“One Man’s Trash can be Another Man’s Treasure”
Waste to Energy in North Carolina: An Overview
By: Charlotte Mitchell and M. Gray Styers, Jr.1
I.
Introduction
In January 2006, during preliminary discussions related to a statewide renewable
energy mandate, the North Carolina General Assembly requested that the North Carolina
Utilities Commission (the ―Commission‖) undertake a review of the potential costs and
benefits of enacting a Renewable Energy Portfolio Standard (―REPS‖) in North Carolina.
The Commission engaged a team of consultants consisting of GDS Associates, Inc.,
Sustainable Energy Advantage, LLC, and La Capra Associates, Inc. (collectively, ―La
Capra‖) to perform the review.
In its 2006 report, Analysis of a Renewable Portfolio Standard for the State of North
Carolina (the ―La Capra Report‖) La Capra concluded that biomass (wood and agricultural
waste) would likely be the largest contributor to a renewable energy portfolio standard in
North Carolina. In fact, La Capra concluded that a practical potential of 1,832 megawatts
(―MW‖) of biomass capacity exists in the state.
Certain waste products, including swine and poultry waste, human waste, and wood
waste are types of biomass resources. Given the practical potential of biomass, waste
products such as these could play a meaningful role in the development North Carolina‘s
renewable energy market. Moreover, given that North Carolina has an abundance of these
waste products, fuel costs for waste-to-energy facilities will directly contribute to North
Carolina‘s economy. Thus, the waste products that may have been deemed a curse of
North Carolina‘s agricultural tradition could be a harbinger of North Carolina‘s sustainable
future, or in other words, ―one man‘s trash can be another man‘s treasure.‖
This manuscript will provide an overview of the legal and practical issues raised by
efforts to promote renewable energy programs in North Carolina, in the three years since
the enactment of the state‘s Renewable Energy and Energy Efficiency Portfolio Standard.
It will focus, in particular, on efforts to utilize waste products, including animal waste, human
waste, waste wood, and landfill methane, as fuel for electric power production.
II.
What is the Legal Framework for Waste to Energy Facilities in North
Carolina?
An overview of the legal framework, at the state level and at the federal level, is
necessary to understand the development of North Carolina‘s waste-to-energy market. As
will be explained more fully below, North Carolina has mandated a renewable energy and
energy efficiency portfolio standard, which requires that a minimum percentage of electricity
sold in the state be generated from renewable energy resources, and federal legislation
1
Mitchell and Styers are attorneys with Styers & Kemerait, PLLC in Raleigh, North Carolina. They can be
contacted at 919-600-6273 or [email protected] (Styers) or 919-600-6277 or
[email protected] (Mitchell). Copyright 2011. All rights reserved.
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1
mandates that public utilities purchase power that is generated from certain types of
facilities, including those that produce power from renewable energy resources.
A.
North Carolina Law
North Carolina Session Law 2007-397 (referred to throughout this manuscript as
―Senate Bill 3‖) provides that it is the policy of the state to promote the development of
renewable energy and energy efficiency through the implementation of a Renewable
Energy and Energy Efficiency Portfolio Standard. The objectives of this law are threefold:
1) to diversify energy resources; 2) to provide greater security through the use of resources
indigenous to North Carolina; and 3) to provide improved air quality to the citizens of North
Carolina. Senate Bill 3 requires that by 2021 investor-owned utilities must meet 12.5% of
retail electricity demand through renewable energy or energy efficiency measures, N.C.
Gen. Stat. § 62-133.8(b), and electric membership corporations (―EMCs‖) and municipalities
that sell electric power in the state must meet a standard of 10% by 2018. N.C. Gen. Stat.
§ 62-133.8(c). In addition, the law requires the investor-owned utilities and EMCs and
municipalities to meet incremental percentages of retail electricity demand through
renewable energy or energy efficiency, beginning in 2012. See Figure 1. Resources that
may be used to meet the standard include solar energy, wind energy, hydropower,
geothermal energy, ocean current or wave energy, biomass resources, and energy
efficiency measures.
Figure 1: NC REPS Requirement and Timeline
Calendar Year
REPS Requirement
Investor-Owned Utilities
EMCs and Municipalities
2012
3% of 2011 retail sales
3% of 2011 retail sales
2015
6% of 2014 retail sales
6% of 2014 retail sales
2018
10% of 2017 retail sales
10% of 2017 retail sales
2021
12.5% of 2020 retail sales
The law also mandates certain ―set-asides‖ for both solar energy and for swine and
poultry wastes for electricity generation. Presumably, the intent of mandating the use of
solar energy, swine waste and poultry waste is to address waste management issues and
to provide for renewable energy resources that are indigenous to North Carolina. For
calendar year 2018 and each year thereafter, at least 0.2% of the total electric power sold
to retail customers must be supplied by a combination of new solar electric and solar
thermal facilities. N.C. Gen. Stat. § 62-133.8(d). Beginning in 2018 and each year
thereafter, at least 0.2% of the total electric power sold to retail customers must be supplied
by swine waste. N.C. Gen. Stat. § 62-133.8(e). Finally, beginning in 2014 and each year
thereafter, at least 900,000 mega-watt hours of total electric power sold to retail customers
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2
must be supplied by poultry waste. N.C. Gen. Stat. § 62-133.8(f). Senate Bill 3 establishes
incremental phase-in requirements for each of the three set-asides. See Figure 2.
Figure 2: Set-Aside Requirements and Timeline
Calendar Year
Resource
Solar
Swine
Poultry
2010
0.02%
2012
0.07%
0.07%
170,000 MWh
2015
0.14%
0.14%
700,000 MWh
2018
0.20%
0.20%
900,000 MWh
Senate Bill 3 provides that an electric public utility may meet the REPS requirements
in the following ways: 1) generating electric power at a new renewable energy facility; 2)
utilizing a renewable energy resource to generate electric power at a generating facility; 3)
reducing consumption through the implementation of energy efficiency measures; 4)
purchasing electric power from a new renewable energy facility;2 5) purchasing RECs
derived from in-state or out-of-state3 renewable energy facilities; or 6) using electric power
that is supplied by a new renewable energy facility or saved due to the implementation of
an energy efficiency measure that exceeds the requirements of this section for any
calendar year as a credit towards the requirements of this section in the following calendar
year or sell the associated renewable energy certificates (―RECs‖). N.C. Gen. Stat. § 62133.8(b)(2)(a)-(f).
Finally, worth noting is that Senate Bill 3 caps the costs that may be incurred by an
electric power supplier to comply with the REPS requirement. N.C. Gen. Stat. § 62133.8(h)(4). Specifically, the law provides that an electric power supplier shall be allowed
to recover the annual incremental costs incurred to comply with the REPS requirements—
that are in excess of the electric power supplier's avoided costs—through annual
charges to customers. For example, Senate Bill 3 provides that for residential customers,
the total annual incremental cost to be incurred shall not exceed a per-customer annual
charge of $10.00 during the years 2008-2011. That amount increases to $12.00 for the
years 2012-2014 and to $34.00 for 2015 and thereafter. There are caps on annual charges
for commercial and for industrial users, as well. Significantly, the law provides that an
electric power supplier ―shall be conclusively deemed to be in compliance‖ with the REPS
2
Senate Bill 3 specifies that electricity purchased from an out-of-state new renewable energy facility meets
the requirements of the law if the electric power is delivered to a public utility that provides electric power to
customers in North Carolina, provided, however, that the electric public utility does not sell the RECs created
under Senate Bill 3 to another electric public utility. N.C. Gen. Stat. § 62-133.8(b)(2)(d).
3
Out-of-state RECs may be used to satisfy no more than twenty-five percent (25%) of the REPS requirement.
{SK005598.DOC }
3
requirements once the total annual incremental costs incurred equals the statutory cost
cap. N.C. Gen. Stat. § 62-133.8(h)(3).
Notably, and significant with respect to the development of North Carolina‘s waste-toenergy market, the Commission has ruled that the solar, swine and poultry waste set aside
requirements have priority over the general REPS requirement where both cannot be met
without exceeding the statutory cost caps. Order on Duke Energy Carolinas, LLC Motion
for Clarification, N.C.U.C. Docket No. E-100, Sub 113, May 7, 2009.4
In short, Senate Bill 3 establishes the following significant mandates:

By 2021 investor-owned utilities must meet 12.5% of retail demand through
renewable energy or energy efficiency;

By 2018, EMCs and municipalities must meet 10% of retail demand through
renewable energy or energy efficiency;

Solar, swine waste and poultry waste resource set-aside requirements have been
adopted as part of North Carolina’s REPS; and

The incremental cost to be incurred, per customer per customer class, to comply
with REPS requirements is limited by Senate Bill 3, such that once that cost cap
is reached, an electric power supplier is deemed to be in compliance.
B.
Federal Law
1. PURPA
Congress enacted the Public Utility Regulatory Policies Act of 1978 (―PURPA‖) in
response to the energy crisis of the 1970s to encourage the conservation of energy
supplied by electric utilities and the development of renewable energy facilities and
combined heat and power (―CHP‖) facilities. 16 U.S.C. §§ 2601-2645. Even though this law
was enacted decades ago, it remains critical to the development of a renewable energy
market.
Through the passage of PURPA, Congress intended to reduce the traditional
reluctance of public electric utilities to purchase power from non-traditional generating
facilities. See Federal Energy Regulatory Commission v. Mississippi, 456 U.S. 742 (1982).
To this end, PURPA created a new category of generators, known as ―qualifying facilities‖
or ―QFs.‖5 The Federal Energy Regulatory Commission (―FERC‖), as directed by Congress,
4
All N.C.U.C. Orders cited in this manuscript can be found at
http://ncuc.commerce.state.nc.us/docksrch.html and then typing in the Docket and sub numbers in
the search fields.
5
To qualify as a QF, a facility must meet the requirements set forth in 18 C.F.R. § 292.101 et seq.
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4
adopted regulations that, in effect, obligate utilities to purchase all of the output from QFs at
a rate equal to the utility‘s full avoided cost.6
FERC‘s regulations expressly provide that when a QF has agreed to obligate itself to
deliver energy and capacity at a future date, the rates at which the utility purchases the
energy and capacity shall be based on, at the QF‘s option: 1) the avoided cost as
calculated at the time of delivery; or 2) the avoided cost as calculated at the time the utility‘s
obligation to purchase is incurred (i.e., the point at which a QF holds itself out as ready to
enter into a contract with the utility.) 18 C.F.R. § 292.304(d). As expressed by FERC, the
―use of the legally enforceable obligation [of the utility to purchase the energy and capacity
of the QF] is intended to prevent a utility from circumventing the requirement that provides
capacity credit for an eligible QF merely by refusing to enter into the contract with the QF.‖
45 Fed.Reg. 12224.
FERC regulations are clear that if the QF offers energy of sufficient reliability and
sufficient guarantees of deliverability to allow the purchasing utility to avoid the need to
construct a generating unit, to build a smaller, less expensive plant, or to reduce firm power
purchases, then the rates for the purchase from the QF are based on both avoided energy
and capacity costs. These regulations, and the right afforded to QFs to be paid at a rate
that reflects utilities‘ full avoided costs, are critical to the economic feasibility (and the ability
to secure financing) of QFs.
Thus, the PURPA regulations create a market for and provide negotiation leverage for
QFs; most (if not all) renewable energy facilities, including waste-to-energy facilities, are or
will be QFs.
2. Interpretation of the Application of PURPA in North Carolina
The arbitration on these disputed issues occurred August 19, 2010. As of the date
of submitting this manuscript, the Commission had not yet issued its Order in the case. If
an Order is issued prior to February 11, copies will be distributed to attendees of the
presentation at the Festival of Legal Learning.
III.
How Has the Waste to Energy Market Developed So Far in North
Carolina?
Senate Bill 3 was enacted in 2007 and was negotiated by stakeholders for several
years prior to that time. Thus, electric power suppliers in North Carolina have been
6
18 C.F.R. § 292.304(b)(2). Avoided cost is defined as the cost to the electric utility of the electric energy
which, but for the purchase of power from such co-generator or small power producer, such utility would
generate or purchase from another source. PURPA leaves it up to the individual states and their utility
commissions to determine the utilities’ actual avoided costs. The North Carolina Utilities Commission holds a
biennial proceeding to determine each of the three investor-owned utility’s avoided costs with respect to
rates for purchases from QFs. The current avoided cost rates are established in Docket No. E-100, Sub 117,
Order Establishing Standard Rates and Contract Terms For Qualifying Facilities. Docket No. E-100, Sub 127
was opened in May 2010 to begin the next avoided cost proceeding. Worth mentioning is that PURPA was
amended by the Energy Policy Act (“EPAct”) of 2005, Pub. L. 109-58, in several respects. Specifically, section
1253 of the EPAct 2005 eliminates a utility’s requirement to purchase QF power, but only if the utility
demonstrates that QFs can sell their power in a competitive wholesale market for energy and capacity. If
such demonstration cannot be made, then the mandatory purchase provisions continue in force and effect.
{SK005598.DOC }
5
planning for and continue to plan for the implementation of the law‘s requirements. To this
end, and to better understand the future of waste-to-energy projects in North Carolina, there
are several notable regulatory and market developments that merit discussion.
A.
Swine and Poultry Waste
1.
Background
North Carolina is a leading producer of both hogs and poultry. North Carolina ranks
second in hog and pig production and produces just over 16 percent of the total U.S.
production. The State‘s poultry industry ranks second and fourth nationally in turkey and
broiler production, respectively. La Capra Report, 25. La Capra concluded that a potential
93 MW of electric power generation from hog waste exists statewide and that a potential
105 MW of electric power generation from poultry waste exists statewide. La Capra Report,
27-28.
2.
Pro Rata Allocation of Statewide Aggregate Requirement
The swine waste and poultry waste set-aside requirements set forth in Senate Bill 3
are aggregate requirements; that is, Senate Bill 3 does not impose a specific requirement,
pro rata or otherwise, on any individual electric power supplier. The Commission clarified
this in determining that the language of the swine and poultry waste set-aside provisions
contemplate that the electric power suppliers may work out among themselves how to
satisfy the requirements of the statute. Order on Duke Energy Carolinas, LLC Motion for
Clarification, N.C.U.C. Docket No. E-100, Sub 113, May 7, 2009. The electric power
suppliers are charged with meeting the aggregate requirements and are expected to ―work
together‖ to meet their aggregate obligation. See Annual Report of the North Carolina
Utilities Commission Regarding Renewable Energy and Energy Efficiency Portfolio
Standard in North Carolina, 2008.
On January 22, 2010 Progress Energy Carolinas, LLC (―Progress‖) filed a letter with
the Commission on behalf of the majority of the electric power suppliers in North Carolina
indicating that they had met with swine waste generating parties and agreed that they
would submit to the Commission: 1) an agreement for the pro rata allocation of the
aggregate swine waste resource set-aside; and 2) a request for proposals (―RFP‖) from
swine waste generators. Thereafter, on March 31, 2010, the Commission issued an order
approving the proposed pro rata allocation mechanism for swine waste and poultry waste
set-aside requirements. In short, the mechanism provides: 1) that the statewide aggregate
swine and poultry waste set-aside requirements shall be allocated among all electric power
suppliers based on the ratio of each electric power supplier‘s prior year‘s retail sales to the
total sales; 2) that an electric power supplier shall be deemed to be in compliance with the
set-aside requirement once it has satisfied its allocated share of the statewide aggregate or
once it has reached its cost cap; 3) that no electric power supplier shall be obligated to
satisfy more than its allocated share; and 4) that, upon Commission approval, the electric
power suppliers may jointly procure renewable energy resources to satisfy their individual
allocations. See Order on Pro Rata Allocation of Aggregate Swine and Poultry Waste SetAside Requirements and Motion for Clarification, N.C.U.C. Docket No, E-100, Sub 113,
March 31, 2010. The details of the mechanism may be viewed in the Commission‘s order.
Thereafter the Commission issued an order approving the collaborative efforts of the
electric power suppliers as a reasonable means to meet collectively the poultry waste set{SK005598.DOC }
6
aside requirement, see Order on Joint Motion to Approve Collaborative Activity Regarding
Poultry Waste Set-Aside Requirements and Motion for Clarification, N.C.U.C. Docket No, E100, Sub 113, June 25, 2010, as the Commission had done with regard to the swine waste
requirement. See Order on Withdrawal of Joint Motion, Issuance of Joint Request for
Proposals and Allocation of Aggregate Set Aside Requirements, N.C.U.C. Docket No. E100, Sub 113, February 12, 2010.
3.
Thermal RECs and the Poultry Waste and Swine Waste SetAside Requirements
Peregrine Biomass Development Company, LLC (―Peregrine‖) is a wholly-owned
subsidiary of Peregrine Energy Corporation, a single-purpose corporation specializing in
small scale renewable energy generation projects fueled by poultry waste and other
biomass resources. Peregrine plans to build small biomass-fired (primarily poultry waste)
combined heat and power systems at retail customer locations, where all the steam
produced will be routed through a turbine to generate electricity before it is delivered to the
steam host for process use. On August 10, 2010, Peregrine filed a petition NCUC Docket
No. E-100, Sub 113 requesting that the Commission make use of the ―off ramp‖
discretionary authority given to the Commission under Senate Bill 3 (N.C. Gen. Stat. § 62133.8(i)(2)) and under Commission Rule R8-67(c)(5) to delay the deadline for compliance
with poultry waste set-aside requirement.7 See Petition of Peregrine Biomass Development
Company, LLC, N.C.U.C. Docket No. E-100, Sub 113, August 10, 2010 (―Peregrine
Petition‖). Peregrine‘s justification for the delay was to allow the Commission to address
the issue of whether thermal energy produced at poultry facilities should count toward the
set-aside requirement.
To this end, Peregrine requested that the Commission allow the thermal RECs
produced at its facilities to count toward the poultry set-aside requirement. See Peregrine
Petition. Peregrine argued that allowing thermal RECs to count toward the set-aside
requirement is critical for the cost effectiveness of its projects and indicated the delay was
necessary to give the Commission time to address the thermal RECs issue. On August 25,
2010, the Commission issued an order requesting comments on the use of thermal RECs
to satisfy the poultry waste set-aside. Duke Energy Carolinas, LLC (―Duke‖) Progress,
GreenCo Solutions, Inc. (―GreenCo‖), ElectriCities, the North Carolina Poultry Foundation,
FLS Energy (a solar thermal renewable energy developer), KapStone Kraft Paper
Corporation and Weyerhaeuser Corporation (industrial customers of Peregrine), the Public
Staff, and several other parties submitted comments in support of Peregrine‘s petition. In
its comments, the Public Staff requested that the Commission exercise its off-ramp
authority to delay the deadline for compliance with the poultry waste set-aside and,
additionally, to modify Senate Bill 3 to clarify that thermal RECs may be used for
compliance with the poultry waste set-aside when they are derived from waste heat
produced at an electric generating facility that uses poultry litter as its energy source.
7
Interestingly, in an unusual delegation of authority by the General Assembly to the Commission, Senate Bill
3 contains a provision that allows the Commission to modify or delay certain REPS requirements without
having to request that the General Assembly modify the statute. N. C. Gen. Stat. § 62-133.8(i)(2).
{SK005598.DOC }
7
The North Carolina Sustainable Energy Association (―NCSEA‖), Fibrowatt, LLC8 and
Daren Bakst, the Director of the John Locke Foundation, filed comments requesting that
Peregrine‘s petition be denied. However, unlike Fibrowatt and Bakst, NCSEA did not
oppose the allowance of thermal RECs to satisfy the set-aside; rather, NCSEA asserted
that the ―off-ramp‖ provision is an unconstitutional delegation of legislative authority.
On October 8, the Commission issued an order denying Peregrine‘s petition to
modify the poultry waste set-aside. Order Denying Petition to Modify Poultry Waste SetAside Requirement, N.C.U.C. Docket No. E-100, Sub 113, October 10, 2010. In the order,
the Commission ruled that thermal RECs may not be used to satisfy the poultry waste setaside requirement of Senate Bill 3, based on the reasoning that while the General
Assembly had explicitly included thermal RECs for compliance with the solar set-aside
requirement, it had not done so for the poultry waste set-aside. In addition, the
Commission noted that a delay in the poultry waste set-aside requirement is not warranted
at this point, in light of the fact that the first compliance deadline is 2012.
In the order, the Commission is careful to note the exceptional nature of the ―offramp‖ provision of Senate Bill 3 but also notes that the authority granted to it by this
statutory provision is not as limited as Bakst or NCSEA argues. Nevertheless, the
Commission found that good cause had not been demonstrated to invoke this special
authority, perhaps signaling that only truly exceptional circumstances will give rise to the
Commission‘s exercise of the authority. Order Denying Petition to Modify Poultry Waste
Set-Aside Requirement, N.C.U.C. Docket No. E-100, Sub 113, October 10, 2010.
Representatives of Peregrine are on record indicating intent to call for legislative
action to allow for the use of RECs generated from waste heat produced by a poultry
waste-fired boiler to count toward the set-aside requirement. See Use of poultry waste
derailed,
NEWS
&
OBSERVER,
October
12,
2010
available
at:
http://www.newsobserver.com/2010/10/12/735461/use-of-poultry-wastederailed.html#storylink=misearch (last accessed December 30, 2010).
4.
Current Status of Poultry Waste and Swine Waste Projects
As of the date of this manuscript, RFPs have been issued for both swine waste and
poultry waste projects. See Joint Request for Proposal to Swine Waste Resources,
N.C.U.C. Docket No. E-100, Sub 113, August 27, 2010; Request for Proposals for Electric
Power Generated from NC Swine Waste Facilities, N.C.U.C. Docket No. E-100, Sub 113,
January 29, 2010.
8
Fibrowatt, LLC is Peregrine’s competitor. Unlike Peregrine’s proposed facility design, Fibrowatt’s proposed
facility is electricity only. Fibrowatt had plans for poultry-waste fired facilities in North Carolina in
Montgomery County, Surry County and Sampson County. However, in May 2010, the Surry County Board of
Commissioners voted to end its negotiations with Fibrowatt over its planned facility. As of the date of this
manuscript, Fibrowatt advertises Sampson and Montgomery Counties as the future homes of North
Carolina’s two poultry waste fueled power plants.
See Press Release available at
http://www.fibrowattusa.com/projects/north-carolina/ (last accessed December 30, 2010).
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8
As of December 1, 2010, one poultry methane facility is registered in North Carolina
(but located in South Carolina) and one swine waste facility is registered in North Carolina.
See Renewable Energy Facility Registrations Accepted by the North Carolina Utilities
Commission
2008-2010
available
at
http://www.ncuc.commerce.state.nc.us/reps/RegistrationSpreadsheet2008-2010.pdf. The
swine waste facility is located in Clinton and uses aerobic digestion as a means of
producing electricity from organic waste, which comes from a pork processing facility in
Sampson County and swine waste from a local farm. See Annual Report 2010 N.C.U.C.
Docket No. SP-297, Sub 0, June 21, 2010. The facility‘s projected capacity is 3.228 MW
and is expected to come online in July 2011. See Annual Report 2010 N.C.U.C. Docket No.
SP-297, Sub 0, June 21, 2010. The owner/operator of the facility has publicized that it has
plans to enter into a 20-year power purchase agreement with Progress Energy for the
facility‘s output.
See Orbit Energy, Inc. powerpoint presentation available at
http://www.sjrecycles.org/organics/pdf/VendorPresentationOrbitEnergy.pdf (last accessed
January 4, 2011.)
Orbit Energy, Inc., the owner/operator of the facility in Clinton, has announced plans
to develop a combined heat and power renewable energy facility in Charlotte using a fuel
mix that will include poultry waste. The facility is projected to come online in October 2011.
Specifically, the facility will use anaerobic digestion to convert organic wastes—including
food waste, yard waste, paper and cardboard, agricultural and animal waste and food
processing waste—into biogas and compost. Approximately 20% of the energy will be
generated from poultry waste. The biogas will fuel generator sets to produce electricity.
The heat from the generator exhaust will be recovered and used for purposes other than
electricity production. The projected capacity of the facility will be 6.4 MW and the planned
electricity output is 56,000 MWh. See Amended Registration Statement, N.C.U.C. Docket
No. SP-297, Sub 1, October 6, 2010.
The Commission‘s order of October 10, 2010, ruling that thermal RECs may not be
used to satisfy the set-aside requirement is the most current regulatory action on the issue
of the poultry waste set-aside. Whether the issue of the use of thermal RECs to satisfy the
poultry and swine waste set aside requirements will be taken to the General Assembly
remains to be seen; however, the electric power suppliers appear to be in agreement that
the use of thermal RECs is critical to the cost effectiveness of at least the poultry waste
projects.
B.
Wood Waste
The definition of ―renewable energy resource‖ set forth in Senate Bill 3 includes
―wood waste.‖ N.C. Gen. Stat. § 62-133.8(a)(7). However, on October 11, 2010, the
Commission issued a significant ruling related to wood-fired energy generation. In the
Order, the Commission concluded that ―primary wood harvest products, including wood
chips from whole trees, are ‗biomass resources‘ and ‗renewable energy resources.‘ ‖ Order
Accepting Registration of New Renewable Energy Facilities, N.C.U.C. Docket No. E-7, Sub
939 and 940, October 11, 2010. In so concluding, the Commission noted that the ―General
Assembly did not intend to limit the scope of biomass resources qualifying as renewable
energy resources to those resources specifically listed within the statute.‖ Id.
The decision was made in a Duke docket pertaining to the registration of the utility‘s
Buck Steam Station and Lee Steam Station as renewable energy facilities. In 2009, Duke
began a trial period of co-firing wood and coal at these plants, to evaluate the use of wood
{SK005598.DOC }
9
as fuel. In its registration statements, Duke proposed to use a range of wood biomass fuel
resources, including both wood waste and primary forest harvest materials like wood chips
from whole trees. Duke argued that if it were limited to using ―wood waste‖ materials, the
projected annual REC production from its biomass operations would drop from over 1
million RECs to approximately 220,000 RECs.
As testified by a representative of the company, Duke Energy ―has and will seek to
procure as much ‗wood waste‘ materials as economically possible before moving on to
procure other woody biomass fuel.‖ See Rebuttal Testimony of Tracy Beer, N.C.U.C.
Docket No. E-7, Sub 939 & 940, p. 5, l. 23 – p. 6, l. 3. Further, Duke‘s expert testified that
the utility‘s ―evaluation of woody biomass resources within its potential procurement area
has revealed that there will simply not be enough ‗wood waste‘ materials available in the
marketplace to support its operational and development plans relating to its ‗brownfield‘
biomass projects‖ which will drive the utility‘s use of whole trees in addition to wood waste.
Beer Rebuttal Testimony, p. 6, ll 11-14.
On November 10, 2010, Environmental Defense Fund (―EDF‖) filed its notice of
appeal of the Commission‘s decision to the North Carolina Court of Appeals. Notice of
Appeal, N.C.U.C. Docket No. E-7, Sub 939 & 940, November 10, 2010. And, on November
30, 2010, NCSEA filed a cross appeal of the order. Notice of Cross Appeal, N.C.U.C.
Docket No. E-7, Sub 939 & 940, November 30, 2010. EDF has until January 14, 2011 to
prepare the record on appeal, and the court will thereafter hear the appeal. Thus, the
question of whether the language of Senate Bill 3 limits woody biomass to ―wood waste‖ or
allows for a more expansive definition of biomass is unsettled; the outcome of the appeal
could have significant implications for the universe of eligible renewable energy resources.
Notwithstanding the debate over whether Senate Bill 3 limits woody biomass to
―wood waste,‖ as of December 2, 2010, there are four wood waste facilities registered with
the North Carolina Utilities Commission, representing a total of 213.2 MW of capacity.
Given that the total registered biomass capacity is approximately 327 MW, wood
waste facilities currently represent the majority of registered biomass capacity. See
Renewable Energy Facility Registrations Accepted by the North Carolina Utilities
Commission 2008-2010 available at http://www.ncuc.commerce.state.nc.us/reps/
RegistrationSpreadsheet2008-2010.pdf.
C.
Human Waste
On February 3, 2010, the Water and Sewer Authority of Cabarrus County
(―WSACC‖) filed a request for a declaratory ruling from the Commission that biosolids, the
material remaining after the treatment of domestic sewage, combusted at WSACC‘s Rocky
River Regional Wastewater Treatment Plant are a ―renewable energy resource.‖ The Rocky
River facility employs an oil-fired furnace for the purpose of reducing biosolids to ash.
WSACC has plans to add a 1.9 MW steam cycle power system to generate electricity and
thermal energy. Referencing its policy of determining whether a resource qualifies as a
renewable energy resource on a case-by-case basis, the Commission noted that the
biosolids produced at the facility are biological in origin, are continuously generated, and
are not depleted like fossil fuels. On this basis, the Commission ruled that the biosolids are
a ―renewable energy resource.‖ Order on Request for Declaratory Ruling, N.C.U.C. Docket
No. SP-100, Sub 25, February 24, 2010. Thus, energy derived from biosolids is eligible to
{SK005598.DOC }
10
be used for compliance with Senate Bill 3. The WSACC power plant will be operational in
late 2011 or 2012.
A potential obstacle for incineration projects such as WSACC‘s facility is the
adoption of regulations governing the incineration of sewage sludge. In September 2010,
the EPA proposed regulations aimed at reducing emissions of air toxics and several of the
common pollutants associated with the incineration of sewage sludge. For additional
information, please see the EPA‘s Fact Sheet: Standards of Performance for New
Stationary Sources and Emission Guidelines for Existing Sources: Sewage Sludge
Incineration
Units,
which
is
available
at:
http://www.epa.gov/ttn/oarpg/t3/fact_sheets/ssi_atec_fs_093010.pdf. The adoption of such
regulations may have a chilling effect on the development of facilities such as the WSACC
facility.
While the WSACC facility will incinerate the biosolids to generate electricity, several
municipalities are considering utilizing anaerobic digestion technology (which involves the
use of bacteria to breakdown the human waste) for energy production, as anaerobic
digestion creates methane as a by-product. The Public Utilities Departments of both
Raleigh and Durham are evaluating the use of anaerobic digestion equipment at specific
existing treatment facilities to create methane for generating electricity. For additional
information, read more at http://www.newsobserver.com/2010/10/24/757585/human-wasteis-full-of renewable.html#ixzz1AAf2uQSt.
D.
Landfill Methane
As trash in a landfill decomposes, the decomposition process produces methane, a
combustible gas. The methane production at landfill sites can be a valuable fuel for either
direct thermal applications or for electricity generation. La Capra reported that as of 2006,
seventeen landfill methane projects were operating in North Carolina. Of these seventeen,
six are generating electricity, totaling over 15 MW of capacity. Additionally, eleven other
landfill projects currently consume the landfill gas directly for thermal applications. La
Capra Report, 15.
Landfill methane facilities constitute the majority of registered biomass projects in
North Carolina. As of December 1, 2010, of the nineteen registered biomass facilities, nine
are landfill methane facilities.9 See Renewable Energy Facility Registrations Accepted by
the
North
Carolina
Utilities
Commission
2008-2010
available
at
http://www.ncuc.commerce.state.nc.us/reps/ RegistrationSpreadsheet2008-2010.pdf. La
Capra estimates a practical potential of 150 MW of electricity generation from landfill
methane facilities. La Capra Report, 18.
While many of the facilities are located at municipal-owned landfills, one of the
largest landfill methane electric generation facilities comes online in early 2011 at the
Waste Industries landfill in Sampson County. It received certification to produce ______mw
of electricity from [describe GE gen sets.]
9
The facilities noted in the La Capra Report were in existence prior to the registration requirements
associated with Senate Bill 3.
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11
In late October 2010, the N.C. Energy Office announced its intention to distribute
$3.3 million in federal stimulus funds to increase the production of electricity from methane
gas generated from landfills. The state estimates that these funds will increase power
generation from landfill methane by nearly 16 percent.
E.
Other Waste –Tire Derived Fuel
On December 17, 2009, the Commission accepted registration as new renewable
energy facilities of two coal-fired facilities that have been converted to burn a mix of coal,
wood waste and tire-derived fuel (―TDF‖). The owner of the facilities requested a
declaration from the Commission that TDF is a renewable energy resource. One argument
advanced by the owner in support of its request was the fact that TDF is a recurring waste
product. The Commission ruled that TDF could be a renewable energy resource; however,
only the portion of the TDF that is derived from natural rubber, an organic material, satisfies
the statutory definition of biomass and renewable energy resource. Order Issuing
Amended Certificates, Accepting Registration Statement and Issuing Declaratory Ruling,
N.C.U.C. Docket No. SP-165, Sub 3, December 17, 2009. Thus, the Commission‘s ruling
suggests that waste products must be derived from organic material to qualify as a
renewable energy resource.
IV.
What Does the Future Hold for Waste to Energy Facilities in North
Carolina?
The waste to energy market is still in its infancy in North Carolina. Despite the clear
mandate in Senate Bill 3 and the abundance of waste products in North Carolina that could
be used as fuel, the future of the market is, at best, uncertain. Many factors will bear on the
development of this nascent market; several of the most prominent factors are discussed
below.
A.
Federal Regulation of Greenhouse Gasses
In response to the Supreme Court‘s decision in Massachusetts v. EPA, 549 U.S.
497 (2007), the United States Environmental Protection Agency has enacted a rule to
regulate greenhouse gasses under the requirements of the Clean Air Act. The regulation,
referred to as The Greenhouse Gas Tailoring Rule, is now in effect, despite hopes of
modifications or a delayed implementation date. 75 F.R. 31514-31608, June 3, 2010. This
regulation is so-named because it tailors the applicability criteria that determine which
stationary sources and modification projects become subject to permitting requirements for
greenhouse gas (―GHG‖) emissions under Clean Air Act.
The rule does not propose changes to the Title V or PSD permitting programs in
terms of overarching regulatory structure. Instead, the tailoring rule focuses on the level of
emissions that are ―subject to regulation‖ under the rule. For the Clean Air Act Title V and
PSD programs, a ―major stationary source‖ is a source that emits greater than 250 tons per
year (―tpy‖) of a regulated air pollutant (or 100 tpy for some industries). Because 250 tpy of
GHGs is such a low amount, using that threshold would require millions of very small
sources to obtain significant Clean Air Act permits, which the EPA viewed as an absurd
result. To avoid such a situation, the Tailoring Rule narrows PSD applicability to include
only those sources that meet both the existing mass based applicability limits discussed
above and have the potential to emit (―PTE‖) 100,000 tons CO2e for new major sources or
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12
75,000 tons CO2e for modified existing sources. Tailoring is accomplished through a
uniform threshold-based approach, rather than through a collection of various specific
exclusions. Therefore, there is no exclusion for biomass emissions.
The EPA has indicated an intent to phase in permitting requirements in two steps to
ease the administrative burden associated with permitting. In addition there is a 6 year
exclusion for smaller sources (< 50,000 tpy carbon dioxide equivalent) which will be
addressed
over
time.
Additional
information
is
available
at
http://www.epa.gov/NSR/documents/20100413fs.pdf (last accessed January 4, 2011).10
While the rule largely affects fossil fuel consumers, the largest greenhouse gas
emitters, it does not exempt biomass power producers from GHG permitting requirements.
Therefore, the rule requires the same GHG reporting obligations from biomass consumers
as fossil fuel consumers. It has been widely speculated the rule will negatively affect the
biomass power industry, which has lobbied vigorously for an exemption, and lead to stalled
investment in the industry.
B.
Exercise of “Off Ramp” Authority by the North Carolina Utilities
Commission
As previously discussed in this manuscript, the Commission has already been
requested to exercise its ―off ramp‖ authority to delay compliance deadlines set forth in
Senate Bill 3. See Petition of Peregrine Biomass Development Company, LLC, N.C.U.C.
Docket No. E-100, Sub 113, August 10, 2010. In its previous order, the Commission noted
the ―exceptional nature‖ of the off ramp authority and stated that the ―off ramp should be
narrowly construed and will exercise its authority under the off ramp sparingly.‖ The
Commission was not convinced by the electric power suppliers that good cause existed for
the exercise of its authority in the case of the poultry waste set-aside, as proposals had
been received in response to the RFP and as the electric power suppliers indicated in their
recently filed REPS compliance plans their belief that the amount of poultry waste energy
proposed will be sufficient to meet the requirement. Though the Commission declined, at
the time, to exercise its authority, its right to do so remains if good cause is shown.
C.
Economic Conditions and Shifting Political Winds
Investment in renewable energy facilities will be limited as challenging economic
conditions persist and access to capital remains limited. Despite the creation of a market
for renewable energy facilities, and specifically for waste-to-energy facilities in North
10
The GHG Tailoring Rule was prompted by a legal dilemma. As mentioned above, in Massachusetts v. EPA,
Court ruled that GHGs are air pollutants under the CAA and that, consequently, EPA was required to make a
finding on whether GHGs “endanger” public health and welfare. The EPA has made its finding of
“endangerment” and on April 1, 2010 issued final motor vehicle GHG regulations. The endangerment finding
triggered other actions, including the duty to regulate GHGs under the PSD and Title V programs. Most
stakeholders agree that the CAA is not well suited for the regulation of GHGs, and most have called for
legislative, as opposed to regulatory, intervention as a solution. Given the current political climate, the
prospects for new comprehensive GHG legislation are uncertain, and meanwhile, the regulatory process has
been set in motion. If and when Congress acts to regulate GHGs, the Tailoring Rule may become obsolete.
{SK005598.DOC }
13
Carolina, access to capital and limitations on the ability to earn a sufficient return on
investment may stall the development of the market. The Commission‘s decision in E-2,
Sub 966 interpreting the provision of PURPA discussed in Section II.B.2. supra could have
a substantial impact in this regard. Moreover, electric power producers face increasing
costs associated with new regulatory requirements while would decrease demand (as a
result of economic conditions) decreases revenue earned. These challenges and the
tradition among the investor-owned utilities in North Carolina of favoring self-built
generation have the potential to result in momentum to modify Senate Bill 3‘s mandates.
Similar momentum has been building outside of North Carolina. For example during its last
legislative session, the Connecticut General Assembly considered (but did not act on)
legislation that would reduce its REPS requirement by nearly half. See Substitute Bill No.
463, February Session 2010, Connecticut General Assembly.
A positive trend in the development of the renewable energy market is the
investment in electricity generation projects by well capitalized corporations—for which the
generation of electricity is a secondary activity—looking to diversify their revenue streams.
For example, the largest registered landfill methane facility is owned by a subsidiary of
Waste Industries USA, Inc. The development of the Black Creek Renewable Energy facility
is an example of using existing assets and resources and a low/no fuel-cost scenario to
generate renewable energy.
V.
Final Thoughts on Waste to Energy in North Carolina
Waste to energy processes will play an important role in the electricity generation
mix in the future. The required capital investment and length of permitting and contributions
of nuclear plants are significant challenges to the energy source. Very few new coal-fired
facilities will be built because of political opposition and concerns over greenhouse gas
emissions. The potential price volatility of natural gas and higher variable costs limit the
dependency on that fuel for baseload electric generation. While promising from a resource
supply standpoint, wind facilities faces siting challenges, and solar facilities are still
expensive on a kilowatt/hour basis. Moreover, both have efficiency and reliability issues in
light of North Carolina‘s climatic conditions.
Fuel from waste is plentiful in North Carolina. Continued research and development
to improve combustion technologies and lower costs are essential for the development of
the waste to energy market. The market needs to be encouraged by REPS mandate and
set aside and fair-avoided cost pricing and interconnection politics. For those who have the
financial resources and long-term vision to invest in these waste to energy facilities, the
authors believe that the future is bright and that the ―trash‖ to some will, in fact, be
―treasures‖ to our State.
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