North Carolina has renewable power mandates on the books that require utilities to generate 12.5% of their power from renewable sources by 2021. On the surface, that's a great goal, but the devil is in the details, which include unusual fuel sources. Utilities, which are having trouble meeting some of the more obscure regulations, are asking for changes.
Big picture vs small
There's no question North Carolina has the right idea about renewable power. The current rules started with a 3% mandate in 2012. That doubles to 6% in 2015. Big milestones from there are 10% by 2018, and 12.5% by 2021.
Looking at the big picture, that's a reasonable plan, for the most part. With solar and wind growing quickly in the United States, most utilities would be able to find a way to comply. However, it starts to look troubling when you look at the fine print. Included in these mandates are targets for more obscure fuel options such as swine waste. Utilities like Duke Energy (NYSE:DUK) and Dominion Resources' (NYSE:D) Virginia Electric Power are now asking regulators to give them more time on the animal excrement front.
To be fair, the requirements are relatively small. For example, swine waste is expected to represent just 0.2% of power by 2018. This, however, appears to be a problem because Duke and Dominion can't find anyone to build swine waste power plants. If you can't build it, you can't meet the mandate, and that means you run afoul of the rules.
A little help with that...
The utilities serving the state have tried to meet the mandate, explaining in a regulatory filing that they "individually and collectively, have made reasonable, good faith efforts to meet the requirements." That's included reaching out to developers, getting and evaluating development proposals, processing grid connection requests, and working flexibly with everyone involved to "provide developers reasonable opportunity for successful project execution."
But as a group, the utilities can't meet the mandates because turning swine waste to energy has "been challenging from the outset, due to the small numbers of existing market participants in the United States and the fact that few, if any, of those market participants have direct experience developing or operating those biomass technologies used to generate electric power from swine waste."
So, turning swine waste to energy isn't as easy as it sounds, even on a small scale, despite the fact that pigs will reliably "generate" waste for as long we include them in our diets. Worse, because of the difficulty, North Carolina's swine waste-to-energy dreams will likely lead to a "relatively high cost" because it is a new and untested technology at utility scale. While it probably sounded like a good idea to include swine waste in the renewable power mandates when they were written, it's clearly not working out.
Likely to get relief
The problem for publicly traded power companies like Duke and Dominion, of course, is that failing to meet regulated milestones can lead to a slap on the wrist, or worse, and negative publicity. That's true even if the missed mandate is obscure, involves untested technology, and doesn't end up providing much power to the grid on an overall basis.
This is why utilities are asking for regulatory relief, delaying the compliance requirement. Similar relief was granted in 2012 and 2013. However, that in and of itself is a statement about the potential of swine waste-powered energy plants. If three years of trying can't get this technology rolling, is it really a viable option right now?
That means delaying the inevitable could turn into an annual event -- and for just 0.2% of North Carolina's power. It hardly seems worth the expense the utilities are paying to push off D-Day and search out swine waste "experts" to build power plants.
In a world where every power source should be on the table, swine waste seems to be one that just needs more work before utilities are forced to use it. Although this little problem isn't going to derail giant utilities like Duke and Dominion, it does show how regulators with rose-colored glasses can create big headaches over small issues when it comes to renewable power. The devil really is in the details, and not every seemingly good idea will pan out.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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