In a decision earlier this month, the Minnesota Public Utilities Commission approved a 1.5-cent adder to the per-kilowatt-hour compensation offered to residential subscribers of community solar projects offered in Xcel Energy territory in Minnesota. The program, with nearly 450-megawatts of operational capacity as of this month, is the largest in the country. However, a switch in compensation method in 2018 to using the value of solar left advocates concerned that residential subscribers would be left out. The Commission’s decision gives hope that residential participation will continue, with the adder effective for projects started in 2019 and 2020.
However, the decision comes amid other changes that may erode its effectiveness. When compensation for community solar subscriptions changed in 2018 to the value of solar from the “applicable retail rate” (e.g. net metering with an adder), residential subscriptions lost value. Instead of earning 14-15 cents per kilowatt-hour, subscribers would earn closer to 12 cents. Xcel’s proposed 2019 revision to the value of solar may make the Commission’s new incentive a rearguard action against a falling price. The following chart illustrates the dropping rate, with and without the new adder:
The value of solar is a complex calculation made by the Company based on Commission-approved methodology. Part of the falling price results from lower gas prices, due to extensive gas fracking operations, but may also be due to methodology changes including the “heat rate” of power plants (how much gas they burn to produce a kilowatt-hour of electricity). The calculation of solar’s value in reducing the need for other new power plants also plays a role. Due to a quirk in the methodology, if the utility forecasts no growth in peak demand, this number can fall to zero even if the actual value is nonzero. In a typical year, the “avoided capacity” value of solar has has ranged from 0.8 to 2.2 cents per kilowatt-hour.
The Commission’s action matters a lot, particularly for addressing the legislative intent of the program to broaden access to solar energy to customer who don’t have the financial wherewithal or suitable rooftop to host solar. Several community solar projects, such as the Shiloh Temple project in Minneapolis, have already demonstrated how community solar can provide energy savings and jobs for people of color in marginalized communities.
The residential adder will definitely help the continued participation of residential subscribers in Minnesota’s community solar program, but it may prove insufficient if the state’s novel value of solar methodology allows the utility to pay too little for valuable solar energy.
For more on the value of solar concept, Minnesota’s value of solar state law, and a report from the methodology-making stakeholder process, see ILSR’s value of solar resources
Photo credit: Clean Energy Resource Teams via Flickr