By: Vincent Potter, Policy Analyst
This month, we look at two states with regulated electric utilities - Minnesota and North Carolina - and their decarbonization progress over the last decade and a half. Before the term "decarbonization" became commonplace in the electricity sector, many states created renewable energy and/or energy efficiency targets. Both of these states created renewable energy goals for their electricity sector in 2007, prompting utilities to alter their electricity generation and procurement strategies to meet statutory renewable energy goals.
Using data from the U.S. Energy Information Administration (EIA), we examine the landscape of the electric generation sector in both states. This post will compare major fuel types employed by utilities and independent power producers (IPPs), and the changes from 2007, when the laws were enacted, to 2021, the latest year with data available. We will also examine the policies that set decarbonization goals and the market opportunities, or lack thereof, in the states.
Both North Carolina and Minnesota employ the "traditional" utility business model in which large investor-owned utilities operate as natural monopolies within their borders, owning electric generation, transmission, and distribution. Minnesota utilities also participate in a Regional Transmission Organization, MISO, providing market access to generators outside of the state. The investor-owned utilities are regulated by the Utilities Commissions in their states.The North Carolina Utilities Commission does not regulate the state's cooperatives and municipal electric providers. Minnesota is similar, but the members of the Dakota Electric Cooperative voted to have its rates regulated by the Commission. Among other concerns, Commissions ensure that utilities earn a suitable rate of return on their capital investments and that entities comply with statutes.
In 2007, both North Carolina and Minnesota enacted renewable energy goals. Minnesota's Renewable Energy Standard set the eventual goal of at least 25% of electricity sold coming from renewable resources. The statute set interim goals for smaller quantities of renewable electric resources owned or procured by its utilities starting in 2010 for Xcel Energy, the state's largest utility, and in 2012 for other utilities. The interim goals for Xcel were 15% by 2010 and 30% by 2030, other utilities were required to meet 12% by 2012 and 25% by 2025. North Carolina adopted a target of 12.5% renewable electricity for its investor-owned utilities by 2021 and 10% for its municipal and cooperative electric utilities by 2018.
When their renewable targets were enacted, each of the states explored options for renewable energy certificate (REC) tracking and trading. A tracking system would be needed to enable utilities to document compliance for renewable generation created or purchased to meet the statutes. The North Carolina Utilities Commission conducted an RFP process to develop NC-RETS (NC Renewable Energy Tracking System) to document and verify renewable energy credit or energy efficiency credit production within the state. The Minnesota Public Utilities Commission approved use of M-RETS (Midwest Renewable Energy Tracking System) for REC tracking and mandated that its utilities participate in the system. Generators within either state would register with their relevant RETS to have their production verified and have the appropriate REC generated. Utilities would document the RECs from their generation and, if needed, procure additional RECs from independent power producers to meet their statutory obligations.
In 2013, the Minnesota legislature established a Solar Energy Standard. The Standard required public utilities to obtain at least 1.5% of their electric retail sales from solar energy resources by 2020, increasing to 10% by 2030. Furthermore, there was a carve-out for 10% of those amounts to be obtained from small solar facilities with capacity under 20 kW.
Decarbonization
As Legislators set decarbonization targets, Utilities Commissions often must develop and enforce final rules for reducing emissions from the electric sector. Compliance for electric utilities to meet decarbonization goals typically takes the form of retiring RECs representing a certain proportion of a utility's electric sales. One REC is created for each megawatt-hour (MWh) generated from renewable sources. For example, a renewable energy target of 15% for a utility that sold 1,000,000 MWh in a year would require the utility to document the generation or acquisition and subsequent retirement of 150,000 RECs. Some programs have technology-specific targets which require certain RECs to be used to meet goals.
Utilities have several methods of procuring the required RECs for compliance with renewable and carbon-free energy goals. Electric utilities can build or acquire generation capacity of the types needed, and they can also contract with independent power producers. Small merchant generation facilities can negotiate contracts with their host utilities for the energy, capacity, and credits produced. The Public Utilities Regulatory Policies Act of 1978 creates opportunities for merchant generators to receive standard contracts from utilities, subject to state preferences for implementation.
As stated previously, North Carolina is not within the territory of any transmission organization but Minnesota is within the territory of MISO, the Midcontinent Independent System Operator. MISO participation allows utilities access to electricity markets for the exchange of energy, capacity, and other services throughout the organization's territory.. MISO is a real-time energy market with high voltage transmission covering 15 U.S. states and one Canadian province.
Electric Generation Resources Over Time
At the outset of these new decarbonization goals in 2007, the electric sector sales of North Carolina and Minnesota differed, but proportions of the generation types were similar. In 2007, North Carolina's electric industry total was 130,115,301 thousand MWh, 59% of that was met with utility-owned coal generation, 31% nuclear, and 5% from independent power producers (IPPs). That same year, Minnesota registered 54,477,646 thousand MWh, made up of 57% utility-owned coal, 24% nuclear, and 12% from IPPs. In 2007, North Carolina had no non-utility solar reported and less than 1% of its power needs were met by utility-owned solar PV. Minnesota had no solar production recorded that year, but 5% of its power came from independent wind producers.
By 2010, the first year that Xcel Energy in Minnesota would have to meet an interim target, the generation resources in both states had shifted slightly. Both states had decreases in their utility-owned coal generation and added slightly to utility-owned natural gas and broadened procurement from IPPs slightly as well. Minnesota reduced utility-owned coal's market share to 50% of total generation, a slight increase in nuclear energy to 25% of total, and an increase from 5% to 8% of all electricity being generated by independent wind producers. North Carolina's utility-owned coal generation decreased from 59% to 53% and saw slight increases in utility-owned natural gas and hydroelectric generation. Utility-owned wind increased in both states, with Minnesota utilities developing enough wind to generate ten times more in 2010 than 2007, up to 1% of its total electricity.
North Carolina and Minnesota both had coal and independent natural gas-fueled power generators in their regions. Between 2007 and 2010, electricity from independent coal generation decreased very slightly in both states. Electricity from natural gas independent producers decreased slightly in Minnesota and increased in North Carolina.
In 2015, Minnesota's utilities had reduced their coal generation to 44% of the total for the electric sector, while utility-owned natural gas generation increased to a share of 12% (from 6% in 2010) and utility-owned wind increased from 1% to 4% over that same period. Nuclear power saw a decrease in Minnesota from 25% to 22%. North Carolina saw an increase in electricity from nuclear power to just shy of a third of the electric sector (32.4%). By 2015, North Carolina had reduced coal's total electric contribution from 55% (53% utility, 2% IPP) to 30% and utility-owned natural gas generation increased to 25% of total electric sales, up from 5% just five years earlier.
Independent power production fueled by coal fell in both states and North Carolina's gas fired IPPs saw a minor increase by 2015. Independently-owned Solar PV powered 1% of North Carolina's electricity sales. Minnesota registered small quantities of electricity generated from independent Solar PV producers. Over two thirds of IPP output in Minnesota, and 14% of the electric sector overall, came from independent wind producers.
Two years after the adoption of the solar energy standard, Minnesota had no reported utility-owned solar PV generation, but utilities in the state increased their procurements from solar IPPs from none in 2010 to nearly 2.8 million MWh in 2015.
By 2021, the most recent year with full information available from the U.S. EIA, Minnesota's total electric sales had grown to 59,195,769,000 MWh (from 54 billion MWh in 2007) and North Carolina's electric sales had remained relatively stable at around 130 billion MWh. In 2021, utility-owned coal had fallen to 29% of Minnesota's overall generation, from 44% in 2015 and 57% in 2007. North Carolina's utilities generated even less from coal; just 16% of total generation. Utilities in both states still generated large proportions of their power from nuclear energy, 26% of all sales in Minnesota and 33% of those in North Carolina. Independent wind production continued to increase in Minnesota, generation from those facilities represented 16% of all generation in the state. Utilities in Minnesota generated small amounts of solar energy, but procured enough energy to represent 3% of all generation. In North Carolina, utility-owned solar made up 1% of the state's electric total, and 7% came from independent solar generation.
Conclusions
Throughout the period of 2007 to 2021, the electric sector generation resources of both North Carolina and Minnesota changed greatly. Both states enacted renewable energy goals in 2007 and greatly reduced the share of coal-powered electricity within their borders over the following years. Starting from around 60% of all electricity produced being coal powered, Minnesota utilities generated 29% of the state's power from coal and North Carolina saw a greater reduction with coal falling to 16% of all electric production by 2021. Over the same period, both states had slight increases in their utilities' nuclear generation; up to 26% in Minnesota and 33% in North Carolina.
North Carolina utilities started from a baseline of essentially zero renewable generation in 2007. Over the following 14 years, utilities in the state generated 1% of their energy from solar PV and procured another 7% from IPPs. Minnesota utilities obtained 5% of the state's total electric needs from independent wind power producers when its renewables goals were adopted. That increased to 23% wind power (7% utility-owned, 16% IPP) by 2021 and solar PV had a 3% share of the total electric sector.
Over this timeframe, both states increased the share of power generated from IPPs. North Carolina started with 95% of its electricity being produced by utilities. Minnesota was close behind with a 88% electric utility generation share. Starting from 12% in 2007, Minnesota electric utilities increased their purchases from IPPs and continued increasing until 2012 when procurements from IPPs made up almost 20% of all electricity in the state. From 2016 to 2021 Minnesota utilities increased procurements further from 20% to 28.2%. North Carolina utilities did not buy from IPPs in the same quantities; starting at 5% in 2007, IPP procurements decreased and increased modestly until 2015 when an upward trend began, ending with 16.8% of all electric power being generated by IPPs.
Participation in the MISO market almost certainly worked to the advantage of Minnesota's utilities, as they could purchase the needed resources from the entire RTO's service territory. Even in 2001, when MISO was first approved by the Federal Energy Regulatory Commission, Minnesota reported 5% of its electric power coming from independent wind generators. North Carolina does not reside within an RTO territory, but the state had a relatively generous PURPA implementation up until 2017, which increased the availability of solar energy from independent producers for utilities in the state to meet their statutory obligations.
100% Clean Energy or Net-Zero Electricity Sector Emissions Targets
As reported in our 50 States of Power Decarbonization report, both states adopted more ambitious targets for carbon reductions in the last year; they join a group of 21 states plus the District of Columbia with 100% clean energy goals. In October 2022, North Carolina lawmakers adopted a Clean Energy Plan, requiring the electricity sector to reduce its emissions to 70% below 2005 levels by 2030 and achieve carbon neutrality by 2050. Minnesota adopted a Clean Energy Standard in February 2023 which requires electric utilities to achieve 80% clean energy by 2030 (60% for cooperatives and municipal power authorities), all utilities to reach 90% clean energy by 2035 and 100% by 2040. These rules focus on "clean" or "carbon-neutral" power rather than explicit "renewables," leaving room for nuclear energy, fossil energy with carbon capture, hydrogen, and biomass to make up the generation mix in each state.
Other than nuclear and renewables, Minnesota and North Carolina both had increases in natural gas use for electric production from 2007 to 2021. Minnesota's electric generation was 7% natural gas fired in 2007 and 23% natural gas in 2021. North Carolina natural gas electric production increased from 4% to 37% over that period. Utilities in both states will need to develop and contract with IPPs for even more low carbon energy to meet their state's ambitious targets. Minnesota and North Carolina each had an increase in the market share of IPPs to meet their former targets. Incentives from the Inflation Reduction Act may make clean energy more feasible for owners other than the investor-owned utilities in these states, potentially allowing the trend of increasing the IPPs’ share of electricity production to continue in the future.
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