Energy Freedom Act: The Need to Know
By R. Taylor Speer
In May 2019, the General Assembly voted unanimously to encourage solar power in South Carolina through passage of the Energy Freedom Act. The law contained several important features, including the extension of net-metering, which requires Duke Energy and Dominion Energy to pay homeowners and businesses for excess power generated from rooftop solar panels.The law had equally lasting effects on utility-scale solar in the state, which is represented by the large solar plants popping up in South Carolina - ones typically larger than the Furman plant seen from Poinsett Highway.
The law required the South Carolina Public Service Commission to determine the price that Duke and Dominion have to pay under federal law for the power that is generated from solar plants when they pump electrons onto the grid during the day. The commission recently ruled on these issues in a way that would have likely killed large-scale solar in South Carolina, particularly in Dominion territory, but the solar trade and lawmakers fought back and appear to have won the day.
Most readers do not have rooftop solar and just want the lights to come on without thinking about it, but the commission's rulings impact even the most average home or business. Consistent with federal law, the act required the commission to set rates for utility-scale solar equal to Duke and Dominion's costs, as if they had generated the power themselves. Federal law calls this rate the "avoided cost" because it represents expenses avoided by Duke and Dominion when they purchase power from a solar plant - an expensive asset they did not build and do not maintain.
The calculation is important to consumers because state law permits Duke and Dominion to add most of these costs onto the electricity bills paid by businesses and homeowners. In that way, if the commission set rates too high, ratepayers subsidize solar in South Carolina, likely without even knowing it. This "overpayment risk" is particularly real because rock-bottom natural gas prices allow Duke and Dominion to generate power super cheap and potentially for less than developers can build solar plants. On the other hand, if the commission set rates too low, solar plants are not profitable to build and the industry does not survive - a result prohibited by the Energy Freedom Act. The commission was thus charged with striking a balance between ratepayers' wallets and solar jobs, all while complying with state and federal law requiring rates that accurately reflect avoided costs.
The commission ruled in December 2019 and set some of the lowest rates in the entire country for renewable power. The rates approved for Dominion were particularly abysmal and were nearly certain to mean no new solar plants would be built in Dominion's newly acquired South Carolina territory. One organization called the rulings a "doomsday scenario" for clean energy in the state. The solar industry, however - ever accustomed to being the underdog in a regulated monopoly - fought back and has mostly won (for now anyway).
Less than thirty days after the December 2019 orders, and in response to a massive public relations campaign criticizing the rulings, the commission increased the rates for utility-scale solar in South Carolina and may have saved the industry from collapse. The commission further agreed to rehear other matters, including the 10-year term it approved for agreements between the utilities and solar developers for the purchase of power. Longer contract periods go hand in hand with rates for solar developers to get the critical financing they need to build new solar plants. In a recent March 2020 order, the commission asked Dominion and the solar trade to return to Columbia to present more evidence on the issue of an appropriate contract length, but a final hearing has not been held.
"The Energy Freedom Act was intended to increase investment in solar resources in South Carolina. The final rulings in these avoided cost dockets still make that challenging, but they represent a substantial improvement over the original filings from Duke and Dominion," explains Hamilton Davis, director of regulatory affairs for Southern Current - one of South Carolina's premier utility-scale solar builders. "We are optimistic that the commission will utilize its authority under the Energy Freedom Act to approve longer contracts for the utilities' purchase of renewable power in the state."
R. Taylor Speer is a shareholder with Turner Padget in the firm's Greenville, S.C., office where he focuses his practice on business and employment litigation and immigration. He has extensive trial experience in matters common to the formation, growth and dissolution of small to medium-sized businesses. He is also active in building a clean-energy economy in South Carolina and has planned public development and procurement of community and municipal solar installations in the state. He may be reached at (864) 552-4618 or by email at firstname.lastname@example.org.