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Published on May 7th, 2013 | by John Farrell

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The Making Of A New Midwestern Solar Energy Standard

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May 7th, 2013 by
 
This post originally appeared on ILSR’s Energy Self-Reliant States blog.

Last week, a solar energy standard moved one step closer to passage in the Minnesota state legislature, with an innovative new approach to financing solar power.  It’s a powerful first step for what would be one of the more robust policies to support distributed, local solar power in the country.

The policy has three key pieces, outlined below.

A Solar Standard

Following in the steps of 16 other states, the House version of the Minnesota bill sets a timeline for (investor-owned) utilities to add solar to their electricity mix:

0.5% of electricity sales by 2016

2.0% of electricity sales by 2020

4.0% of electricity sales by 2025

And, an “objective” of 10% solar by 2030

Unlike other states, this solar energy standard is not a carve-out of the existing 25% by 2025 renewable energy standard, but is in addition to that standard.

The following chart compares the proposed standard to those in force in other states:

Minnesota proposed solar energy standard May 2013

 

Paying for Production: The Value of Solar (VOS) & Incentive

In addition to the standard, the legislation requires utilities to mimic the VOS calculation popularized by Austin Energy in Texas, essentially setting a market price for solar power (per kilowatt-hour) on the basis of its value to the grid. There are seven components address in the bill:

  1. Line loss savings from avoided electricity imports on the transmission and distribution grid
  2. Capacity savings from avoiding upgrades to transmission and distribution systems by providing local power
  3. Energy savings from reducing wholesale energy purchases
  4. Generation capacity savings from offsetting the need for new (peak) capacity
  5. Fuel price hedge value from a zero fuel cost energy source
  6. Environmental benefits
  7. Economic benefits from the growth of the state’s solar industry

For more context, this article talks more generally about the value of distributed generation to the grid and this study [pdf] gets right into the nitty gritty of Austin’s calculation.

The VOS price will be combined with a production-based incentive (PBI) to offer solar energy generators a price sufficient to provide a reasonable return on investment if their project produces energy as anticipated.  This “reference price” (VOS+PBI) will be differentiated by project size:

  • Residential
  • Small commercial (less than 25 kilowatt (kW))
  • Large commercial rooftop (25 kW to 2,000 kW)
  • Large commercial ground-mounted (25 kW to 2,000 kW)

As is implied above, no project larger than 2 MW may get the VOS or PBI, but rather would seek a power purchase contract via utility request for proposal or competitive bid process.

A Standard, Long-Term Contract

Utilities must develop and use a standard contract that offers producers the combined value of solar and PBI over 20 years.  This dramatically simplifies the financing and development of distributed solar power projects and will hopefully mean the solar energy standard will be met with a diversity of utility-scale and distributed solar.

Summary

If the bill can win over legislators in the House and Senate, it promises to deliver over 1,300 megawatts of solar power to Minnesota electricity users, create over 5,000 jobs and pump more than $5 billion in the state’s economy in the next decade.  It also promises to be very affordable, with a forecast blended cost per kilowatt-hour (for the incentive) of just 2.7¢ per kWh.

blended cost of MN solar energy standard

Should it pass, the solar energy standard will be a good fit for a state where the women are strong, the men good looking, and the energy policies are above average.

All images are used by permission of the author.

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About the Author

directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.



  • http://www.facebook.com/tom.mcinerney.982 Tom McInerney

    That sounds great
    Please export to the all 47 states !

  • http://www.facebook.com/profile.php?id=100002397356341 Facebook User

    Dear John,

    Thanks for the informative article. I am wondering how such a program can be replicated in emerging economies where state policy dictates solar absorption. We are trying to create awareness among commercial and industrial institutions on the economic benefits of using CaptiveSolar solutions with informative articles like

    http://www.sunipod.com/blog/electricity-generation-from-photovoltaic-power/

    like but the adoption is still laggard. Any suggestions?

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