What is the Value of Solar? Minnesota Agency Starts to Answer. . .

by Stoel Rives LLP
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In May 2013, the Minnesota Legislature passed legislation that, among other things, set a solar standard, directed Xcel Energy to develop a community solar garden program, and provided for the development of an alternative tariff mechanism to net metering that would also serve as the rate for community solar garden programs. Under this new scenario and instead of traditional net-metering arrangements, customers would potentially buy all of their electricity from their local distribution utility and then sell all of their PV generation under that utility's Value of Solar (VOS) tariff which would be designed to capture the societal value of PV-generated electricity. 

The legislation directed the Department of Commerce to work with stakeholders to develop a VOS methodology and to deliver its recommendations to the Minnesota Public Utilities Commission (Commission) on Friday, January 31, 2014.  The Department’s filing today includes its recommendation, with a more in-depth document addressing the methodology.  The  Department’s recommendations do not set a rate, but rather propose the methodology for calculating a utility-specific rate for distributed PV solar (1 MW and smaller). If the Department’s sample calculation is any indicator of what’s to come, however, the value went from $0.126/kWh in its initial draft to $0.135/kWh in the documents filed this morning.

By statute Minn. Stat. § 216B.164, subd. 10, the VOS must take into account the following values for distributed solar PV:

  • Energy and its delivery;
  • Generation capacity;
  • Transmission capacity;
  • Transmission and distribution line losses; and
  • Environmental value.

The legislation also provided for the Department to incorporate, based on known and measurable evidence of the cost or benefit of solar operation to the utility, other values into the methodology including, for example, credit for systems installed at high-value locations on the distribution grid. The Department began convening stakeholders and receiving comments from interested parties last fall in preparation for meeting the January 31 deadline. Information on those proceedings can be found here and was used to form the ultimate recommendations delivered to the Commission.

The valuatation categories the Department included in its proposed methodology include the following, with the first three largely falling under the first statutory requirement above:

  • Avoided fuel cost
  • Avoided plant O&M - Fixed
  • Avoided plant O&M - Variable
  • Avoided Gen Capacity Cost
  • Avoided Reserve Capacity Cost
  • Avoided Trans. Capacity Cost
  • Avoided Environmental Cost
  • Avoided Voltage Control Cost
  • Solar Integration Cost

The slight upward changes between the example calculation in the Department’s November draft and that filed today were largely in the avoided environmental cost and the avoided distribution capacity cost categories. The methodology then calls for a conversion of the 25-year levelized value to an equivalent inflation adjusted credit rate. The methodology, if approved by the Commission, would then be available for utilities to choose to use in lieu of net metering. As such the rate itself will become utility-specific and would be recalculated by any given utility on an annual basis. While it will generally be optional for utilities to elect to apply a VOS tariff in lieu of net-metering, Xcel Energy must apply the VOS tariff to its developing Community Solar Garden program (more on that evolving program is in Commission Docket No. M-13-867 and Xcel’s initial proposal can be found here.

The Commission issued notice of an expedited comment period with initial comments due February 13, 2014 and reply comments due February 20, 2014. The expected meeting date is March 12, 2014. By statute, the Commission must approve, modify, or disapprove the methodology within 60 days of its submission (early April).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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