, outlined six different generation scenarios, as opposed to the typical singular plan. These pathways included:
- A base case without carbon policy, which includes 9,600 MW of new gas generation by 2035, 8,650 MW of total solar, no new wind or nuclear, 1,050 MW of new storage, and carbon reductions in the range of 53 to 56 percent by 2030/2035.
- A base case with carbon policy, which includes 7,350 MW of new gas generation by 2035, 12,300 MW of total solar, 750 MW of new wind, no new nuclear, and storage capacity increased to 2,200 MW. Carbon emissions by 2030/2035 fall in the 59 to 62 percent range.
Other scenarios include:
- Earliest practicable coal retirements, which brings planned new gas by 2035 back to 9,600 MW and increases solar and wind to 12,400 and 1,350 MW, respectively;
- 70 percent CO2 reduction: wind, which includes more than 6,000 MW of new gas, 16,250 MW total solar, and 5,500 MW wind.
- 70 percent CO2 reduction: SMR, which brings new gas down to 6,100 MW, keeps solar at 16,250 MW, and brings wind to 3,100 MW.
- And, a no new gas scenario, which halts new gas generation, includes 16,250 total MW of solar, brings new wind to 5,800 MW, and will include 65 to 73 percent carbon reduction by 2030/2035.
Unlike the base cases, which are not dependent or only slightly dependent on supportive policy decisions, the latter four range from moderately to entirely dependent on new, supportive policy. Duke Energy notes that it only considers the two base scenarios “suitable for planning purposes,” despite the inclusion of four other scenarios.
Climate Change and Duke Energy Planning
Except for Duke Energy’s “no new gas” scenario, the other five scenarios include significant build out of new gas-fired generation. These investments involve facilities which should be able to operate for decades — but this gas generation stands in stark contrast to the company’s 2050 net-zero carbon commitment to shareholders.
Why is such a goal important to begin with? Simply put, Duke Energy’s IRP must be looked at through the lens of both the company’s contribution to emissions, as well as the risks posed to infrastructure, utility function, and ratepayers. Utilities must mitigate their substantial emissions contribution, as well as organize their infrastructure to benefit everyone—including their customers.
Duke Energy’s publicly stated carbon commitment goal is undermined by most of its own IRP scenarios. What’s more, the IRP neglects to include details on how Duke Energy plans to achieve its net zero goal. The primary plan is to expand fossil-fueled power capacity through the 2030s to replace its uneconomic coal fleet as those plants are retired. However, new natural gas installations will only increase emissions for decades. The proposed portfolio shows emissions declining only 44 percent by 2050—a far cry from the commitments Duke Energy so loudly advertises.
Stranded Assets and Ratepayer Risks
WIth new generation, each facility operates through a “useful life” or an expected return on the investment. But in the face of climate change, implementing new, fossil-fueled energy production is unsound. Gas-fired plants are not useful as the utility moves toward a net-zero carbon goal. So why does Duke Energy plan these investments in many of their 15-year scenarios?
With new national and state policies and volatile commodity costs, gas-fired assets will no longer be ‘used and useful’. Utilities will struggle to recoup their investments, and the cost will fall to ratepayers as usual. Annual carbon stranding costs through 2035 will set Duke Energy ratepayers back $50 million per year; by 2050, these costs may skyrocket toward $175 million per year. This poses a special problem for business and manufacturing ratepayers, many of which require energy 24/7 and already struggle with high bills for their operational needs.
By 2050 and Duke Energy’s net-zero goal, the 2020 IRP shows over 14,000 MW of gas-fired assets still in operation (should they carry through their useful life). Ratepayers will continue to shoulder the costs of non-operational units through 2075. At that time, accumulated carbon stranding costs are projected to total $4.8 billion; considering that this same amount could yield almost 3.4 GW of new, climate-friendly solar in the Carolinas region, it is hard to see how the IRP makes real effort toward achieving Duke Energy’s climate goals.
At the end of May, the North Carolina Attorney General’s Office (AGO) submitted comments in response to the IRP, urging rejection, revision, and resubmission of all key planning. The AGO made three main arguments:
- Even in lower-carbon scenarios, Duke Energy’s plans “do not reflect reasonable resource choices or cost estimates.”
- The utility’s plans do not adequately evaluate the “earliest practicable retirement of coal units,” and Duke Energy should plan for transmission impacts.
- The utility’s assumptions surrounding natural gas use and Energy Efficiency/Demand-Side measures, as well as other factors for resources choices, are “unreasonable and weaken the dependability of Duke’s IRPs for planning purposes.”
The AGO recommended that the NC Utilities Commission reject Duke Energy’s IRPs, and instead require the company to revise and resubmit alternative portfolios supported by analytical data and clean energy goals. The AG office noted that the revised plans should model different resource additions and requirements, address how early unit retirements may impact transmission and production costs (implying further ratepayer burdens), engage more thoroughly with stakeholder suggestions, and study options for increased “neighbor assistance,” i.e., assessing various least-cost energy market options such as RTOs and other energy exchange scenarios.
In February, Synapse Energy Economics prepared a report for the North Carolina Sustainable Energy Association (NCSEA) simulating ratepayer costs when Duke Energy continues existing and new fossil-fuel investments versus a scenario that replaces fossil-fuel plants with renewables, storage, and energy efficiency measures. The report noted that coal-fired plants face rising fuel costs and capital expenditures, while renewable resource costs are plummeting; it is rapidly becoming much more cost-effective to invest in renewable energy resources than continue fossil fuel plants.
The model yielded results that are unsurprising considering discussions: the most economical path for North Carolina ratepayers is to retire coal-fired plants at the “earliest practicable retirement dates” (note: these dates are determined by the company and, as the AGO stated, are not currently based on adequate data); keeping units online past 2035 will yield significant system costs and generate unnecessary, climate-intensive emissions.
Synapse’s study used an alternative clean resource portfolio that, when compared both of Duke Energy’s base cases, would reduce system costs by $7.2 billion and CO2 emissions by 78 percent. This case would require no additional gas capacity but would instead rely on 16 GW of new utility-scale solar, 2.5 GW of new onshore wind, and 10 GW of new battery storage by 2035—numbers much more aligned with Duke Energy’s higher carbon reduction scenarios.
Duke Energy’s IRP is contradictory to its own climate goals and does not provide the consumer protections it claims to champion. The less carbon-intensive IRP scenarios—not currently considered plausible or economical by Duke Energy—more closely align with the Synapse model. The model’s depicted scenario demonstrates, contrary to the utility’s claims, both ratepayer savings and climate change mitigation, all while meeting the utility’s projected load over the next 15 years. It’s high time that Duke Energy put its money where its mouth is and produce planning that will actually benefit North Carolinians throughout the coming decades.