Winning Dixie: Drawing In the Southeastern US

It is not that the Southeast has been snubbed; more that it has politely declined the invitation to be part of the national plan.

The Southeast’s resistance to renewable energy (or at least any national mandate to build the resource) stems from a combination of factors — among them a long-standing concern about federal control and support for states’ rights. The region also has strong coal and nuclear industries and some of the lowest electricity rates in the nation.

‘They have a healthy scepticism of anything smacking of federal legislation that takes away from their autonomy or ability to tailor solutions to their utilities,’ said Paul O’Rourke, head of global consulting firm LECG’s energy and environment sector. ‘They see renewable energy as an expensive alternative, given the uncertainty around the quantity and reliability of renewable resources in the region. Are they being overly cautious? You might argue that. There is a tendency in the South to wait and see,’ he added.

Manufacturers in the Southeastern state of West Virginia pay an average 4.2 US cents/kWh, at least three times less than in many Northeastern states, according to the U.S. Energy Information Administration. As a result, the Northeast, once the industrial giant, has watched its energy-intensive companies pack up and leave for the Southern states. Even wind component manufacturers seem to like the Southeast; North Carolina and South Carolina were among the states where such manufacturers announced new, expanded or planned facilities in 2008. Yet the two states rank in the bottom rung for wind farm development; 43 and 41 respectively out of the 50 states, according to a recent American Wind Energy Association report.

Now, with jobs precious and international competition fierce, Southern political leaders are carefully guarding their region’s low electricity prices to avoid losing manufacturers to foreign nations where energy costs even less. The Southern states do not oppose renewable energy; nor do they lack concern about greenhouse gas emissions; they worry about costs, says Eric Behrns, a Washington DC-based energy policy consultant. He continues: ‘Everybody wants to do something, but they want to do it within existing political constraints. And in the Southeast, those constraints are directly related to price. When prices go up, elected officials take heat from their constituents.’

Jobs are particularly important in the Southern states, given that they tend to lag behind the other states economically. The median household income in the South is about $5000 below the national average, according to the U.S. Census Bureau.

Southeast’s Pivotal Year

The Southeast’s position on green energy has become increasingly important this year because of President Barack Obama’s call for a national renewable energy portfolio standard (RPS), also referred to as a national renewable energy standard, or RES. Specifically, Obama wants to see 10% of the nation’s electricity come from renewable sources by 2012, and 25% by 2025, up from roughly 9% now.

In recent months, Congress has responded with various proposals, some of which failed in previous years. One of the most carefully watched is the American Clean Energy and Security Act, put forward by Henry Waxman, chairman of the House Energy and Commerce Committee, and Edward J. Markey, chairman of the Energy and Environment Subcommittee and Select Committee on Global Warming.

Political observers say that the odds are better for an RPS to pass this year, given that the concept at last has Presidential backing, (former President George Bush had opposed a national RPS). But there are no guarantees. Congressional Democrats, who are typically pro-RPS, do hold a majority in Congress over Republicans, who tend to be more resistant to the concept. But not all Democrats support a national RPS, with particular scepticism coming from those in states that rely on cheap coal or nuclear power.

‘Energy politics usually are regional, rather than partisan,’ says Mary Anne Sullivan, a partner with international law firm Hogan & Hartson, and former general counsel of the US DOE, explaining: ‘I have not seen this as a partisan issue, although the Republicans are strong in the South. It can look Republican. But it is more regional.’

States’ rights advocates emphasize that they are not against renewable energy or even a portfolio standard, per se; they just want states to be able to make their own rules. In its RPS position statement, Duke Energy says: ‘Renewable portfolio standards are better set by state legislatures, which understand their jurisdiction’s unique characteristics and siting capabilities. We are concerned that a federal one-size-fits-all approach might well fail to recognize what works in California or Texas might not work at all in Ohio or North Carolina.’

In particular, RPS opponents argue that the Southeastern states lack indigenous renewable energy resources, and therefore will end up dependent on potentially high-priced renewable energy certificates (RECs) from other regions to meet a national standard. The certificates are tradable currencies that represent the positive societal attributes of renewable energy. RECs can be bought and sold separately from a plant’s energy output and used to meet portfolio standards. Certificate prices fluctuate over time and vary dramatically from state to state, but have risen as high as the $50/MWh range in the Northeast at times — a price the Southeast does not want to pay.

Testifying before the Senate Energy and Natural Resources Committee in February, David Wright, chairman of the Southeastern Association of Regulatory Utility Commissioners (SEARUC), said he worries that a national RPS could ‘transfer wealth from one region of our nation to another’ through the enforced purchase of RECs. ‘The money a utility (i.e. the ratepayer) pays for RECs and alternate compliance payments should not leave the state. The money should be re-invested in the state where it was paid to develop and implement energy efficiency programmes to help low-income households, and to help make these renewable technologies more affordable,’ he said.

South Carolina, where Wright serves as public service commissioner, gets about 61% of its power from coal-fired generation and about 31% from nuclear. In comparison, the nation overall relies on coal for about 50% of its power generation and nuclear about 19%. Only 0.07% of the state’s power comes from renewables (mostly landfill gas) compared with about 9% nationally. North Carolina estimates that renewable energy could make up no more than 4% of its generation mix by the year 2027.

‘Not all states are fortunate enough to have abundant traditional renewable energy resources, such as wind, or have them located close enough to the load centre to render them cost-effective. The Southeast and large parts of the Midwest certainly face this circumstance. Because the availability and cost-effectiveness of traditional renewable energy resources varies so widely among states and regions, the SEARUC states believe that decisions regarding renewable energy portfolios should be left to the states,’ Wright said.

Southeast Underestimates Its Potential

But supporters of a national standard say that detractors like Wright underestimate the South’s renewable potential and overestimate green energy costs.

Long-term trend lines show renewable energy prices declining and nuclear and fossil fuel prices rising, says Stephen Smith, executive director of the Southern Alliance for Clean Energy, a regional organization founded 24 years ago to develop green energy throughout the Southeast. ‘Making an investment in technologies whose trend lines are going down is better for the economy,’ he says. Moreover, the renewable resource that is predominant in the Southeast, bio-power, already is cost-competitive,’ Smith adds.

Further, Smith argues that nuclear plants lack flexibility in meeting fluctuating demand. It takes years to build a nuclear plant, and demand for its power may decrease by the time it comes on-line, leaving ratepayers to foot the bill for electricity they do not need. On the other hand, states can quickly ramp up construction of renewable distributed energy when power is needed, avoiding the problem of overbuilding.

Equally important, the Southeast may be selling itself short in claiming it lacks enough indigenous resources to meet a national standard, according to the Southern Alliance’s February report, Yes We Can: Southern Solutions for a National Renewable Energy Standard. The paper found that the 11 Southeastern states can meet a national RPS of at least 15% by 2015, 20% by 2020, and 25% by 2025.

‘The Southeast has been portrayed as a region that will face significant cost and difficulty meeting a national RES due to scarce access to renewable energy resources. This assertion is simply inaccurate,’ the report says. The heavily forested region could meet nearly two-thirds of a national standard through biomass generation, particularly by using wood products or energy crops. In addition, the region has solar energy potential. It is not as vast as the Southwestern states because the Southeast has frequent cloud cover. But solar is still capable of providing 7% of the region’s electricity. Indeed, the report cites several solar projects under development, particularly in North Carolina and Florida, by Duke Energy, SunEdison, Progress Energy, Vanir Energy, and FPL Energy. In addition, Florida’s Gainesville Regional Utilities have developed a solar photovoltaic feed-in tariff, one of North America’s first. Another Florida utility, Lakeland Electric, was the first company in the U.S. to quantify RECs from solar hot water production.

Rhone Resch, CEO and president of the Solar Energy Industries Association, says the Southeast has vast potential for solar energy development. Georgia, North Carolina and South Carolina have solar resources 60% better than Germany.

‘In Georgia, 23.6% of electricity could come from rooftop solar alone. As a policy investment, solar is one of the best values for putting Americans back to work and creating growth opportunities for utilities and small businesses alike in the Southeast and across the country,’ he says.

Georgia could gain added capacity from large-scale photovoltaic projects, similar to those underway in Florida and North Carolina, according to SEIA. The organization points out that in North Carolina, Duke Energy plans to buy more than 10 MW from a solar farm being built by SunEdison in Davidson County. And Florida Power & Light has already begun building the state’s first concentrating solar power plant north of Palm Beach County.

Longer term, the Southeast offers strong opportunities for offshore wind development, according to Saifur Rahman, director of the Advanced Research Institute at Virginia Tech and a board member of the state-funded Virginia Coastal Energy Research Consortium. The consortium is conducting engineering and wind studies to smooth the way for developers to construct wind power off Virginia’s coast. ‘Our focus is to make Virginia a more attractive place for developers to invest,’ Rahman says, adding: ‘We want to identify sections that are free from other uses.’

Looking at sites 20–30 km out to sea, a distance where the turbines will have as little visual impact as possible, the wind farm zone also skirts fishing grounds and military channels. Utilities serving eastern Virginia are seen as likely buyers of the offshore wind capacity, given that such projects will help them avoid construction of transmission lines to move land-based power from the west. The consortium expects to complete its study in 2010.

In addition, the University of North Carolina is studying the feasibility of wind energy in the state’s sounds. South Carolina is looking into offshore wind energy in state waters and Georgia is exploring regional transmission for ocean-based renewables. Southern Company won a federal government lease to collect wind data off Georgia’s coast. And, Florida Atlantic University’s Center for Ocean Energy Technology received state funding to examine the generation of energy from temperature differences that naturally occur in the ocean, according to the Southern Alliance report.

North Carolina Leads the Way

One Southeastern state, North Carolina, already has its own portfolio standard and two other states, Florida and West Virginia, are close to adopting standards as this article goes to press.

Signed into law in August 2007, North Carolina’s standard requires that 12.5% of power sold by investor-owned utilities comes from green energy by 2021. Up to 25% of that can be met through energy efficiency, including combined heat and power. Electric co-operative or municipal utilities must meet a 10% standard by 2018. Utilities can fulfil the requirement with a range of resources, including solar energy, wind energy, hydropower, geothermal energy, ocean current or wave energy, biomass resources, waste heat and energy efficiency.

Meanwhile, this spring the Florida Legislature has been debating a 20% standard by 2020. The standard has the support of both Governor Charlie Crist and the state Public Service Commission.

Urging lawmakers to pass the standard, the Natural Resources Defense Council (NRDC) made an economic argument in a letter dated 27 March. It says that Florida has three main resource choices to produce electricity — natural gas, nuclear and renewables. Of those, renewable energy ultimately costs the consumer less, NRDC argues. The organization says that Florida’s average residential rates rose 41% between 2000 and 2006 because of the state’s reliance on fossil fuels. ‘Without a meaningful RPS, fossil fuels, especially natural gas with its high risk of significant price volatility, will continue to account for the vast majority of Florida’s electric generating fuel,’ the NRDC notes. The state projects that in 2017, natural gas will account for 54.35% of Florida’s electricity supply, with a total contribution from fossil fuels (coal, oil, and gas) of 79.11%.

The leading RPS proposal being circulated (SB 1154) includes a ‘clean energy’ provision that would allow utilities to meet 5% of the standard with nuclear energy. However, while renewable advocates do not want to see nuclear power in the standard, the version circulating may be more palatable because of the time limits it puts on nuclear construction, Smith said. To qualify, the nuclear plants would need to be finished by 2020, which he considers unlikely.

[Editor's note:  At the beginning of May 2009, Florida bill SB 1154 failed to come out of committee and was indefinitely postponed.] 

Florida’s push for a ‘clean’ rather than ‘renewable’ standard is a trend that green energy advocates fear could play out on the national level if the Southeast takes a strong stand. The idea of creating a standard that includes resources, other than renewables emerged out of Pennsylvania, and has been adopted by a handful of other states. Pennsylvania (a coal-producing state) in 2004 created what is known as an alternative portfolio standard, which lists waste coal and coal gasification technologies among the kinds of power eligible to meet requirements. Illinois took the concept a step further and last year created a portfolio standard solely for ‘clean coal.’ The state requires that utilities purchase up to 5% of their power from the resource beginning in 2015.

On the national level, it may take the inclusion of nuclear, or at least a healthy dose of energy efficiency, to win over Southeastern politicians to the idea of a national renewable portfolio standard. Washington insiders say the showdown is likely to occur in the Senate. ‘I will bet that energy efficiency will take a larger role in the RPS. Many utilities would welcome the inclusion of energy efficiency,’ said Behrns. He added that he is confident, however, that neither Obama nor Senate Majority Leader Harry Reid will support a nuclear inclusion.

So what will it take to draw the Southeast into the national energy plan? Compromise, no doubt. But the shape of that compromise is not yet clear, as efficiency, clean coal and nuclear all try for a place at the table, in what appears to be the year that the US will finally adopt a national renewable standard.

Elisa Wood is US correspondent for Renewable Energy World magazine. E-mail: rew@pennwell.com

SIDEBAR: The Waxman Markey bill

The Waxman/Markey renewable portfolio standard calls for utilities and retail suppliers to provide 6% of their electricity from green sources by 2012. The standard gradually rises to 25% in 2025. The governor of any state may choose to meet one-fifth of this requirement with energy efficiency measures.

The bill limits greenhouse gases from electric utilities, oil companies, large industrial sources, and others that collectively are responsible for 85% of US emissions. It outlines the details of a carbon cap-and-trade programme that seeks emissions reduction of 3% by 2012, 20% by 2020, 42% by 2030, and 83% below by 2050, using 2005 as the base year. The bill does little, however, to address allocation of allowances, but instead leaves it open to further discussion.

Recognizing the link between clean energy growth and a smart grid, the bill offers the opportunity for more peak load reduction and demand response in new home appliances. It directs the Federal Energy Regulatory Commission to reform the regional planning process to accommodate grid modernization and expansion.

For transportation, the draft creates a new low-carbon fuel standard to promote advanced biofuels and other clean fuels. Cities, states, or private companies would receive grants or loan guarantees for the large-scale demonstration of electric vehicles. The bill also authorizes financial support for car companies to retool plants to build electric vehicles.

Energy efficiency also gains a national portfolio standard of its own. Electric and gas utilities must show that its customers have achieved 1% electricity savings and 0.75% natural gas savings in 2012. The standard gradually increases to a 15% cumulative electricity savings and a 10% cumulative natural gas savings by 2020.

But renewables and efficiency are not its sole focus; Waxman/Markey also recognizes the ‘continuing place for coal in our nation’s energy future,’ by promoting development of carbon capture and sequestration technologies that inject carbon dioxide underground, according to the bill’s summary. The draft includes an early demonstration programme, incentives for the wide-scale commercial deployment of the technology, and performance standards for new coal-fired power plants.

Editor's note:  This article was written for the May/June issue of Renewable Energy World magazine.  We recognize that new developments have occured since it went to press.  For more discussion on the U.S. American Clean Energy and Security Act (the Waxman Markey bill), see Scott Sklar's commentary Glass Half Full or Half Empty?