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A projected spike in the rate Xcel Energy pays community solar projects caused stakeholders to reassess the formula.
Minnesota regulators will allow Xcel Energy to modify a calculation that would have doubled the amount the utility pays to subscribers of newly approved community solar gardens.
As a result of the change, community solar projects authorized in 2020 will likely receive credits nearly 4% higher than in 2019. The Public Utilities Commission recently approved the rate, along with a temporary fix to the “value of solar” calculation Xcel uses to pay subscribers.
Xcel told regulators that one factor in the value of solar estimate, if not changed, would have doubled the rate subscribers received for 2020 approved projects. Initial projections showed that for projects approved in 2020, subscribers would receive credits of around 25 cents per kilowatt-hour, compared to around 11 cents/kWh for projects approved in 2019.
The potential increase alarmed the utility. Xcel blamed the increase on a jump in avoided distribution capacity costs, one of eight major factors used annually to compute the value of solar. Community solar gardens can help utilities avoid distribution costs by allowing them to postpone infrastructure projects such as line or substation upgrades.
The jump related to a change in peak demand that affects the estimated avoided distribution capacity costs. Solar companies and clean energy advocacy organizations agreed the calculation was an anomaly and should be recalibrated to reflect market conditions better.
The compromise drew praise.
“My impression was that it is a decent outcome for everyone,” said Isabel Ricker, senior policy associate with Fresh Energy, which publishes the Energy News Network. “The rate is going up a little bit for community solar subscribers after declining for several years, and it’s within the range of historical value of solar rates.”
In accepting Xcel’s compromise, regulators want input from stakeholders interested in refining the calculation used to determine avoided distribution costs, said David Shaffer, executive director of the Minnesota Solar Energy Industries Association.
Any Minnesota utility can apply the value of solar methodology to pay for electricity produced by solar, he said. Only Xcel uses the value of solar and only for community solar projects, he said.
Regulators wanted broader input. “The commission wanted greater opportunity for other stakeholders to weigh in,” he said.
The higher payment rate may lead to more community solar applications, Shaffer said. Some developers who applied this year may push their applications into next year to take advantage of the favorable rate. For now, Xcel’s approach “is reasonable,” he added.
Last year Xcel saw 73 applications to build community solar gardens, Shaffer said. The fast growth of community solar in the first few years, however, is unlikely to occur as costs and risks increase, and distribution capacity tightens.
Gabriel Chan, assistant professor at the University of Minnesota’s Humphrey School of Public Affairs, has followed the value of solar arguments closely and suggested changes to regulators. He agrees with the temporary solution offered by Xcel, and the idea of having the Department of Commerce convene a stakeholder group to look at avoided distribution costs.
But Chan and Shaffer want to re-investigate other factors that contribute to the value of solar. Chan said those similar values guide how regulators credit utility rebates for energy efficiency investments or a decision by a utility to not build a natural gas plant.
Looking at all the factors in the value of solar would help utilities “create the right incentives,” Chan said, “so all of these decision points are made consistent.”
Fresh Energy staff, board members and funders do not have access to or oversight of the Energy News Network’s editorial process. More about our relationship with Fresh Energy can be found in our code of ethics.