Unlocking Duke Energy's Avoided Costs: What You Need to Know

Understanding how electricity costs are calculated can be complex, especially when dealing with terms like "avoided costs." For customers and energy producers interacting with Duke Energy, knowing these rates is crucial. Avoided costs represent the expenses Duke Energy *avoids* incurring when it buys power from independent sources, like solar farms or energy efficiency programs, instead of generating that power itself or purchasing it elsewhere.

Key Insights into Duke Energy's Avoided Costs

Avoided costs are regulatory requirements: Utilities like Duke Energy are mandated by the Public Utility Regulatory Policies Act (PURPA) to purchase power from Qualifying Facilities (QFs) at rates reflecting their avoided generation and capacity costs.
Rates vary significantly: Avoided cost rates differ between states (North Carolina vs. South Carolina), time of day (peak vs. off-peak), and season (summer vs. winter), reflecting the dynamic costs of electricity generation.
Rates are periodically updated: Regulatory bodies like the North Carolina Utilities Commission and the South Carolina Public Service Commission approve Duke Energy's avoided cost rates, which are typically updated biannually or annually based on fuel prices, demand forecasts, and infrastructure costs.

Defining Avoided Costs: The Basics

What Does "Avoided Cost" Mean for Duke Energy?

Avoided costs are the incremental expenses a utility sidesteps by sourcing power from external Qualifying Facilities (QFs) or through demand-side management, rather than relying on its own generation or market purchases. These costs are crucial for setting fair compensation rates for independent power producers, particularly those utilizing renewable energy sources like solar.

Regulatory Framework: PURPA and State Commissions

The concept is primarily driven by the Public Utility Regulatory Policies Act (PURPA) of 1978. PURPA requires utilities to interconnect with and purchase power from QFs at a rate up to the utility's full avoided cost. In Duke Energy's service territories, the North Carolina Utilities Commission (NCUC) and the Public Service Commission of South Carolina (PSCSC) oversee the determination and approval of these rates, ensuring they reflect the actual costs Duke Energy avoids.

Components of Avoided Costs

Avoided costs typically consist of two main parts:

Avoided Energy Costs: These represent the variable costs saved, primarily fuel expenses and some operational costs, by not having to run their own power plants or buy energy from the wholesale market to meet demand. These costs fluctuate with fuel prices (like natural gas) and the time of day/year.
Avoided Capacity Costs: These reflect the savings from deferring or avoiding investments in new generation capacity (power plants) or long-term power purchase agreements needed to meet peak electricity demand. These costs are generally more stable but have been increasing due to grid modernization needs and the retirement of older plants.

Duke Energy Asheville Combined Cycle Station

Duke Energy's Asheville Combined Cycle Station, an example of modern generation infrastructure whose costs influence avoided cost calculations.

Duke Energy's Specific Avoided Cost Rates

Rates in North Carolina vs. South Carolina

Avoided cost rates are not uniform across Duke Energy's service areas. They are calculated and approved separately for Duke Energy Carolinas (DEC) and Duke Energy Progress (DEP) in both North Carolina and South Carolina. Here's a breakdown based on recent filings and reports:

North Carolina

In North Carolina, avoided cost rates are established through proceedings before the NCUC and updated biannually by the NC Public Staff. These rates incorporate both energy and capacity components.

Recent Rates: While specific, real-time rates require checking the latest NC Public Staff filings, reports indicate recent avoided energy cost components for solar QFs were around 3.4 cents per kWh (¢/kWh).
Structure: Rates vary based on time-of-use (on-peak, off-peak) and season (summer, winter). On-peak summer rates are typically higher.
Contract Options: Duke Energy offers various contract lengths for QFs, including hourly variable rates, fixed rates for 2 or 5 years, and a proposed 10-year avoided cost bill credit option designed to provide long-term price stability, especially for customers aiming for 100% renewable energy.

South Carolina

In South Carolina, the PSCSC approves Duke Energy's avoided cost rates. These rates have historically been among the lowest in the nation.

Recent Rates: Filings with the PSCSC have indicated avoided cost rates for solar power purchase agreements around 2.143 ¢/kWh. This rate primarily reflects the avoided energy cost component.
Structure: Similar to North Carolina, rates are adjusted for on-peak and off-peak periods.
Regulatory Filings: Detailed avoided cost schedules are available through the South Carolina Public Service Commission's Docket Management System (DMS), often updated annually or biannually.

Summary Table: Duke Energy Avoided Cost Comparison

This table summarizes the key features and approximate recent rates for Duke Energy's avoided costs in its Carolinas territories. Note that these are illustrative values and the actual rates are subject to frequent updates based on regulatory filings.

Feature	North Carolina (DEC & DEP)	South Carolina (DEC & DEP)
Regulatory Body	North Carolina Utilities Commission (NCUC) / NC Public Staff	Public Service Commission of South Carolina (PSCSC)
Rate Update Frequency	Biannually	Annually / Biannually
Approx. Recent Solar Avoided Energy Rate	~ 3.4 ¢/kWh	~ 2.143 ¢/kWh
Rate Components Included	Energy & Capacity	Primarily Energy (Capacity component may vary)
Key Contract Options	Hourly, 2-year, 5-year, Proposed 10-year Bill Credit	Standard PURPA contracts, rates vary by term
Rate Variation	Seasonal (Summer/Winter), Time-of-Day (Peak/Off-Peak)	Seasonal (Summer/Winter), Time-of-Day (Peak/Off-Peak)

Transmission infrastructure costs are factored into the capacity component of avoided costs.

Visualizing Avoided Cost Components

Relative Importance of Cost Factors

Avoided costs are influenced by various factors. The chart below provides a conceptual representation of the relative weight of different components (Energy vs. Capacity) and influencing factors (Fuel Prices, Demand, Season) on the final avoided cost rate in different scenarios for Duke Energy. Note that this is an illustrative model based on general principles and reported trends, not precise real-time data.

Factors Shaping Avoided Costs

A Mindmap View

The calculation of avoided costs is complex, involving numerous inputs and considerations. This mindmap illustrates the key elements that determine Duke Energy's avoided cost rates, providing a visual overview of the interconnected factors.

mindmap root["Duke Energy Avoided Costs"] id1["Regulatory Framework"] id1a["PURPA (Federal Law)"] id1b["State Commissions"] id1b1["NCUC (North Carolina)"] id1b2["PSCSC (South Carolina)"] id1c["Biannual/Annual Rate Updates"] id2["Cost Components"] id2a["Avoided Energy Cost"] id2a1["Fuel Prices (e.g., Natural Gas)"] id2a2["Variable O&M Costs"] id2a3["Wholesale Market Prices"] id2b["Avoided Capacity Cost"] id2b1["Deferred Generation Investment"] id2b2["Peak Demand Management"] id2b3["Transmission & Distribution Savings (Minor)"] id3["Influencing Factors"] id3a["Time Variation"] id3a1["Seasonal (Summer vs. Winter)"] id3a2["Time-of-Day (Peak vs. Off-Peak)"] id3b["Market Conditions"] id3b1["Fuel Cost Volatility"] id3b2["Demand Forecasts"] id3c["Generation Mix"] id3c1["Retirement of Old Plants"] id3c2["Integration of Renewables"] id3c3["New Plant Construction (Gas, Solar)"] id3d["QFs & DERs"] id3d1["Volume of QF Power Purchases"] id3d2["Impact of Distributed Energy Resources"] id4["Contract Options for QFs"] id4a["Hourly / Variable Rates"] id4b["Fixed Term Rates (2, 5 years)"] id4c["Proposed 10-Year Bill Credit (NC)"]

Further Context: Related Costs and Rate Changes

While avoided costs specifically relate to power purchased from QFs, they exist within the broader context of Duke Energy's overall cost structure and retail rates. Recent developments illustrate this:

Rate Decreases due to Fuel Costs: In early 2025, Duke Energy Carolinas customers in North Carolina saw rate decreases (reported as 3.6% to 6.2%) primarily due to falling fuel prices, highlighting the link between generation fuel costs (a component of avoided energy costs) and customer bills.
Rate Increases for Investments: Conversely, Duke Energy has sought rate increases in South Carolina (around 14.5%) to cover investments in new infrastructure, including solar farms and asset purchases. Such investments impact the utility's overall cost basis, which indirectly influences future avoided capacity cost calculations.
Infrastructure Projects: Major projects, like the planned $3.33 billion replacement of coal units with natural gas at the Cayuga station or costs associated with coal ash cleanup, represent significant expenditures that are ultimately factored into the utility's cost recovery mechanisms, potentially affecting both retail rates and avoided cost inputs.

Construction of Harris Nuclear Plant Cooling Tower

Large infrastructure projects like the Harris Nuclear Plant influence Duke Energy's long-term capacity costs.

Understanding Avoided Costs in Practice

Video Explanation

For a deeper dive into how avoided costs are calculated, particularly in the context of solar energy projects which are common QFs, the following video provides valuable insights. It discusses the calculation methodology for Levelized Cost of Energy (LCOE) and avoided costs, relevant concepts for understanding the economics of renewable energy integration.

Frequently Asked Questions (FAQ)

What is the main difference between retail electricity rates and avoided cost rates?

Retail electricity rates are what end-use customers (residential, commercial, industrial) pay Duke Energy for the full service of electricity delivered to their premises. These rates include generation costs, transmission and distribution costs, administrative overhead, and a regulated profit margin. Avoided cost rates, on the other hand, represent only the *incremental* costs Duke Energy avoids (primarily generation fuel and some capacity costs) by purchasing power from a Qualifying Facility (QF) instead of producing it themselves. Avoided costs are typically much lower than retail rates because they exclude transmission, distribution, and other fixed utility costs.

Why are avoided costs different in North Carolina and South Carolina?

Avoided costs differ between states primarily due to different regulatory environments, generation mixes, fuel costs, and demand patterns specific to each state's jurisdiction. The North Carolina Utilities Commission (NCUC) and the Public Service Commission of South Carolina (PSCSC) independently review and approve Duke Energy's avoided cost filings based on methodologies and inputs relevant to their respective states. South Carolina's rates have historically been reported as lower, potentially due to different calculation methods or market factors considered by the PSCSC.

How often do Duke Energy's avoided cost rates change?

Duke Energy's avoided cost rates are typically updated on a regular schedule determined by state regulators. In North Carolina, the rates are generally updated biannually (twice per year) through filings reviewed by the NC Public Staff and approved by the NCUC. In South Carolina, updates might occur annually or biannually following filings with the PSCSC. These updates ensure the rates reflect current and projected fuel prices, demand forecasts, and capacity needs.

Where can I find the most current avoided cost rates for Duke Energy?

The most accurate and current avoided cost rates are published by the respective state regulatory bodies. For North Carolina, check the NC Public Staff website's Economic Research Division page for avoided cost rate tables. For South Carolina, search the Public Service Commission's Docket Management System (DMS) for recent Duke Energy avoided cost filings (often under dockets related to PURPA or QF tariffs). Duke Energy may also provide information on its website, particularly regarding QF contract options.