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The Making of a Midwestern Solar Energy Standard

| Written by John Farrell | 2 Comments | Updated on Mar 14, 2013 The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/making-midwestern-solar-energy-standard/
Cost of 10 Percent Solar for MN

Last night, the House Energy Policy Committee in the Minnesota state legislature voted 8-6 to approve a 4% by 2025 solar energy standard, with an innovative new approach to financing solar power.  It’s a powerful first step for what would be one of the more robust policies to support distributed, local solar power in the country.

The policy has three key pieces, outlined below.

 

 

 

A Solar Standard

Following in the steps of 16 other states, Minnesota sets a timeline for utilities to add solar to their electricity mix:

0.5% of electricity sales by 2016

2.0% of electricity sales by 2020

4.0% of electricity sales by 2025

And, an “objective” of 10% solar by 2030

Unlike other states, this solar energy standard is not a carve-out of the existing 25% by 2025 renewable energy standard, but is in addition to that standard.

Paying for Production: The Value of Solar (VOS) & Incentive

In addition to the standard, the legislation requires utilities to mimic the VOS calculation popularized by Austin Energy in Texas, essentially setting a market price for solar power (per kilowatt-hour) on the basis of its value to the grid. There are seven components address in the bill:

  1. Line loss savings from avoided electricity imports on the transmission and distribution grid
  2. Capacity savings from avoiding upgrades to transmission and distribution systems by providing local power
  3. Energy savings from reducing wholesale energy purchases
  4. Generation capacity savings from offsetting the need for new (peak) capacity
  5. Fuel price hedge value from a zero fuel cost energy source
  6. Environmental benefits
  7. Economic benefits from the growth of the state’s solar industry

For more context, this article talks more generally about the value of distributed generation to the grid and this study [pdf] gets right into the nitty gritty of Austin’s calculation.

The VOS price will be combined with a production-based incentive (PBI) to offer solar energy generators a price sufficient to provide a reasonable return on investment if their project produces energy as anticipated.  This “reference price” (VOS+PBI) will be differentiated by project size:

  • Residential
  • Small commercial (less than 25 kilowatt (kW))
  • Large commercial rooftop (25 kW to 2,000 kW)
  • Large commercial ground-mounted (25 kW to 2,000 kW)

As is implied above, no project larger than 2 MW may get the VOS or PBI, but rather would seek a power purchase contract via utility request for proposal or competitive bid process.

A Standard, Long-Term Contract

Utilities must develop and use a standard contract that offers producers the combined value of solar and PBI over 20 years.  This dramatically simplifies the financing and development of distributed solar power projects and will hopefully mean the solar energy standard will be met with a diversity of utility-scale and distributed solar.

Summary

If the bill can win over legislators in the House and Senate, it promises to deliver over 2,100 megawatts of solar power to Minnesota electricity users, create over 8,000 jobs and pump more than $5.8 billion in the state’s economy in the next decade.  It also promises to be very affordable, with a forecast blended cost per kilowatt-hour (for the incentive) of just 2.7¢ per kWh.

Blended Cost per kWh of Proposed Minnesota Solar Incentive

Should it pass, the solar energy standard will be a good fit for a state where the women are strong, the men good looking, and the energy policies are above average.

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About John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More

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  • FRITZ EBINGER

    And parity with other technologies? Small wind has never received a “value of small wind” in addition to PBI though it contains many same values in your above list. What about CHP and its efficiencies? Why a piece of legislation that favors one industry alone? This smacks of special interest legislation. Please explain.

  • Mike Kemper

    I believe there is language in the bill to apply similar value measures to both CHP and small wind. The provisions for state offices to identify the correct valuations was in the last version of the bill I read. There is certainly no intent by writers of the legislation to favor one clean energy technology over another, but the ‘valuation of solar’ metrics may be better developed from experiences in other U.S. electrical markets. The majority of electricity generation in MN is from coal, so the urgency to promote technologies to lower our CO2 footprint is logical. There has been a strong community of wind and solar enthusiasts, some professional but mostly hobbyist, in Minnesota for well over thirty years (MRES). As the bulk of CHP is from industry, and the location of small wind more challenging for most residential and commercial sites, solar seems to have a larger base of support and interest.

    CHP and small wind do need market and regulatory barriers removed to increase their adoption. I think we’re doing what we can within the legislative time available. I can assure you that none of these efforts would be going anywhere if any of the state’s house, senate, or Governor’s office were still under the control of ‘conservatives'; who last year rejected a Governor’s PUC nomination for being ‘too green’. That person now leads the Governor’s task force to clear bureaucratic and regulatory barriers to make our state’s energy profile and environment more self-sustainable.