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Renewing the Debate Over Renewables

4.25.2011

Following passage of Senate Bill 3 (SB 3) in 2007, there has been continuous discussion surrounding what constitutes a renewable resource for compliance purposes. On its face, a renewable energy resource seems fairly easy to define and characterize. When one thinks of renewable energy, one typically thinks of solar, wind or hydroelectric power. N.C. Gen. Stat. § 62 133.8(a)(8) defines a renewable energy resource as a "solar electric, solar thermal, wind, hydropower, geothermal, or ocean current or wave energy resource; a biomass resource, including agricultural waste, animal waste, wood waste, spent pulping liquors, combustible residues, combustible liquids, combustible gases, energy crops, or landfill methane; waste heat derived from a renewable energy resource and used to produce electricity or useful, measurable thermal energy at a retail electric customer's facility; or hydrogen derived from a renewable energy resource." The definition does not include peat, fossil fuels or nuclear energy resources. Thus, not only does the definition include traditional modes of renewable energy such as wind, solar and hydropower, it also includes concepts such as organic waste and derived gases.

The North Carolina Utilities Commission (NCUC) is responsible for promulgating and enforcing the rules to implement the legislative directive of SB 3. As the agency responsible for the law's implementation, NCUC has the authority to interpret the provisions of SB 3. NCUC has been repeatedly called on to evaluate the attributes of various fuel sources and determine whether or not the fuel source should be classified as a renewable energy resource. Many of these proceedings have been in the form of petitions for declaratory rulings or applications for registration statements for new renewable energy facilities with the debate centering on what constitutes a biomass resource. Several of the notable NCUC decisions on this subject are discussed below.

Tire Derived Fuel

In October 2009, NCUC was asked to consider whether tire-derived fuel (TDF) constituted a renewable energy resource. EPCOR USA, the petitioner in the case, argued that TDF should be classified as a renewable energy resource because TDF is a combustible residue that falls under the definition of biomass. The petitioner also argued that environmental merit warranted such classification because its high Btu value would help displace the use of coal and other fossil fuels in electricity generation. It further argued that co-firing TDF allowed other low-Btu renewable energy resources to be used without sacrificing electric generation.

NCUC concluded that biomass must consist of "biogenic" or "organic" matter, which NCUC noted is typically derived from living organisms. While the petitioner argued that the words "biogenic" and "organic" were not included in SB 3, NCUC determined that those terms are inherent in the use of the word "biomass." The petitioners introduced evidence that approximately 25% of the raw materials used in the manufacture of tires is from natural rubber, which is an organic material. Based on such evidence, NCUC concluded that the petitioner could earn renewable energy credits (RECs) for the percentage of TDFs that can be documented to be derived from natural rubber.

Wood Waste

In NCUC Docket E-7, Sub 939, NCUC was asked to rule on the use of a more contentious potential renewable energy resource. Duke Energy argued that primary harvest wood products such as wood chips from trees constituted biomass resources and thus qualified as a renewable energy resource. The Environmental Defense Fund (EDF) opposed Duke's position on the grounds that the language of the statute was plain and unambiguous with respect to "wood waste" and did not include whole tree biomass. NCUC rejected the argument and found that the Legislature did not intend to limit the scope of biomass resources to those listed in the statute, citing the use of the word "including" as evidence. NCUC determined that all primary harvest wood products qualify as renewable energy resources.

EDF has appealed NCUC's decision to the North Carolina Court of Appeals on the grounds that NCUC exceeded its power and jurisdiction and that the decision was erroneous as a matter of law. EDF contends that the plain language of the statute does not support NCUC's conclusion that whole trees constitute a "biomass resource" and a "renewable energy resource." The North Carolina Sustainable Energy Association has joined the appeal. The appeal remains pending before the Court of Appeals. Senate Bill 279, currently pending in the General Assembly, would resolve this issue by substituting the word "wood" for "wood waste."

Refuse Derived Fuel

In Docket No. SP-100, Sub 23, a petitioner sought a declaratory ruling that refuse-derived fuel (RDF) and RDF synthesis gas are renewable energy resources. RDF is derived through the segregation and processing of municipal solid waste to remove all non-combustible materials. The remaining fuel portion is gasified and delivered to an electric generating facility. NCUC determined that RDF is a renewable energy resource to the extent that it is verified to be biomass through testing. NCUC went on to state that the same percentage of synthesis gas produced from the RDF would qualify as a renewable energy resource.

Yard Waste

More recently, NCUC was asked to determine whether yard waste, such as leaves, brush, grass clippings and tree limbs, are renewable energy resources. The Blue Ridge Environmental Defense League (BREDL) opposed the inclusion of yard waste in the definition on the grounds that a renewable source of energy must be able to "renew, recharge or regenerate itself." BREDL also contended that yard waste should be composted or otherwise recycled and does not belong in a landfill, thus rendering it inappropriate for use as a renewable energy fuel source.

On April 18, 2011, NCUC issued an order concluding that the percentage of RDF determined by testing to be biomass and the percentage of syngas attributed to the biomass resource were renewable energy resources.

Continuing the Debate

Much of the debate surrounding what should and should not be deemed a renewable energy resource centers on environmental issues that are outside the parameters of SB 3. Proponents of an over-inclusive definition of "renewable energy resource" rely on the language contained in § 62-2(a)(10)(d) stating that the policy of North Carolina includes improving air quality and diversification of energy resources. Numerous petitioners before NCUC have argued that a fuel should be deemed a renewable energy resource because the use of such fuel will displace the use of coal and other fossil fuels in electricity generation. For example, EPCOR argued that TDF had a higher Btu rating than coal and could be co-fired with lower-energy fuels, thus reducing the use of coal. EPCOR also argued that TDF reduced traditional air pollutants as compared to coal and other fuel sources, thus promoting another policy objective of the REPS.

While these arguments may have independent merit with respect to promoting diversified fuel sources, greater energy security and improved air quality, NCUC is bound by the parameters established by the General Assembly in determining the fuel sources that qualify for REC generation. NCUC must look to § 62-133.8(a)(8) when classifying a fuel as a renewable energy resource without being swayed by policy arguments that disregard the Legislature's intent. The Legislature did not choose to classify every fuel source that reduces coal usage or promotes air quality as a renewable energy resource. Instead, SB 3 defined the materials that qualified for RECs as part of the renewable energy portfolio standard, which was designed to advance the policy objectives outlined. Thus, renewable energy resources must be developed and qualified within that framework until the Legislature provides otherwise.

Similar environmental policy arguments have been used by groups opposing the classification of certain fuels as renewable energy resources. For example, BREDL opposed classifying yard waste as a renewable energy resource on the grounds that yard waste is not typically accepted at municipal landfills and that it is better suited for composting. While yard waste may be more effectively utilized as compost, there is no requirement that NCUC consider alternative uses for the material before approving its use as a renewable energy resource. Additionally, many advocates that oppose using whole trees as a renewable fuel source cite environmental concerns as grounds for excluding whole trees from the definition of renewable energy resource. However, these arguments extend beyond what the legislature intended to include in the definition. To the extent that environmental concerns suggest the need for policy revisions, such issues should be addressed through the legislative process and amendments to the REPS legislation.

Looking Ahead

The passage of SB 3 has spurred innovative thinking with respect to the creation of renewable energy fuel sources. One of the predominant trends is to identify waste products that can be utilized as a renewable energy resource. The focus on waste products is likely due to several reasons. First, waste is a costly by-product of commercial, industrial and agricultural processes. By treating waste as a renewable energy source, this liability becomes an asset. Instead of incurring expense to dispose of the waste, the commercial, industrial or agricultural processor can generate income by selling the new renewable energy source to small power producers and renewable generators. Second, the inclusion of waste makes renewable energy sources more plentiful and diversified, thereby proliferating potential renewable energy power producers and the availability of renewable energy on the grid. Third, the increasing ability to use waste materials as a fuel source reduces the burden on landfills and other disposal sites.

However, policy makers must resist falling into the trap where all waste is deemed a renewable energy resource. The mere fact that waste perpetually exists does not make that waste a renewable energy resource. As NCUC has consistently noted, waste products are only deemed a renewable energy resource to the extent that they constitute biomass as defined by the Legislature. Non-biomass waste products cannot be considered or used as a renewable energy resource under SB 3 unless they fall under another component of the definition.

This article was originally co-written by Christopher J. Ayers, who was appointed by North Carolina Governor Pat McCrory to serve as the Executive Director of the Public Staff of the N.C. Utilities Commission.

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