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Minnesota becomes first state to set ‘value of solar’ tariff

A rooftop solar installation in Minneapolis. (Photo via Sundial Solar/Minnesota Solar Challenge: Creative Commons)

A rooftop solar installation in Minneapolis. (Photo via Sundial Solar/Minnesota Solar Challenge: Creative Commons)

Minnesota utility regulators on Wednesday approved the nation’s first statewide formula for calculating the value of customer-generated solar power.

The Minnesota Public Utilities Commission voted 3-2 in favor of a proposal aimed at settling the perennial debate over how much solar power is worth to a utility and its ratepayers, as well as society and the environment.

“I think that consensus is really beginning to emerge,” said Lynn Hinkle, policy director for the Minnesota Solar Energy Industries Association. “There’s no doubt what happened today was a step forward.”

Investor-owned utilities will now have the voluntary option of applying to use the value-of-solar formula instead of the retail electricity rate when crediting customers for unused electricity they generate from solar panels.

Utilities have complained that paying the retail rate, under a policy known as net metering, amounts to an unfair subsidy for customers that own solar panels at the expense of those who don’t. Meanwhile, solar advocates say the retail rate underestimates the value of solar panels to the grid and society.

Minnesota Gov. Mark Dayton signed a bill last year requiring the state’s energy office to develop a formula that utilities may use to determine how it should compensate customers who generate electricity from solar panels.

‘This isn’t an incentive’

Wednesday’s debate, which follows nearly two years of discussions among state officials, utility representatives and solar advocates, focused largely on the cost of carbon emissions, of which there were three main options.

One was referred to as the “established externality value” and was created by Minnesota utility regulators two decades ago as a tool to help the commission evaluate resource options.

The value has been updated for inflation but never fully reevaluated, and the commission recently agreed with environmental groups that the numbers are “outdated and no longer scientifically defensible.”

Another was referred to as the “planning value” and was created in recent years to help Minnesota utilities and regulators estimate the likely cost of complying with future carbon regulations. That number doesn’t reflect the cost to society in health or environmental damages from carbon, something the Minnesota law requires to be included in the formula.

Instead, the commission voted to adopt the federal government’s social cost of carbon figure, which environmental groups and the state’s Department of Commerce argued was the best fit for a value-of-solar formula.

“The social cost of carbon is specifically focused on measuring what is the economic and health damage of emitting one more ton of carbon,” said Erin Stojan Ruccolo, director of electricity markets for Fresh Energy.

Fresh Energy is a member of RE-AMP, which publishes Midwest Energy News, which is based at the St. Paul nonprofit.

Commissioner David Boyd, one of the two dissenters, said he objected because the social cost of carbon hasn’t been thoroughly vetted by the utilities commission. He preferred one of the state-studied numbers.

“For me, this is a deal-breaker. I won’t vote for this methodology with that in there.” Boyd said. “It’s not the number. It’s the process.”

Commission Chair Beverly Jones Heydinger, however, countered that it isn’t fair to describe the social cost of carbon as unvetted, noting the extensive and open federal process that was involved in developing it.

“It’s hardly a number that was picked out of thin air,” Jones Heydinger said.

Another “no” vote came from Commissioner Betsy Wergin, who said that other than “a pretty miniscule number” of residents who own or plan to own solar panels, “the rest of ratepayers were really not at the table.” She also said she was unconvinced that the formula wouldn’t amount to a subsidy for solar.

Commissioner Nancy Lange restated the state energy office’s position: “This isn’t an incentive. This isn’t designed to be a prop-up for the solar industry.”

How the formula works

Bill Grant, Minnesota’s deputy commissioner for energy, said the objective was to find a formula that accurately reflected all of the costs and benefits to all parties involved, including utilities, solar owners and other ratepayers.

“The goal as I see it with the value of solar is to find that point … at which everyone should be indifferent about whether this rate is imposed or not,” Grant said.

The methodology for calculating a value-of-solar tariff will be the same for any utility that wishes to propose one, but the end rate will vary depending on circumstances specific to each utility’s load and generation mix.

Grant said it isn’t a “foregone conclusion” that the value-of-solar rate will be higher than the retail or avoided cost rates. It might, but it might not, he stressed.

The state law tasked the Commerce Department with proposing a tariff design to the utilities commission earlier this year, after which the board had 60 days to approve it or not.

“We believe that the methodology we’ve put in front of you really is plug-and-play.” Grant said, adding that there shouldn’t be need for utilities or the department to develop additional formulas or spreadsheets when a utility applies to create a value-of-solar tariff.

Utilities’ testimony over the last two months has been skeptical and questioned the department’s methodology in some areas, including the cost of carbon.

Minnesota’s community solar gardens law says that participants in those shared solar projects should be reimbursed at the value-of-solar rate. Beyond that, the tariff’s adoption is voluntary.

Comments (15)

Kudos to all involved – even those who asked the tough questions. Now all should focus on growing Minnesota’s solar market!

By Karl R. Rabago on Mar 12, 2014

Thanks Karl for your nationwide leadership on this! Happy to hear that the methodology passed today! Hoping the best for a more sustainable future for Minnesota and beyond!

By Marty Morud on Mar 12, 2014

Congratulations & thankyou to everyone who worked on this issue. The next couple of years should see a well needed bump in solar in the state now that the solar resource is being valued appropriately.

By Matthew Blackler on Mar 13, 2014

High Five’s to you Karl and others. Question: which other states might follow MN’s lead?

By Jim Pierobon on Mar 13, 2014

Thank you, Commissioner Boyd. The process is polluted.

By Mary on Mar 13, 2014

Betsy Wergin. Thank you as well. This will, in fact, turn out to be something that will prop up another industry that fails to recognize the finite resources available to make the solar panels that want to believe will effect climate change.

By Mary on Mar 13, 2014

Hahaha that’s funny! Talking about finite resources available to make the solar panels. Get it, instead of coal and natural gas as finite resources (that cause that fake climate change btw). Really funny. Good one “Mary”.
From the perspective of Wisconsin renewable community, you MN people are the new heroes! Fantastic work all. You are the trail blazers. Thank you so much for true cost/value analysis.
I’m wondering where the SRECs came down in this formula. I understand that they would not be valued in the formula and yet the utility will own them under the VOS tariff. I think that’s a mistake. Either they should be valued within the tariff OR the generator owner should have rights to them. Other than that, I can’t wait to see how this plays out in practice.

By Alicia Leinberger on Mar 13, 2014

Seems to me the value of distributed solar energy has a different value to society than to the ute’s, and rightly so. With this in mind, credit for the extra value of solar energy must come from either the govt or from some form of carbon based tarrif paid by carbon producers. In this way, carbon producing generators and solar energy generators alike have viable ways to adjust their cost or profit margins by the level of chosen production method invested in.

By AT THE BRIDGE on Mar 13, 2014

Congratulations to all involved! Excellent work indeed.

By Corey Ramsden on Mar 13, 2014

It’s great that this has been finalized, and won’t slow the process of community solar gardens over the next two years. It’s critical to utilize the investment tax credits; which will be drastically reduced in 2017, to help get these off the ground. Well done commissioners!

By Tom Reinke on Mar 13, 2014

As Commissioner Lange rightly pointed out, the VOS will not be a prop for the solar industry. I would suggest to its detractors, that it will provide a more rational basis for valuing solar in our planning process going forward. In fact, it remains to be seen how the VOS will be used – there is a balance of interests required: if the VOS rate is too high, then utilities will not offer it, if too low, consumers will not elect to use it. Deputy Commissioner Grant corroborated this by noting that the inputs unique to each utility will determine the VOS rate. Well, hats off to the MN PUC for slogging through all the eloquent testimony and comments to arrive at a decision to try it out!!

By Ralph Jacobson on Mar 13, 2014

To Ms. Leinberger’s question about how the SRECs will be treated in the VOS, I would point out that most of the attributes of solar which comprise an SREC will be folded back into the commodity electricity value of a MWH of solar-generated electricity. So a Minnesota SREC is a fundamentally different package than an SREC anywhere else. I believe that because of this, it will be difficult or impossible to sell a Minnesota SREC except in Minnesota, where the market for them will exclusively be utilities looking to document progress toward attainment of the 1.5% Solar Energy Standard. This creates a symbiotic relationship between the Minnesota investor-owned utilities and the solar system buyers, in which each needs the other to succeed. Kind of like a three-legged race!

By Ralph Jacobson on Mar 13, 2014

Has the formula itself been built yet?

By Josh Stolzenburg on Mar 14, 2014

I hate to be the devils advocate, but what happens if the VOS rate comes out well below the average retail rate and the utility elects to adopt it? Would the utility not be relieved of its obligation under the current <40 kw net metering law? That would be a step backward for the solar industry. If the VOS rate comes out any above the current average retail rate, they simply won't elect to use VOS. Tell me how the solar industry won?

By Dave on Mar 19, 2014

Interesting question, Dave. I like solar but would prefer to see retro-fitting of existing structures to solar array’s covering land.

By Mary on Mar 20, 2014