The integrated resource plans filed with utility regulators by Duke Energy Corp.'s subsidiaries in the Carolinas on Sept. 1 illustrate the challenges of reducing carbon emissions in one of the nation's most closed energy markets, observers said.

One of the largest carbon polluters in the power sector, Duke Energy has come under intense scrutiny from environmental groups across the U.S. In March, a report produced for the nonprofit Majority Action said Duke Energy would miss decarbonization targets with current investments. The nonprofit Environmental Working Group formed the Duke Energy Accountability Coalition in May, which released a scathing report Aug. 31 that said Duke Energy wasted nearly $12 billion in "failed" natural gas and nuclear projects.

But the Charlotte, N.C.-headquartered company is aiming for net-zero emissions by midcentury, a move welcomed by the environmental community. Its subsidiaries, Duke Energy Progress LLC and Duke Energy Carolinas LLC, filed 15-year resource plans showing a range of options for reducing carbon output — including no new gas plants — that rely on technological advancements in battery storage and small modular nuclear reactors.

The six scenarios in the integrated resource plans call for varying additions of renewable capacity. A "base" plan with no carbon policy would have 8,650 MW of solar by 2035 in the combined portfolio of the two utilities. A scenario in which no new gas generation is added would see 16,400 MW of solar, 3,150 MW of onshore wind, 2,650 MW of offshore wind and 7,400 MW of storage by 2035.

But the plans, which some say overestimate the costs of transitioning to renewable energy, show the difficulty in moving away from a fossil fuel-fired fleet in the Southeast, which lacks a regional transmission authority or wholesale electricity market.

San Francisco-based research firm Energy Innovation: Policy and Technology LLC released a report Aug. 25 arguing that the lack of a regional transmission organization in the Southeast causes it to be "devoid of market competition," making broad adoption of renewable power more difficult.

"Studies show that regional sharing of resources, whether through an [energy imbalance market] or RTO, can help smooth out renewable generation variability at lower costs for participating utilities compared to a utility acting largely on its own," Jennifer Chen, former senior counsel for federal energy policy for Duke University's Nicholas Institute for Environmental Policy Solutions and the founder of energy policy firm ReGrid, said in an email.

A competitive Southeastern regional transmission organization, if established, would create economic savings of $384 billion by 2040, the Energy Innovation report said.

Duke Energy is in talks with Southern Co. on forming a limited regional energy exchange market.

But despite the restrictions of the Southeast electricity market, Duke Energy can do more to incorporate renewable energy, according to Taylor McNair, a co-author of the Energy Innovation report who is the program manager at GridLab.

"Duke is worried about investing, today, in cheap wind, solar, and particularly storage, which it wrongly views as a nascent undeveloped technology," McNair said. "The utility has a clear challenge in meeting a winter peak [load]. However, as our recently released SE RTO Report indicates, utilities can meet that peak with a combination of clean resources and demand-side measures."

Mark Oliver, managing director of integrated system planning for Duke Energy, defended the resource plans. Less natural gas on its system locks in coal resources for longer, he said. Oliver acknowledged that there will be much technology innovation in the next decade; battery costs may decline by 50%. But being an early adopter of technology may mean customers end up paying more for it, he contended. Thus, incorporating new technologies on the back end of the resource planning period will keep bills lower for customers.

"We all have the same goal in terms of accelerating carbon reductions to the extent that we can," Oliver said. "Reliability is important and affordability is important. But we can only do it at a pace that [customers] can afford ... and that's going to be a limiting factor for the regulators."

Maggie Shober, director of utility reform at the Southern Alliance for Clean Energy, pointed to another structural issue in the market that could discourage monopoly utilities from adding renewable energy capacity: lack of open procurement.

North Carolina law requires utilities to procure a certain amount of renewable energy, Shober said. But beyond that, utilities such as Duke Energy can issue a call for specific resources, such as gas, instead of letting the market sort out least-cost resources in all-source procurements.

All-source procurements usually produce "lower-carbon results even though you're not valuing carbon at any way in the process necessarily," Shober said.

Others questioned Duke's cost projections. Under a scenario laid out by Duke that contemplates no new natural gas plants, a household using 1,000 KWh would see a $45 hike in monthly bills by 2035. The base-case scenario, under which 3,050 MW of coal would remain online by 2035, would add $7.

Tyler Fitch, regulatory manager for the Southeast at Vote Solar, said Duke's plans "create this false dichotomy between affordability and decarbonization."

Fitch said the advocacy group will push for more transparency in how Duke arrived at its costs during regulatory proceedings.

"I think it's very possible that assumptions about cost curves and transmission and distribution investments are not in line with what advocates are seeing on the ground," Fitch said.