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Minnesota Values Solar Generation with New “Value of Solar” Tariff

October 3, 2014 by

This is the fourth and final blog in a series of articles on the growing interest in identifying and incorporating the values of solar (VOS) to the grid into electricity rate structures. For previous posts and background information, please see the “Louisiana: Net Metering Cost/Benefit Study Authorized,” the “Utah: Monthly Net Energy Metering Fees Debated,” and the “Iowa: Tax Credits Increased, Distributed Generation Investigated, and Communities Impacted” posts.

To date, Minnesota (MN) is the only state to codify an alternative to its existing net energy metering (NEM) rules and regulations. Through legislation, MN allowed utilities to voluntarily implement a value of solar (VOS) tariff—the parameters of which were developed by a regulatory process. No utilities have voluntarily adopted the VOS tariff to date.

The State of Minnesota passed legislation in 2013 that required the MN Department of Commerce (MN-DOC) to establish a calculation methodology to quantify the value of distributed photovoltaics (PV). The specific value components required for inclusion in the calculation were: energy and its delivery, generation capacity, transmission capacity, transmission and distribution line losses, and environmental value. The state’s objectives in establishing the MN VOS program methodology were to:

  • Accurately account for all relevant value streams (benefits net of costs) from a societal perspective
  • Simplify the methodology and input data sets (where possible and warranted)
  • Provide transparency
  • Facilitate modification, if necessary, in future years (Grant 2014).

The MN-DOC conducted an extensive stakeholder process in the fall of 2013. Clean Power Research (CPR) and Karl Rábago (Rábago Energy), who led Austin Energy’s VOS program design as Vice President of Distributed Energy Services, provided technical and analytical support to MN. The 2013 meta-analysis by the Rocky Mountain Institute also informed the process (Hansen et al. 2013). Four workshops were held to provide background and engage stakeholders on key issues, and more than 50 sets of comments helped shape subsequent workshops and ultimately inform the final draft VOS methodology.

According to Bill Grant, the Deputy Commissioner of Energy and Telecommunications at the MN-DOC, the MN utilities have expressed concern that the VOS valuation is not based on traditional methods of calculating avoided cost, and the environmental groups have concerns that the VOS tariff payment level would not be high enough to support solar development without additional incentives, at least in the near term (Grant 2014).

The MN-DOC submitted the draft methodology to the MN Public Utilities Commission (PUC) in January 2014. The PUC approved the methodology at a hearing on March 12, 2014, and posted the written order approving the methodology on April 1, 2014.

Some key characteristics of the MN VOS policy include:

  • Investor-owned utilities may voluntarily apply to the MN PUC to enact a program in lieu of net energy metering.
  • Project size limitations. PV systems must be under 1 MW in size.
  • Decouple use and generation. Customer electricity usage is separate from production.
    • Customers are billed for their total electricity consumption at the retail rate.
    • Compensation for the solar system is through a bill credit, at the value of solar tariff rate.
  • Value
    • Production based. It is expressed in $/kWh, levelized over 25 years.
    • Includes key elements. It is estimated as the value to the combination of the utility, its customers and society.
    • Rigorous, transparent calculation.
      • Once the VOS is established in any one year, that VOS is held constant for participating customers who install solar PV in that year.
      • The valuation will be updated annually for new VOS participants to incorporate utility inputs for the value of PV in the year of installation.
      • A utility-specific VOS input assumption table is part of the utility’s application and will be made publicly available.
      • A utility-specific VOS output calculation table will break out the value of individual components and the computation of total levelized value and be made public.
    • A tariff not an incentive. VOS is not intended as an incentive for DG PV, and it is not intended to replace existing incentives, or prevent future incentives.

Figure 1 shows sample results for the MN VOS, as calculated by the MN DOC. Figure 2 shows an estimated VOS calculation for Xcel, as calculated by MN PUC staff.

Graph showing a stacked column that indicates various factors contributing to the 25-year levelized value in dollars per kilowatt hour

Figure 1. Minnesota Value of Solar – Sample Calculation. Source: MN Department of Commerce, VOS Methodology, April 1, 2014.

Figure 2. Preliminary Xcel Energy Value of Solar, Minnesota. Source: MN PUC Briefing Papers, July 25, 2014.

Figure 2. Preliminary Xcel Energy Value of Solar, Minnesota. Source: MN PUC Briefing Papers, July 25, 2014.

Both examples indicate that the most significant elements of the VOS rate appear to be avoided fuel cost, avoided environmental cost and avoided generation capacity cost. The calculation used the federal government’s avoided cost of carbon.

Four bullet points summarizing the lessons learned during the Minnesota value of solar process, as shared by Bill Grant at the SEPA Utility Solar Conference

Source: Grant 2014

Bill Grant shared some early-stage lessons learned of the process so far at the SEPA Utility Solar Conference (Grant 2014). They include:

  • Alternative to NEM. Input from stakeholders during the public process appears to indicate that VOS may be a good alternative to net energy metering. The program sets a new solar standard that appears to meet many of the objectives set out at the beginning. Even so, the MN DOC raised the NEM cap, so that distributed PV could still go forward if voluntary adoption by utilities is slow.
  • Cross-subsidies addressed. Customers pay for their entire electric energy usage at the standard rate; as such, most – if not all – cross-subsidy concerns may be addressed.
  • Stakeholder involvement critical. Grant indicated he was happy with the public stakeholder process and felt it was a good choice to involve all stakeholders in the methodology development of the resulting tariff.
  • Compatibility with 3rd party business models unclear. It is unclear if VOS programs are compatible with third-party business models, and this was not examined closely in MN. The third-party ownership model is not currently available to MN customers, so it cannot be tested in that state.

Ongoing Developments: VOS as a Rate for Xcel Community Solar Gardens

In a separate but related proceeding, the PUC directed Xcel Energy to submit a VOS calculation by May 1, 2014, to be considered as a rate for Xcel’s proposed Community Solar Garden Program. solar_gardenFollowing clarification from the MN-DOC on the appropriate application of the methodology, Xcel revised their calculation to a 25-year levelized value of 12.08 cents per kilowatt-hour, with a present 2014 value of 9.4 cents per kilowatt-hour (Xcel Energy. Docket No. E002/M-113-867. Reply Comments, June 19, 2014). To facilitate stakeholder analysis and verification of VOS calculations, PUC staff provided the spreadsheets that it had developed in accordance with the approved VOS methodology as Attachment A to the Staff Briefing papers filed on July 25. The PUC staff’s calculation of the VOS rate using the input values as recommended by the MN-DOC and listed by Xcel in its Reply Comments largely confirms the VOS rate calculated by Xcel, with some minor differences.

Commenters took varying positions on use of the value of solar rate for community solar gardens (MN PUC Staff Briefing Papers, August 7, 2014). Some developers favored using the applicable retail rate with optional REC payments because of the higher initial value—approximately 15 cents per kilowatt hour for a residential or small commercial customer subscribed to a garden <250 kW. Xcel energy favored using the applicable retail rate based on its flexibility relative to the value of solar rate (Xcel Energy. Docket No. E002/M-113-867, May 1, 2014). The majority of solar developers and advocates supported the use of a VOS tariff with an added incentive payment because of its transparency and predictability. With a known base rate escalating at the Consumer Price Index and an added incentive, a project would be more likely to attract financing. Many commenters including the MN-DOC agreed that solar gardens should eventually receive the VOS rate with an added incentive to allow for project financeability.

In the interest allowing solar garden projects to proceed without further delay, on August 7, the PUC approved Xcel’s Community Solar Garden plan without the VOS rate, instead using an average retail rate with an added payment of up to 3 cents per kilowatt hour for renewable energy credits.  The PUC also directed Xcel to file annual updates to the VOS rate calculations with a March 1 deadline.

To facilitate a possible future transition to a VOS rate, the PUC directed the parties:

to engage in further discussions and to file comments by October 1, 2014, regarding the appropriate adder, if any, to apply in conjunction with a proposed value-of-solar rate to ensure compliance with the community solar garden statute, including, but not limited to, a requirement that the community solar garden plan approved by the Commission reasonably allow for the creation, financing, and accessibility of community solar gardens. [MN PUC Notice of Comment Date, Sept 8, 2014, Docket 13-867]

As of September, no Minnesota utility has adopted the voluntary VOS tariff rate in lieu of net energy metering, instead choosing to continue compensating customers at the retail rate (Farrell 2014). The question remains—will utilities opt into the VOS tariff? And if so when?

 

Sources

Grant, Bill. (2014). “Minnesota Value of Solar” Deputy Commissioner of Energy and Telecommunications for the Minnesota Department of Commerce, presented at the Solar Electric Power Association’s Utility Solar Conference, Newport Beach. April 29.

Harvey, Tim. (2014). “VOS and AE’s Residential Solar Rate” Solar Rebate Program Staffer, Austin Energy, presented at the Solar Electric Power Association’s Utility Solar Conference, Newport Beach. April 29.

Farrell, John. (2014). “Minnesota’s Value of Solar: Can a Northern State’s New Solar Policy Defuse Distributed Generation Battles?” Institute for Local Self-Reliance. April. http://www.ilsr.org/wp-content/uploads/2014/04/MN-Value-of-Solar-from-ILSR.pdf

Farrell, John. (2014). Institute for Local Self-Reliance. Phone interview on August 12.

Hansen, L., Lacy, V., & Glick, D. (2013). A Review of Solar PV Benefit & Cost Studies. Rocky Mountain Institute. Retrieved from http://www.rmi.org/Content/Files/eLab-DER_cost_value_Deck_130722.pdf

Minnesota Department of Commerce. Docket No. E002/M-113-867. June 2, 2014.

MN Department of Commerce, VOS Methodology, April 1, 2014. Accessed September 1, 2014. http://mn.gov/commerce/energy/images/DRAFT-MN-VOS-Methodology-111913.pdf

MN PUC Staff Briefing Papers, July 25, 2014.

MN PUC Staff Briefing Papers: CSG rate. Docket No. E002/M-113-86, August 7, 2014. Accessed October 1, 2014. https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId=%7b58DEA4D8-1E10-405A-85DA-2C81F77154E2%7d&documentTitle=20147-101753-01

MN PUC Order Approving Solar Garden Plan with Modifications, Sept 17, 2014, Docket 13-867; [Minn Stat § 216B.1641]

MN PUC Notice of Comment Date, Sept 8, 2014, Docket 13-867

Xcel Energy. Docket No. E002/M-113-867.Community Solar Gardens. May 1, 2014. Accessed September 1, 2014. https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={2007E5D6-56CE-4C51-9C3D-1C7C0399E6D7}&documentTitle=20145-99117-01

Xcel Energy. Docket No. E002/M-113-867. Reply Comments: Community Solar Gardens. June 19, 2014. Accessed September 1, 2014. https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId=%7bF4F9C68C-A8D7-40CB-B187-43415F4BD63D%7d&documentTitle=20146-100621-01.

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