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Will Duke Energy's PURPA Proposal Impact Solar Power Space?
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The solar energy market in the U.S has evolved greatly. Since 2008, solar installations in the country have grown seventeen-fold from 1.2 gigawatts (GW) to an estimated 30 GW today.
In particular, analysts speak highly of North Carolina that has emerged as the second largest solar market in the U.S. in the last four years. However, Duke Energy Corp. (DUK - Free Report) – the state’s top utility – is trying to bring amendments to the Public Utility Regulatory Policies Act (PURPA) that forms the very basis of North Carolina’s success in solar energy.
How PURPA Backed Solar Market Expansion?
PURPA – passed in 1978 - requires utilities in many states to buy renewable power from small providers; provided they can sell it at a price comparable to power from fossil fuels such as coal or natural gas. The law had little effect so far as wind and solar technologies cost more than power from fossil fuels. But sharp declines in the cost of alternative energy in the last decade have led to a surge in renewable power projects.
Undoubtedly, the law was a boon for solar developers across the nation and became the cornerstone of North Carolina’s solar success. Interestingly, 60% of the nation's current PURPA projects are in North Carolina, where the rates and policies favor solar companies. In fact, according to industry research firm GTM Research, about 28% of U.S. solar projects in development are expected to benefit from PURPA, which mandates that utilities buy solar power from small providers.
Although solar developers have benefited from PURPA, utility providers like Duke Energy took a hit, as they had to pay higher cost for solar power. Utilities have now started to take initiatives to improve their situation.
What’s Duke Energy’s Take on this?
Since the decline in the cost structure of the solar industry, Duke Energy has been criticizing the PURPA vehemently, citing it as a hindrance to its ability to plan, control and profit from new electricity generation..
Duke Energy stated in a filing that it is paying $55-85 per megawatt-hour (MW) for solar energy under PURPA, much higher than the price of a typical solar contract worth $35–$50 MW/per hour in the U.S. Through the amendment, Duke Energy wants to control the amount of solar energy it wants to buy.
To improve its financials, Duke is currently seeking approval from the North Carolina Utilities Commission for implementing shorter-term contracts with solar providers and lower prices for mandated power purchases under PURPA.
How Will Duke’s Proposal Affect Solar Developers?
Surely solar developers are worried about Duke’s proposed changes in the PURPA as they expect profit deterioration. They believe that slashing contract terms to five years from the current 15, as requested by Duke, might eliminate the long-term stability investors need to finance renewable energy projects.
Moreover, some developers assume that Duke might also have lobbied for competitive bidding for the purchase of solar power, which, if approved, will give it immense control over the industry. Together, these factors will provide solar developers less incentive to build new projects and in some extreme cases might even lead to the exit of smaller solar developers.
Our View
Duke Energy, being a premier utility provider in the U.S. and the largest in North Carolina, will benefit immensely if its proposed amendments are approved. There are days when there is an oversupply of solar power to the grid, which may damage circuits. Under the current PURPA, the company is forced to buy solar energy even when not needed.
We believe utilities such as NorthWestern Corporation (NWE - Free Report) and Berkshire Hathaway Inc. (BRK.A - Free Report) have also made similar pleas for relief in response to rising requests from solar and wind companies to connect projects to their grids.
The amendment has potential to cause an upheaval in the solar power industry, particularly in North Carolina where Duke is based. This is because the solar industry is still at a nascent stage in the U.S.
Solar power now accounts for about 3% of the state's electricity, compared with less than 1% nationwide. With the Clean Power Plan still in effect, a regulation aimed at reducing carbon emissions from existing power plants by 32% through 2030 indicates there is more scope ahead for this industry’s expansion. However, the amendments proposed by Duke, especially competitive bidding, will impose serious impediments to the survival of solar companies.
Also, Trump’s anti-renewable energy policy remains an overhang on this industry, particularly after he signed an executive order to dismantle ex-President Obama’s climate policies. No doubt at this crucial time, Duke’s proposal, if approved, will have an adverse effect on solar industry expansion.
Price Movement
Duke Energy’s stock has gained about 1.6% in the last twelve months in contrast to the Zacks categorized Utility-Electric Power industry’s loss of 1.3%. This could be because of the company’s focus on core domestic regulated and highly-contracted renewable business as well as its stable financial position. The company also poses strong competition to its peers including Ameren Corp. (AEE - Free Report) .
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Will Duke Energy's PURPA Proposal Impact Solar Power Space?
The solar energy market in the U.S has evolved greatly. Since 2008, solar installations in the country have grown seventeen-fold from 1.2 gigawatts (GW) to an estimated 30 GW today.
In particular, analysts speak highly of North Carolina that has emerged as the second largest solar market in the U.S. in the last four years. However, Duke Energy Corp. (DUK - Free Report) – the state’s top utility – is trying to bring amendments to the Public Utility Regulatory Policies Act (PURPA) that forms the very basis of North Carolina’s success in solar energy.
How PURPA Backed Solar Market Expansion?
PURPA – passed in 1978 - requires utilities in many states to buy renewable power from small providers; provided they can sell it at a price comparable to power from fossil fuels such as coal or natural gas. The law had little effect so far as wind and solar technologies cost more than power from fossil fuels. But sharp declines in the cost of alternative energy in the last decade have led to a surge in renewable power projects.
Undoubtedly, the law was a boon for solar developers across the nation and became the cornerstone of North Carolina’s solar success. Interestingly, 60% of the nation's current PURPA projects are in North Carolina, where the rates and policies favor solar companies. In fact, according to industry research firm GTM Research, about 28% of U.S. solar projects in development are expected to benefit from PURPA, which mandates that utilities buy solar power from small providers.
Although solar developers have benefited from PURPA, utility providers like Duke Energy took a hit, as they had to pay higher cost for solar power. Utilities have now started to take initiatives to improve their situation.
What’s Duke Energy’s Take on this?
Since the decline in the cost structure of the solar industry, Duke Energy has been criticizing the PURPA vehemently, citing it as a hindrance to its ability to plan, control and profit from new electricity generation..
Duke Energy stated in a filing that it is paying $55-85 per megawatt-hour (MW) for solar energy under PURPA, much higher than the price of a typical solar contract worth $35–$50 MW/per hour in the U.S. Through the amendment, Duke Energy wants to control the amount of solar energy it wants to buy.
To improve its financials, Duke is currently seeking approval from the North Carolina Utilities Commission for implementing shorter-term contracts with solar providers and lower prices for mandated power purchases under PURPA.
How Will Duke’s Proposal Affect Solar Developers?
Surely solar developers are worried about Duke’s proposed changes in the PURPA as they expect profit deterioration. They believe that slashing contract terms to five years from the current 15, as requested by Duke, might eliminate the long-term stability investors need to finance renewable energy projects.
Moreover, some developers assume that Duke might also have lobbied for competitive bidding for the purchase of solar power, which, if approved, will give it immense control over the industry. Together, these factors will provide solar developers less incentive to build new projects and in some extreme cases might even lead to the exit of smaller solar developers.
Our View
Duke Energy, being a premier utility provider in the U.S. and the largest in North Carolina, will benefit immensely if its proposed amendments are approved. There are days when there is an oversupply of solar power to the grid, which may damage circuits. Under the current PURPA, the company is forced to buy solar energy even when not needed.
We believe utilities such as NorthWestern Corporation (NWE - Free Report) and Berkshire Hathaway Inc. (BRK.A - Free Report) have also made similar pleas for relief in response to rising requests from solar and wind companies to connect projects to their grids.
The amendment has potential to cause an upheaval in the solar power industry, particularly in North Carolina where Duke is based. This is because the solar industry is still at a nascent stage in the U.S.
Solar power now accounts for about 3% of the state's electricity, compared with less than 1% nationwide. With the Clean Power Plan still in effect, a regulation aimed at reducing carbon emissions from existing power plants by 32% through 2030 indicates there is more scope ahead for this industry’s expansion. However, the amendments proposed by Duke, especially competitive bidding, will impose serious impediments to the survival of solar companies.
Also, Trump’s anti-renewable energy policy remains an overhang on this industry, particularly after he signed an executive order to dismantle ex-President Obama’s climate policies. No doubt at this crucial time, Duke’s proposal, if approved, will have an adverse effect on solar industry expansion.
Price Movement
Duke Energy’s stock has gained about 1.6% in the last twelve months in contrast to the Zacks categorized Utility-Electric Power industry’s loss of 1.3%. This could be because of the company’s focus on core domestic regulated and highly-contracted renewable business as well as its stable financial position. The company also poses strong competition to its peers including Ameren Corp. (AEE - Free Report) .
Zacks Rank
Duke currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access.Click here for Zacks' private trades >>