Debating the Value of Solar – Pt. 2 of Minnesota’s Process

It was an unseasonably sunny day for part two of Minnesota’s value of solar stakeholder process: participation day.

The leadoff was the Department of Commerce’s proposed approach to a value of solar methodology.  Shown below, it set some broad principles the Department intends to use in the value of solar formula it develops:

• Accuracy – account for all relevant values of solar
• Transparency – provide complete transparency, so all stakeholders can use identical assumptions to get identical results
• Reasonably Simple – make it as simple as possible, where it can be

Following Minnesota’s Value of Solar Process? Here are a few resources:

• Part 1 of my series of posts on the process
• My comments to the Department of Commerce on value components to include (PDF and slideshow)
• Live tweets and context with Twitter hashtag #MNVOST
• The Department’s value of solar stakeholder resource page

The Department then reviewed the basic framework of the concept of value of solar:

• The policy separates consumption and production of electricity.  A solar array owner using value of solar buys all their power from the utility, but gets paid the value of solar price for all of their production.
• Solar customers won’t pay special fees. Rates and standby charges are not dependent on whether a customer has a solar array, because all customers (regardless of solar ownership) will pay for all electricity (and utilities can recover all costs in those rates).
• There is no cross subsidy between solar and non-solar customers (in either direction) because the value of solar price will include utility and societal costs and benefits.  In other words, solar customers get paid a market price for their energy, and all utility customers pay what it is worth for all solar energy on the grid.

Then the Department got into details on some of the calculations:

• While solar energy can be more valuable if installed in certain areas of the grid, for sake of simplicity the value of solar would be a “fleet average” across all solar installed in a utility’s service area.
• While the value of solar may change as more is added to the grid, the value of solar will be fixed at its present value for the duration of signed contracts, but may decline for future contracts.
• The life of a solar array and its benefits (and the proposed contract length) is 25 years.
• Value of solar will be the same for all rate classes (residential, commercial, industrial) because a solar electron is a solar electron, no matter the solar owner.

The Department reviewed the potential components in the value of solar (see slides 22-24) and some nitty gritty on how they will calculate the actual performance/output and capacity of solar PV in a utility’s service territory (note: using actual data!).

Finally, the Department reviewed their economic methods for evaluating different values of solar, including all five legally required components:

• Energy – solar PV output times energy losses avoided times marginal cost of energy (e.g. from natural gas power plant)
• Generation capacity – Multiplying the cost per kilowatt of capacity times solar’s “effective load carrying capacity” (e.g. how much capacity it can reliably offer during peak periods of energy demand)
• Fuel price guarantee – “how much it would cost to minimize the fuel price uncertainty association with natural gas [power] generation”
• Distribution capacity – cost of upgrading grid hardware for new capacity divided by load growth times financial term (25 years? Longer?) times the peak load reduction factor of solar (note: the formula is good, but the values have yet to be defined clearly).
• Environmental value – for this, the Department merely listed some options (see slide 47)

The Department’s presentation was followed by several from other stakeholder organizations, utilities and non-utilities.  My presentation is below, with others linked on the Department’s website.