10 Years of Minnesota’s Community Solar Program — Episode 202 of Local Energy Rules

Pouya Najmaie:

We wouldn’t necessarily push to switch over to this new VOS and give us that rate instead of what we would like, which applicable retail rate. But we’ll take this average retail rate, but we like the VOS. We think it should be calculated. We want it around because it’s a good benchmark. It says, Hey, this is what the solar is actually worth. If you’re only getting paid less than that with the average retail rate or applicable retail rate, with the new VOS, then you’re actually saving money and it’s telling you what actually this program, the CSG program in this case is giving for savings to the rate payer, not what it is subsidizing but being subsidized by for the rate payer. So we want VOS around, but we’d rather stick to what you have to pay for your utility bill.

John Farrell:

What makes Community Solar succeed at spreading the financial benefits of the clean energy transition to everyone? Minnesota’s community solar program has been the nation’s largest for many years with half its capacity serving public or public interest institutions from local governments to hospitals. It serves 25,000 residential subscribers, many who are low income. It’s also under concerted attack by the state’s largest investor on utility, whose shareholders miss out on potential profits every time a community solar project takes the place of a utility owned solar array. Pouya Najmaie, policy and regulatory director with Cooperative Energy Futures, a cooperative solar developer whose customers are also member owners, joined me in January, 2024 to talk about the successes and the struggles to make community solar work for Minnesota. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Welcome to Local Energy Rules.

Pouya Najmaie:

Thanks John. Pleasure being here.

John Farrell:

So before we get into the weeds of Minnesota’s community solar policy, which I definitely want to do, I’d love to just ask you how did you get into community solar work? How did you end up at Cooperative Energy Futures? How did this kind of work align with your life interests?

Pouya Najmaie:

So I’d say I think first I’ve always been sort of a progressive thinker, sort of outside of somewhat of the mainstream thinking, mainly because I was born in Iran and came here when I was four and this was in the late seventies, early eighties and basically the country was persona non grata with the US at the time. And so very early my bubble was busted as far as thinking about things in foreign policy and world issues in general in sort of a mainstream point of view. I saw the hypocrisy because when I first came here as a kid right before the revolution in 79, Iran was very tight with the U.S. and everybody loved Iranians and that changed literally overnight. So it sort of brought this out for me and as I went through high school and so forth, the same was the case where I just had an outside point of view.

And then in college I did environmental science and then for grad school environmental and science policy and so carried that with me and afterwards I probably would’ve never gotten into solar had I not run into Timothy DenHerder-Thomas, who is the general manager of the energy cooperative that I work for. And just his vision of thinking about energy so differently and the cooperative model I think is what brought me into this. And then of course solar is super interesting so I continued with it, but it really, it was that progressive version of the energy model that brought me in that Timothy sort of introduced to me and I’m grateful for that.

John Farrell:

You’ve been around doing the solar work now for many years, maybe not all the way back though, to in 2013 when the state first passed the community solar law. I think in a way it was sort of a sleeper because there were other things on the agenda that year including the solar standard, which was mandating utilities to make some of their first investments in solar energy. So maybe you can’t answer this big picture question about did you expect it to be as successful as it was when it was initially adopted, but whether or not you want to address that question, I’m kind of curious, what do you think about the program made it work so well and grow so quickly in the first years after it launched?

Pouya Najmaie:

I didn’t really get involved until 2014, 15, so I didn’t have the expectations before it launched. Looking back, I’m still sort of surprised I would say as far as what do I think worked and made it work. Looking back on it now and all the changes that have happened, I would say the big thing is probably two things I can think of at the top of my head and that was the bill credit rate, which was good. It’s the ARR. So it was good for subscribers because it matched their utility bill and provided them with some energy burden relief.

John Farrell:

That’s the applicable retail rate is the ARR?

Pouya Najmaie:

Yes. So it matches what you pay for your own electricity bill, so therefore it can provide you relief from any rising rates. And also the ARR just in Minnesota, the applicable retail rate in Minnesota just happens to also be a pretty financeable rate. So it works for the economics of the solar garden. And then the program was also uncapped at first and I don’t know of any, there may be one or two or a few other states that have that, but most of the states that I know have capped programs and Minnesota’s was uncapped. So that really allowed the program to flourish in a big way towards the beginning.

John Farrell:

Could you talk a little bit about, you mentioned that we started off with the projects being financeable. It reminded me that actually that language is in the statute for the program that the compensation rate did the need to make sure that projects were financeable. I think that was one of the brilliant components of it. I don’t know who to attribute credit to for that language, but of course it required the commission to make sure that that compensation rate would result in community solar happening, which is lovely and something I think that was really key to giving the regulators the power to make it happen. I’m wondering if you could talk though about since its inception. So there was a fairly extended rulemaking process. I think the program finally launched about 18 months after the law took effect in the middle of 2013 maybe was it December, 2014 or early 2015. But there have been some changes over time. There was what we’ve called the residential adder, which was something that the commission added. There have been some other tweaks now to use the value of solar as compensation. So up till 2023 when the legislature took a hand, could you talk about some of the improvements that have been made in the program?

Pouya Najmaie:

So the first one that I remember was eliminating what they called co-location. This is where you could co-locate, I think it was up to five separate gardens next to each other, something like that. And so that created a situation in which you were just creating, it wasn’t so much smaller scale dg, but it was getting a little bit larger and I think it caused, especially in the areas in which these gardens were being built, some consternation as to that and just people, the thought was people were sort of gaming the system. So that was the first major one that I remember and that was pretty early on in the program. Maybe 2015. I’m not exactly sure the exact date on that one.

John Farrell:

Just to be clear though. So what happened there was instead of saying of allowing people to say like we’re going to put five or even 10 solar gardens all together and build ’em all at the same time, it said actually these are distinct projects and you need to have them as separate installations and not just act as though they’re one big solar array.

Pouya Najmaie:

Correct, yeah. After that, the next major one that I remember was the shift to the value of solar, which I believe didn’t actually start applying until 20, it was 18 or 19 that it actually started applying, but it was approved in 2016 to go ahead and start then. And when that happened or started being applied, the rate for the value of solar, which we can talk about the value of solar because in many ways it’s great and in other ways it’s imperfect. And at the time it was considerably lower, maybe 30, 35% lower than the applicable retail rate. And because of that and because of the statutory language in which you just referred to earlier, they needed to make these gardens, they decided, in my opinion quite wisely – by they, I mean the Public Utilities commission – decided quite wisely to do what they called a residential adder, which was one and a half cents per kilowatt hour for every subscription that was a residential subscription as opposed to a general service or small general service subscriber. So those are the major ones that I can remember. And then of course they eliminated the residential adder and didn’t apply it for 2023. So that was a change as well. And I think that was just basically done because they knew the program was sunsetting and not a whole lot of people would be taking advantage of 23 anyway and so forth.

John Farrell:

Maybe we’ll come back to the value of solar. I do want to flag, I do have another podcast, the entire subject of which was Minnesota’s value of solar calculation with Professor Gabe Chan a number of episodes ago. We’ll refer to it in the show notes if people are interested in looking at that, but we may come back and touch on that. But for now, let me just ask. So in the first five years or so of the community solar program, it deployed enough solar to power nearly a hundred thousand homes, really grew dramatically. I think it was almost 700 megawatts in the first five years. Since then, the additions of capacity have leveled off significantly. I think the program’s only grown maybe by another 150 megawatts in the last three to four years. Could you talk a little bit about what hasn’t been working now in terms of being able to see deployment of community solar in Minnesota?

Pouya Najmaie:

Several things really tamped down CSG development. The first thing that I could probably think of off the top of my head would be the switch to VOS in 2017, which we probably should get into maybe a little bit because some people will wonder why I am talking about a switch to VOS as being a negative thing when I also argue in other circumstances that VOS is really the value of the solar and that has to do with the imperfections of VOS and what it was like back then.

John Farrell:

Let’s jump into it a little bit. So in 2013 as part of the legislative package that approved this program, it approved this alternative to net metering tariff called the value of solar tariff, which we and I are both going to call VOS here any number of times. So just when you hear that, that’s what it is. And the idea was to calculate kind of the costs and benefits of distributed solar explicitly as opposed to sort of using just net metering and saying like, well, it’s kind of close to the value of solar, what people pay for the electricity on site. And so we’ve got solar on site and it’s roughly there. So it accounts for the avoided fuel costs for producing electricity in some other fashion, it takes into account avoided pollution including carbon dioxide and other pollutants, avoided capacity that the utility might otherwise have to build in terms of infrastructure, power lines, substations, all that kind of stuff.

And there’s a couple other components maybe, I don’t know if we have to get totally into the weeds, but yeah, talk a little bit about, so the value of solar was lower than the applicable retail rate as you mentioned, as much as a third. So that was a big deal and then the commission did the adder. Yeah. What more do you want to say about the value of solar? Obviously it was this attempt to calculate accurately where the value of solar was, but I guess there were not always agreement on whether or not it was calculated in the right way.

Pouya Najmaie:

Yeah, the devil is always in the details on these kinds of things and the value of solar back then, and this has recently changed and I’ll get into that too or it recently is expected to change. It hasn’t quite yet, but the point is the value of solar has the components that you mentioned and without getting into some of the more complex nit pickier issues we had with the value of solar, I think the biggest issue we had with the value of solar that I could say right now that affected the value the most had to do with the avoided environmental cost stuff in particular, the component of that would be the social cost of carbon. And in Minnesota we had our own determination for what that social cost of carbon and it was quite low and the federal social cost of carbon was much higher than that.

So Minnesota had its own way of doing this and because of that in our opinion, it really reduced what the value of the value of solar, the VOS, overall should be. So although we love the concept of this because there is wrapped up in the VOS or the concept of the VOS very integral to it is the fact that there is no cross subsidy on anybody that is not participating in this program. So if you are not directly receiving the benefits from this solar, you’re still receiving all these other benefits that the VOS is then taking account to and then coming up with a value that actually this solar has to the grid and society and the other users that aren’t necessarily in the program. So we love the concept, devil was in the details because the details weren’t that great at the time and that specific one being the social cost of carbon, the state had its own value for that.

It was quite low at the time and made it unfinanceable. So that was the biggest problem for us as cooperative Energy Futures. We’re pretty generous, in other words, our profit margins aren’t as high as many developers because our owners are the people who get electricity. We’re a cooperative, so there’s no really use, they’re taking up a bunch of money on the front end when our profits go back to them anyway, so the idea was high energy savings. So when you do that kind of thing, it really makes it hard to pencil in a garden at nine and a half to 10 cents per kilowatt hour, which is right around what VOS was then versus the applicable retail rate, which was 13 point a half cents or so. Plus we also got this 2 cent adder by the way too during that period which has disappeared. So 15 and a half, 16 cents per kilowatt hour versus nine and a half to 10.

So it really made these gardens not financeable and I think it really hurt a lot of other people doing that too. If you notice the other crazy thing it did unintentionally I think, and this is why they added the residential adder to the VOS once they did that, not just for Financiability, but they wanted to encourage residential subscribership like this program, they wanted to lean it more towards residential subscribers, get more of them in there. But what VOS does is it does not distinguish class the rate classes like the applicable retail rate does. In other words, there is no residential class versus commercial class versus general class versus small general. There’s none of that. It’s one rate and because of that there is no incentive for a developer to go out and go after small residential subscribers, especially low income, but any small ones when you can go after, I think the rule was five large, you’ll just have to have five subscribers total.

So five large commercial subscribers that are credit worthy and it’s just done like that. So that was another issue with the VOS at the time. That was why the residential was added is because of that, to try to do that. But honestly looking at our economics, if you added that residential adder you’re up at about 11 and a half cents, that’s still not great at all compared to the 13 and a half to 15 that I was citing for the applicable retail rate. So we didn’t really do any gardens because of that. But there are also other reasons that don’t have to do with necessarily the bill credit rate. There’s this whole issue with interconnection within Minnesota and that is somewhat tied to how the program was developed, which we can get into one of those rules in a little bit. But there is this contiguous county rule and it basically created this situation in which the counties just outside of the metro major counties, the ex-urb counties got inundated, their substations got inundated with projects and they filled them up and there was long queues and waits and this caused not only issues with anyone being able to actually put in a CSG in an area where they could actually find the subscribers to be in that CSG, but also with the image of solar in counties like Carver County and these counties where all of a sudden they were popping up everywhere inordinately right when they could have been spread out and that was causing issues with local townships and ordinance and it was causing some militancy against solar and understandably so by some of these communities.

In other words, not understandably so too because some of it was AstroTurf by larger organizations, networks and so forth. But anyway, point is that there was major problems with interconnection and the capacity available at substations. We can talk about how that hopefully is going to go away with the removal of this contiguous county rule at a certain point if you want. But that was another major thing is that whole try to hook up to substations and then there was equipment stuff.

John Farrell:

Just to summarize what the contiguous county to make sure I got this the rule and the original law said that the subscribers had to either live in the same county as the solar community solar project or in an adjacent county, a contiguous county. So if I live in Hennepin County in the Twin Cities area, it’d have to be one of the neighboring counties like Carver County and it couldn’t be further away than that. So that was the pile on effect then is that the community solar developers wanted access to people who could subscribe households and businesses in the Twin Cities metropolitan area, but that meant they wanted to do all the projects pretty close by as well, which on the one hand was kind of a good thing in the sense of creating a geographical relationship between the subscribers and the projects. But because everybody decided to go out and do it in the exurbs and not as Cooperative Energy Futures has done in some cases actually inside the urban core, things got really stacked up.

Pouya Najmaie:

And then as far as I can tell right after it seems to have happened, there was a massive disruptions in supply chains. It just got really hard to get the necessary equipment, especially really complex and expensive stuff like switchgear. I had seen dates like two years out in order to get stuff like that and that’s very specialized and expensive equipment. So it’s not like you can mass produce, it’s hard to fix a supply chain like that. I would imagine it might eventually be done here, but that isn’t a short term thing. Those were the major things that came together to create this nasty brew in which right around 2017 18 gardens really slowed down.

John Farrell:

So last year in 2023, the Minnesota legislature came back and made a major revision to the program I think in the hopes of addressing some of these issues. Can you talk about what some of the major changes were and did it fix those issues that have slowed the program do you think?

Pouya Najmaie:

Yeah, so first of all, I could only speculate on whether it fixes it or not because the program hasn’t actually started yet. Some of the speculation will be a little more informed than others, but let’s go through what happened as far as the changes. I think one of the biggest things that we appreciated and pushed for was the change in the rate structure. So no longer went with VOS but instead went to what’s called the average retail rate, another ARR, but I’m just going to call this one average retail rate, which is very similar to the applicable retail rate in terms that it actually shadows or mirrors the rate that you pay for your own electricity, although the average retail rate is a little bit less than what you pay for your electricity, not by too much, but a little bit less like a cent or two per kilowatt hour.

So much better than the VOS. But importantly, unlike the VOS, which by the way the social cost of carbon has now changed because of the 2023 law, the 2040 bill that requires Minnesota to start using the federal social cost of carbon. Now the PUC still has to approve that to be applied to VOS, specifically value of solar, which the hearing is tomorrow by the way for that, I’ll be at that, but I’m really crossing my fingers that happens. I think that is what the law intended. But if you do that according to Gabe Chan in some analysis he did for the Department of Commerce, it’s like basically 20 cents per kilowatt hour, which is way, way higher than the applicable retail rate or the average retail rate or any of that. So the VOS has gotten better in our opinion as far as actually finding the value of what solar is.

We still necessarily as CEF wouldn’t push, and I’m speaking for Cooperative Energy Futures, not as the industry, we wouldn’t necessarily push to switch over to this new VOS and give us that rate instead of what we would like, which is applicable retail rate. But we’ll take this average retail rate and there’s a few reasons, but the biggest one is the VOS is set at a vintage year in which you receive it and then it just goes up by 2% every year. There’s a straight escalator as I mentioned, the average retail rate and the applicable retail rate mirror what you pay the retail rate, what you pay for your own electricity to the utility. So you will always be guaranteed that energy burden relief, but the retail rate, what you pay tends to go up three to 5% a year or something like that and that’ll quickly catch up with 2% a year and there’s no guarantee that it will always, through a 25 year contract, shield you from energy burden.

We like the VOS, we think it should be calculated. We want it around because it’s a good benchmark. It says, Hey, this is what the solar is actually worth. If you’re only getting paid less than that with the average retail rate or applicable retail rate with the new VOS, then you’re actually saving money And it’s telling you, it’s telling you what actually this program, the CSG program in this case is giving for savings to the rate payer, not what it is subsidizing but being subsidized by for the rate payer. So we want the VOS around, but we’d rather stick to what you have to pay for your utility bill. So anyway, that being said, that was the big tangent back to the new rate structure, it’s average retail rate, which is like I said, just a little bit below the applicable retail rate and mirrors the retail rate.

And so that was really happy. There’s different levels of it though sort of, so there’s percentages of it you get. But luckily for low to moderate income, what the legislature decided as what low to moderate income is, which is 150% the average median income or below, if you’re in that category you get all of that average retail rate, a hundred percent of it. And then there’s the sort of graduation for if you’re not in that category, if you’re over it, you get something like 70% of it of that average retail rate. And if you are a large commercial subscriber, you get something like 70% too. And I think you also though get the average retail rate, I believe it’s the full for public interest subscribers. So that’s a whole new category that was created and these sort of state government entity – schools, tribes, hospitals I think or nonprofits in general is what it is. And low income housing providers.

John Farrell:

Which is pretty important since we just found out that the Department of Commerce filed in this regulatory proceeding, that’s like half the subscriptions at this point is in the program so far is these public interest subscribers. So because they’re trying to save money on electric bills for schools, for cities, for hospitals, et cetera, and that has a broad public benefit, so making sure that they can still participate and cut those energy bills is a pretty good deal.

Pouya Najmaie:

Yeah, it’s really interesting. It’s 55% of the entire program. It’s a little over half is just these public interest ones. So like schools, state governments and stuff and then the nonprofits and the hospitals and so forth. And the new program just happens to require 55% either LMI or those public interest ones. So I mean interesting lineup there. But yeah, that is the case and we were really happy to get that new category put into the program as well. So a lot more equity into what kind of rate structure to these subscribers. And then secondly, there was requirements for what kind of subscribers you have to have. And that’s what I kind of mentioned with the 55%. So those are basically there’s 30% of your garden is required to be this LMI category that I just mentioned. That’s 150% of AMI and below. And the idea of 150% is basically has to do with capturing that middle category of subscribers that are not necessarily low income, meaning like 80% or below AMI – average medium income, but don’t necessarily have 30 to $50,000 to spend on solar panels to put on the roof so that they can get the energy burden relief that someone who does do that.

And even though 150% of AMI in Hennepin County might seem kind of high, it is not very high at all in Winona or Fillmore County or some of these other counties and it basically costs the same for them to put up panels as anywhere in Hennepin County for the most part. So that’s kind of the reasoning behind that. And then the other major thing was we really like this one is that commerce is now taking over the administration of the program. There’s this bifurcation now where used to be Xcel would do the administration of the program that they hated and do the interconnection process, which you would expect because it is so-called their grid, right? Even though we paid for it. Now they’re splitting that up. Commerce does everything that has to do with getting into the program, qualifying, having the right percentage of certain types of subscribers. How do you verify that all the rules basically for actually being accepted into the program. Xcel, all they do is interconnection now and paying the bill credits and so there’s supposedly the separate portal that Xcel is supposed to have for that and then the separate portal that Commerce is doing and working on and I believe opening up February 2nd, hopefully crossing my fingers, it’ll still happen.

I’ll get back to how do I think that is going, but I’ll just go through really quick the other things then there’s consumer protections that are really good in this one to weed out some of the unscrupulous actors that come into every market that you have in general. And then now there’s instead of a one megawatt limit on the size of the solar garden – per garden, it is now five megawatts.

So how do I think they’re going to affect the program? Well, I can just say as far as the commerce thing, we’re super happy about that, but I can say Xcel Energy is doing their best to screw that up and to prevent commerce from standing up a program that is good. I don’t know if they’re going to be successful in that. Hopefully they won’t. We are really happy with the people at commerce. We think that they are not only super competent, but I think they understand the value of all forms of solar including the different types of DG as well. So residential, CSG, all the different stuff and the new DG program that’s going to be coming out, I think they really get it. And Xcel Energy, they’re just acting as rational actors, right? They’re, they’re like a machine whose object is to make money for their shareholders. It is not good for them to have generation that isn’t theirs on the grid.

So they’re acting as rational actors. Commerce is doing their best to stand up the program, they’re doing great webinars, they’re answering questions, they’ve been in touch with as far as I know anyone who wants to get hold of them and ask questions. So that’s been going good. Xcel would not have done that. They would take their time on all of that slow roll, any of that and I’m hoping Xcel won’t be able to muddle up things. They’re filing really terrible tar filings having to do with the program, adding all kinds of things that the PUC did not order for them to add. And so we are going through the process of that right now. So it is painful, but this is to be expected and we’re super happy though that is out of Xcel’s hands, the 30% LMI stuff, I mean I don’t see how that will be messed up.

I think this is great as long as Xcel doesn’t mess up paying bill credits and we have to keep on them about making sure this subscriber gets this versus this subscriber gets that. I think this is going to be great. I think the public interest, the new subscriber classification is going to be great. It’s going to keep anchor tenants meaning larger tenants that really stabilize a garden financially being public interest tenants and not tenants that even though the Cub foods may be good for the local economy and so forth, I don’t think it’s as much public interest involved as say a hospital or a school or something like that, a public interest subscriber. So I’m really happy with that. The five megawatt thing, I think a lot of subscribers are going to like that and I think that will make the program more successful, meaning more, we’ll definitely probably hit that a hundred megawatt limit because of this.

We’re not going to have to worry about probably, I’d hope, about meeting that because we don’t really get to roll over capacity to the next year. So we got to hit it if we want it. We only have a hundred megawatts for three years, the first three years. So I think that’s kind of a good thing. Although CEF tends to want to put load close to generation for a bunch of reasons, including one you mentioned, it’s very much people have more of a stake in their garden when it’s closer to them. And that’s sort of what we want to advocate for and get people to learn is to have more agency over their electricity, over their power in general.

John Farrell:

We are going to take a short break when we come back. I ask Pouya, what is Xcel Energy’s latest strategy to hinder the community solar program? We discuss the crazy truth that community solar projects are underpaid, and Pouya offers his advice to community solar advocates across the country. You are listening to a Local Energy Rules podcast with Pouya Najmaie, policy and regulatory director with Cooperative Energy Futures.

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John Farrell:

I want to pivot and ask you a couple other questions about the program here before we run out of time, one of ’em is just you mentioned Xcel, rationally has not really liked the community solar program. Could you talk about some of their latest proposals that would curtail the community solar program and what impact they might have on solar development?

Pouya Najmaie:

Before I get into the biggest one, which is that the applicable retail rate being proposed to switch to the value of solar rate retroactively for certain gardens that were developed during the period where we developed the most gardens, I’ll just touch once again, they are doing their best to gum up the works of the new program and if they get their way, I think they could probably make it so the first year of the program, the new program, nobody gets any real capacity and they will have wasted a hundred megawatts worth of what we could have put on the grid. I’m not saying I think that’ll happen. I think if they get their way, that’s what will happen. So there is that and they’re doing that through a bunch of different ways. So I won’t get into all those, but then the big thing here right now is this summer the commission asked Xcel to come up with a proposal to perhaps switch gardens that were built between 2014 and 16 that got this applicable retail rate, which is the vast majority of the 860ish megawatts that is on the grid right now.

They’d be retroactively switched meaning in their, what is this, seventh year, eighth year, whatever, ninth year, whatever math is right now, my brain is mush but retroactively go back there, change the rate for that from the applicable retail rate to the 2017 vintage VOS. So what it was in 2017, which is somewhere around nine and a half cents. And that proposal, which by the way CEF, Cooperative Energy Futures, the cooperative that I work for, all of the gardens we built are on that rate. We have eight of them, about 50ish percent of the people that are subscribed to this are low income. Many people of color. I mean this is the populations we focus on all getting energy burden relief from. This would all of a sudden if that switched be instead of saving money by signing up to a community solar garden, they would be paying extra money than what they would normally be paying for an electric bill.

With CEF, our cooperative, we’re not going to keep them in these contracts. We already have stipulations that gives them an out saying basically three months, give us three months notice you can get out of our contract. And I don’t think we’d do anything if they didn’t give us the three months notice. The idea is not to penalize the subscribers, the people who own the co-op. So naturally they’re going to leave. They’re not going to pay extra, at least most of them. And it’s going to be very hard to fill in those subscriptions. Basically with a premium costing product is what you’re doing. It could very well put all of those gardens underwater, not just for us, but for all the developers. Well either that or some developers may have some very ironclad contracts, but I have to think individual subscribers are just going to default on them. And I can’t see developers going after hundreds of subscribers for this.

So it would basically put all these gardens underwater. I think they’d be stranded assets, they’d foreclose, probably go over to the bank. Many companies would have to, including maybe CEF, just shut off that part of those LLCs and that part of the business and carry on. And that’s a lot of assets to be stranding on the grid. And then just as importantly, if not more importantly, is what it would do to the new program. And then DG as a whole in Minnesota, distributed generation as a whole in Minnesota, that market, if you think about it, it is really fueled by developers and financiers that come in and pay the capital cost for this stuff. And they do risk profiles for all of this. And if they see Minnesota’s rates are retroactively changed, especially after the PUC looked at this decision, this proposal to switch to VOS instead of doing the ARR rates in 2014 and they decided not to do that and they let the program go, they said, this is going to make it financeable.

They did that again in 2016 on September 6th and said once again, yeah, we’re going to switch to VOS, but not now. We’re going to switch to VOS in 2017 and only pay VOS from there on. Meaning for December 31st, 2016, they all can keep the applicable retail rate. Those kind of decisions gave financiers and developers some pretty reasonable expectations to keep a 25 year contract at the same rates that they agreed upon. If financiers look back on that, and they will, they’re doing risk profiles, and they see this stuff can be changed by the commission, therefore it can be changed in the future. I just don’t see them putting a lot of money into Minnesota’s DG market, which Xcel would love and the state of Minnesota would suffer because we have pretty lofty goals to get to by 2040 or along the way. I wouldn’t call it necessarily the most ambitious overall, but you got to work to get there.

We’re not going to get there unless we get all kinds of solar, in our opinion. So we need to get this on the grid fixed and this CSG stuff on the grid and this is not going to help this at all. And it’s also like we mentioned, the majority of the subscribers are like governments, schools, things like that, cities, metropolitan councils, these kinds of things. And several of them in the public comments mentioned that. And I remember Sauk Rapids being one specifically, we might not trust any government energy programs after this. If you do this to us, we’re going to lose in some cases, millions for some of these institutions. Why should we deal with this? Why should we trust you after this? All that? And then you think about subscribers too. Anyone wanting to sign up for this now the word’s going to get around that this happened and these people who signed up for it before all of a sudden got screwed out of their rates. So this is a huge deal. And so far the public, I think there’s well over 500 public comments in right now and I think there’s 60ish institutions that have written in all against this change.

John Farrell:

So one of the things I want to just unpack here a little bit, you’ve done a great job of covering the substance of the situation here that the commission asked Xcel to look at what would happen if they retroactively reduced the contract rates for these community solar gardens. But the reason for it kind of goes back to Xcel’s longstanding communications attacks on the community solar program as being too expensive. People who live in California or other places which have seen solar under attack by utilities will understand that they basically are saying it’s too expensive, it’s all these subsidies, that kind of thing. And what’s interesting to me is that this comes back to that value of solar, that VOS that we were talking about earlier. If you look at the VOS compared to the ARR, the price that these solar gardens were getting, you say, oh, well it does look like they’re getting paid more than the value of solar. It is kind of a subsidy. It doesn’t mean you should go back and retroactively screw with contracts, but you could at least understand this argument that maybe we were paying more than we ought to have paid.

On the other hand, you just pointed out that this calculation about the cost of carbon, the social cost of carbon, which is really a way of pricing how much of an environmental and health impact we pay for a fossil fuel that it costs us, but that we don’t actually pay. So the social cost of carbon is meant to put into that value of solar price, an understanding of how much money we save on health and environmental costs by investing in solar. If we had that right, as Gabe Chan calculated, then the applicable retail rate is actually too low.

Pouya Najmaie:

It’s like 5 cents per kilowatt hour too low. Yeah.

John Farrell:

Yeah, 5 cents too low. So this is what kind of blows my mind right now is that we’re in this situation where the commission is actively thinking about reneging on contracts to hundreds of developers, thousands of customers, putting low income folks in a situation of paying more for energy rather than saving on their bills, putting cities, libraries, schools, hospitals in this losing millions of dollars in investment as you said, why would they trust us? And yet it’s all based on a lie that the utility has advanced that somehow people are paying too much, which is a very self-serving lie because of course they want to make the investments in solar themselves that make profits for their shareholders. So I was going to ask you if there really was a premium for community solar, is there some action the state regulators could take, but based on where the value of solar ought to be, it sounds like we’re literally going backwards for no reason at all.

Pouya Najmaie:

The numbers that Xcel throws out is – Xcel’s numbers as far as how much is being subsidized and they get to manipulate them and compare it to whatever they want versus comparing it to say the value of solar or whatever else. And like you said, even comparing it to the value of solar, the question is which value of solar are we comparing it to? The imperfect last, the one that doesn’t keep take into consideration the federal social cost of carbon or the other one. Either way it’s much less, well obviously if you’re doing the federal one, it’s a savings, but if you do the old value of solar, it’s much less savings. Then Xcel is claiming, and the other thing is the main argument was this two-pronged related argument. The first one was the one you just mentioned, this costs too much and here’s why, because we could generate it electricity at a way cheaper price.

That false argument, because they’re measuring stick for generating electricity was wrong. The second one is, first of all, you are subsidizing. So they’re taking that as a grant, as a given, and then they’re saying, why are we subsidizing large commercial customers? And now we know because this information was private before and the Department of Commerce got information requests and information that the public can’t see from Xcel. Now we know all that whole argument is B S. It’s a completely false argument. So to the degree that you are subsidizing, let’s just give them that argument. There’s some amount of subsidy. If you were to do that and admit that, who are you subsidizing? Because these cities are like Minneapolis, St. Paul, St. Cloud, Bloomington, Winona Metropolitan Council, meaning the entire, I don’t know, seven county metro area, whatever that entails. The point is they might not be anyone in those areas, which in my just adding up a few, I’m thinking we’re at 2 million just right there and there’s only like 3.4 million Xcel accounts. So you got probably the vast majority of them right there indirectly receiving benefits from this program. So this cross subsidy argument that sort of flows from the fact that we’re even cross-subsidizing in the first place is a BS argument. There’s a whole lot of things you could just falsify down the line with this and then they build off of that.

John Farrell:

If you had one piece of advice you could give folks who are working on community solar in another state, maybe trying to stand up a program or work on legislation or maybe interested in developing projects, what advice would you give them?

Pouya Najmaie:

Yeah, if I was to distill it down to one, I think the best thing I could say is build a strong coalition of advocates from all types for your whatever it is, DG, Community solar, build a strong community of advocates and work with the residential solar subscribers, work with your trade organizations, work with the CSG developers, work with nonprofits that work into this, work with groups that just advocate for DG in general that aren’t trade organizations, the nonprofits like Vote Solar and Solar United Neighbors and all these kind of build a really competent, wide diverse coalition of allies that you’re on the same page communicating, being honest with each other because the utility will swamp you at the legislation with a hundred, in Minnesota’s case, a hundred plus lobbyists and I don’t know how, what their team of lawyers looks like, but they will swamp you at the PUC and you’re going to need all the work. You’re getting all the help you can get and you’re going to need to divide it up and people like, it just happened today, are going to catch things that nobody else caught last moment. Say, Hey, I need you to submit this or help me submit this. Or who should submit this because stuff’s going on and what’s the best strategy and blah, blah, blah. You basically need to create a team because the utilities have a huge team. So that’s my best advice. I could give a bunch of other, but I’d say that is foundational because a whole lot of minds working at this in different ways yet on the same page is really the only way to fight large monopolies like this.

John Farrell:

Thank you so much for taking the time to chat about Minnesota’s program and for all of the effort and energy that you put into preserving this program in a very uphill battle. It’s appreciated so much.

Pouya Najmaie:

No, thank you, John. This was a pleasure. I had a lot of fun.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Pouya Najmaie, policy and regulatory director with Cooperative Energy Futures. On the show page, look for links to ILSR articles on Minnesota’s community solar program, including my published Star Tribune commentary, countering the utilities claims about the program. For more on the value of solar, check out Local Energy Rules episode 148 with Professor Gabriel Chan. For a walkthrough that illustrates how community solar and utility scale solar have similar costs for utility customers and how utilities hide the data, check out the article I wrote on ilsr.org called Utilities Aren’t Telling the Whole Truth About Solar Costs. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.