Duke University and the Duke University Health System comprise one of North Carolina’s largest private sector employers, with over 40,000 employees and 16,000 student residents. Between students, employees, alumni, and patients, the university and hospital giant maintains a presence in all 100 North Carolina counties. On its Durham campus alone, Duke University’s nearly twenty-one million square feet of buildings consume an enormous amount of energy–450,000 MWh per year. As North Carolina moves toward a cleaner energy economy, the University bears a large burden to reduce its carbon footprint despite the fact that renewables have been the cheapest source of electric generation for several years running.
State carbon goals aside, the University has its own carbon commitment. In 2007, Duke University signed the American College and University Presidents’ Climate Commitment to be carbon neutral by 2024. This goal includes emissions from the University and School of Medicine facilities as well as emissions associated with University travel and workforce commuting. CCEBA recently sat down for a conversation with Casey Collins, Assistant Director of Energy Management and Data Systems at Duke University. We discussed how customer programs, new energy legislation, and the potential for energy choice are needed to help large consumers like the University meet carbon goals and remain economically competitive in North Carolina.
Problems With Prior Customer Programs
Collins noted that the University’s largest single opportunity to achieve its 2024 target was through the Green Source Advantage (GSA) program, offered through Duke Energy as a result of North Carolina House Bill 589.The GSA program – which has since been fully subscribed – provided a renewable energy carveout for large energy businesses, military installations and public universities in North Carolina. Participants were able to select an independent renewable energy supplier who then entered into a power purchase agreement (PPA) with Duke Energy. The consumer directly negotiated pricing and purchased renewable energy certificates for the fossil-fuel energy they displaced.
“But the GSA process is complicated,” says Collins. “The transaction is frustrating, particularly for large energy customers, because you have to agree to relatively uncertain futures.”
Read: If you want to do something good for the environment, the program design makes it risky, and is purposefully crafted to disallow cost savings despite the fact that renewables should save employers money. Because the program came at a premium rather than allowing the natural savings that come with renewable energy, most private sector employers could not use it. With two exceptions, GSA ended up being used only by mission-driven organizations like Duke University and municipalities.
“There is no open and transparent mechanism in North Carolina to transact for future electrical prices,” says Collins. He continues, “Under GSA, you must agree to set a portion of your energy cost up front, and have to weigh the risk that Duke Energy’s credit might not play out in the long term as energy prices change.”
North Carolinians are at a serious disadvantage compared to states in other regions when it comes to market choice. In the West, Midwest, and Northeast, large employers can operate in multiple energy markets. If a price is lower or higher in one place compared to the other, they can easily buy from someplace else. In North Carolina’s government regulated monopoly, you’re stuck with whatever you get. Lack of competitive energy pricing is a serious economic disadvantage for North Carolina.
Customer Choice and Market Competition: A Necessity
Despite the risks and complexity for entry, Collins says it was extremely important that Duke University invest the time and effort for GSA participation. Other carbon reduction methods just wouldn’t be enough. North Carolina’s net metering program–allowing customers to generate their own renewable energy and offset their bill–caps its generation potential at one MW. At the program’s inception, nobody foresaw that at some point more than one MW of generation would be feasible in one place. Now, this is not only doable, but also more economical–yet the program has not been updated.
“Duke University’s Durham campus has an 80 MW load, ” notes Collins. “If the net metering cap wasn’t so outdated, we could build more distributed generation capacity. The one MW designation is horribly restraining for large customers who want to both reduce their carbon footprint and manage their energy costs.”
There is definitely a need for market choice, and for more and easier-to-access customer programs that encourage clean energy development. But those who favor government regulated utility monopolies worry these measures would generate a “downward spiral,” where too many customers opting out would reduce utility resources and raise costs. Collins says that’s pretty much a nonsense claim.
“Nobody wants to deal with the risk or work of being their own energy service provider, if they don’t absolutely have to do so.”
While the death spiral may be erroneously stated by some, documented studies have shown that an appropriately-regulated, competitive market would only reduce energy prices and incentivize a more resilient grid.
Upward Cost Pressure Despite Availability of Cheap Renewables
That’s why North Carolina’s House Bill 951, recently signed into law, was such a disappointment to North Carolina employers. As CCEBA has noted, it did not include an energy market reform study as is happening in South Carolina, or any indications toward considering a competitive market.
“I’m glad that there’s a statutory carbon reduction goal,” says Collins. “However, I’m concerned about the multi-year ratemaking and the cost risks posed to all energy consumers,” he continues.
In a vertically-integrated government monopoly, the efforts at decarbonization likely won’t be as effective as in a more transparent electricity market.
“There’s no open discussion, no information sharing, and no considerations about varied ways of solving problems,” says Collins.”Even with the carbon stakeholder engagement sessions–those are performative at best,” Collins concludes.
Lack of competitive electricity pricing is a serious economic disadvantage for North Carolina. Homegrown employers like Duke University and Health System are unlikely to pick up and leave due to the energy constraints of our government-regulated system. On the other hand, manufacturers dissatisfied with opaque utility cost increases and lack of choice vote with their feet, moving operations to cheaper states or not locating in North Carolina in the first place. North Carolina’s economy is booming due to our brainpower, but our Soviet-style electric system is tapping the brakes in ways we don’t fully appreciate.
Collins says that, while the insular nature of investor-owned utilities is frustrating, he remains optimistic that good information will come from increased decarbonization efforts.
“We need to engage more people in the energy world in our state and build out more interactive customer programs. When a utility works with customers and views them as sites of support, our state, and our world, ultimately ends up with more innovative projects, less risk, and better rates for energy consumers across the board,” Collins says.
Despite the urgency of this issue, it is unclear whether or not any new, effective customer programs will emerge from North Carolina’s latest energy law, H 951. Most employers have a choice of where to locate and where to grow their businesses. They understand what states provide them the cost competitive energy they want, and they want clean, safe energy at a predictable price. We remain committed to ensuring that legislative and regulatory policies work for the Carolinas’ large energy customers with greater ease and flexibility–the way buying energy should work.