A Few Weeds in Minnesota Decision to Allow Community Solar Gardens to Grow

Late last week, Minnesota regulators made a decision that may finally allow community solar projects to move forward (for Xcel Energy customers) in the Land of 10,000 Lakes. However, the Public Utilities Commission decision also highlighted the shortcomings of the legislature’s distributed solar policy adopted in 2013.

What was missing? Minnesota’s increasingly well-known “value of solar” formula was not selected, but rather an “applicable retail rate” that’s much more similar to traditional net metering.

The decision last week settled a months-long debate about how subscribers to community solar projects in Minnesota will be compensated, nearly four months after the Commission approved program rules in April. The crux of the matter was that the value of solar formula is mandatory, but utility adoption of it is not. Since Xcel Energy, the only mandatory host of community solar projects, has yet to adopt the value of solar, they successfully lobbied the Commission for an alternative.

That meant looking to traditional net metering, with customers of solar gardens receiving compensation for their share of power generation at a rate comparable to their own electricity rate. However, the law was also clear that the rate paid to subscribers had to be enough to make community solar work, and developers were clear that the “applicable retail rate” (and the value of solar rate of approximately 12¢ per kilowatt-hour) were both insufficient.

The Commission responded by requiring an additional payment from the utility to solar garden subscribers for solar renewable energy certificates, boosting the total compensation rate to about 15¢ per kilowatt-hour. While not every developer saw this as enough, it’s likely to result in at least a few community solar projects, especially as solar costs continue to fall.

But why, after a 2013 “solar session” at the Legislature, was the Public Utilities Commission forced to cobble together a compensation scheme for community solar gardens?

Basically, the Commission had to fulfill the legislative intent that community solar actually work, but saw that neither the value of solar nor the retail rate would be sufficient to cover the cost of financing a community solar project in Minnesota (yet, just wait a couple years). The legislative intent was clear, but the mechanism was left blank.

The original, not the adopted, legislation would have made the PUC’s work a lot easier.

The original bill would have set aside funds from a small fee on electricity bills to provide production-based incentives for individually-owned and community-based solar projects. The incentives would have served the same purpose as the solar renewable energy certificates adopted by the Commission yesterday, but would have been guaranteed over the long term and supported a wide array of distributed solar projects. Combined with the value of solar rate, the incentive pool would have ensured a robust solar market development and transparent separation between the cost of the energy and the publicly financed incentives.

But while there were a few leaders at the Capitol who saw the complete picture, ultimately the incentive fund concept died, and with it the simple method for making community solar and distributed solar easy to finance.

Pay attention to one other significant item in yesterday’s decision. Xcel Energy got what it wanted: the “applicable retail rate” rather than the value of solar for compensating community solar participants. This may be an indication that it has no intention to adopt the voluntary policy, despite its clear and powerful contribution to the pool of knowledge about the costs and benefits of solar energy nationally. Of course, Xcel is embroiled in a net metering dispute in Colorado where it is arguing that the value of solar is much lower than the 12¢ per kilowatt-hour, so perhaps that’s no surprise.

Last week’s Commission decision in Minnesota will finally get some community solar projects built, but it highlights the limitations of what was otherwise a terrific suite of solar policies passed in 2013.

Photo credit: Kevin Krejci