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Published on April 9th, 2014 | by John Farrell

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Can A Fair Solar Price Win Over Utilities?

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April 9th, 2014 by
 
In March 2014, Minnesota became the first state to adopt a “value of solar” policy to set a fair, transparent price on solar energy. It may serve as a national precedent and fundamentally change the financial relationship between electric utilities and their energy-producing customers.

So what will value of solar mean for utility customers producing power with solar?

The Value Of Solar Concept

comparison of net metering and value of solar in MinnesotaThe basic concept behind value of solar is that utilities should pay a transparent and market-based price for solar energy. The value of solar energy is based on:

  • Avoiding the purchase of energy from other, polluting sources
  • Avoiding the need to build additional power plant capacity to meet peak energy needs
  • Providing energy for decades at a fixed price
  • Reducing wear and tear on the electric grid, including power lines, substations, and power plants

Value of solar is not like net metering, where producing energy reduces your electricity bill just like turning off a light. Fig. A illustrates the difference between net metering and value of solar in Minnesota. It also highlights a few key features of the adopted value of solar policy, including the 25-year contract, and the use of bill credits rather than a separate cash payment.

Minnesota’s Value of Solar

As adopted, Minnesota’s value of solar formula includes all of the basic components of the theoretical policy. The following chart (Fig. B) shows the relative value of the various components, and the total value, based on early estimates filed during the proceedings at the state’s Public Utilities Commission.

preliminary estimate of value of solar in Minnesota

The Impact on Utilities and Customers

pull quote environmental value of solar Minnesota ILSR report The environmental value may be the most precedent setting, because it means that when buying solar power under Minnesota’s value of solar tariff, a utility is for the first time paying for the environmental harm of its fossil fuel energy generation. Value of solar offers something for everyone. For utility customers, a 25-year contract at a fixed price makes solar financing much easier, and as the cost of solar continues to fall, quite lucrative.

The following graphic illustrates the difference between net metering and value of solar for a utility customer in Minnesota with a 5 kilowatt solar array and monthly electricity use of 2,000 kilowatt-hours.

 

net metering compared to value of solar for sample MN electric customer

For utilities, the transparency of the market price means no concerns about cross-subsidies between solar customers and non-solar customers. It means a payment for solar energy uncoupled from the retail electricity price.  It may also mean a potential for cost recovery on payments made to solar producers, something not allowed with net metering. In Minnesota’s case, it also means free access to solar renewable energy credits, at a substantial savings compared to credit prices in states with competitive credit markets, i.e. New Jersey, Pennsylvania, etc.

A Caution

Although Minnesota’s value of solar policy is a national precedent, the adopted policy had some good elements that were lost in the legislative process, elements that other states may want to revive. The following table (Fig. C) illustrates:

Minnesota value of solar adopted v proposed

Will Value of Solar End Battles Over Distributed Generation?

If Minnesota utilities report favorably on the value of solar, it may change the debate in other state battlegrounds over distributed generation, shown below.

state policy battlegrounds over net metering and distributed generation 2014-0321

The value of solar delivers a transparent, market-based price for solar. It solves problems for utilities and for utility customers around compensation for distributed renewable energy generation.

As of yet, no Minnesota utility has filed to offer value of solar energy. And it may be that they’re thinking very deeply about whether this policy is a solution to an accounting problem they’ve identified with existing policy or whether they see it as yet another concession of their market share and a deadly threat to their economic livelihood.

For more on the value of solar policy:

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Photo Credit: Michael Hicks

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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.



  • GaryBIS

    First off, I want to make it clear that I am a fan of solar PV. I have a PV array that I installed myself, and spend a lot of time running a renewable energy website.

    But, I find myself being a bit skeptical of the value of solar that is shown above. It seems like from the utilities point of view, you are asking them to pay one suppler of electricity (solar PV) a price that is higher than the retail price that they sell electricity for — clearly that cannot work on a very large scale or the utility would be out of business.
    My (not too in depth) understanding is the the wholesale price of electricity is typically down around 4 or 5 cents per KWH — but, solar electricity is worth 13 cents a KWH?

    I understand some of the potential benefits such as less strain on the distribution system and potentially avoiding new generation costs. But, solar power is less reliable, the utility appears to be put in the position of having to take the solar power whether they need it or not (it must be a difficult task for the utility power buyers to accommodate this variability?), and there have been some areas where solar power penetration has been high (Hawaii) where solar power has caused grid instability.

    is there a reference you can suggest that provides the analysis details that lead to the bar graph above showing the value of solar?

    Gary

    • Larry

      If the Utilities are at all serious about utilizing Clean Energy resources they could easily overcome any problems associated with variable generation and grid instability by investing in and promoting new storage systems. Utilities have no problem investing in substations and step down transformers. New technology power storage systems at similar locations are overdue. All it takes is a shift in attitude by the management and engineers in the power generation industry.

    • NorskeDiv

      Exactly, I am totally in favor of solar installations for people who want it, but forcing utility companies to purchase solar power at an inflated price is simply a subsidy to the wealthy who can afford large solar installations.

      The only reason something like this even seems to work is that so few people do it that it has no large impact. Once it becomes too popular such policies are rolled back, as in Germany where home PV installations are no longer eligible to sell their power into the gird and receive feed in tariffs.

      • Bob_Wallace

        You may not like it, but requiring utilities to install a small amount of renewable generation is part of the process of bringing the price of renewables lower than fossil fuels.

        Do you realize the actual cost of burning coal?

        Do you realize that getting rid of coal will save us hundreds of billions of dollars each year?

        • NorskeDiv

          Yes, I do realize the cost of burning coal, that’s why I’m interested in displacing it. I just don’t want to displace it with solar for part of the day and natural gas the rest.

          I’d rather dump fossil fuels entirely, as France has.

          • Bob_Wallace

            France uses a lot of coal. They use Germany’s coal plants.

            How about we use solar when the Sun is shining, wind when the wind is blowing, storage and hydro when both are not giving us enough?

            That way we get reliable 24/365 electricity for a cheaper price and no of the problems nuclear brings to the table?

          • NorskeDiv

            It would hardly be a cheaper price to build out three nameplate capacities (at the very least). The US would need X Megawatts of solar, X Megawatts of wind and X Megawatts of Hydroelectric (X being total US demand). Right now we have something like .3X hydroelectric, so to even make this feasible will require a massive number of new dams. That is a political impossibility.

            Your correct that France does still have some coal power plants, however they run at a low capacity factor and most of them will be shut down by 2015. Unlike Germany, no replacements are required. A far sight from Germany which is building new coal power plants. Also, France is a net exporter of power to Germay (1).

            (1) Google: electricity-production-from-solar-and-wind-in-germany-in-2012.pdf (Page 48)

            Perhaps you have the luxury of waiting around for a energy storage technology which might never be invented that will allow us to save energy on grid scale for later use. I would rather go with proven technologies that we can use to get us carbon free by 2030… not 2050, or 2060… and still keep electricity affordable, and not $,40 a kWH as residents of Berlin are paying.

            Regarding hydro, if anything I’d like to see most dams in the US removed. Hetch Hetchy would be amazing, along with most of the dams in the central valley project as well, allowing the river to once again become a spawning ground for salmon and countless other fish. A few good nuclear plants with a combined desalinization cycle would easily offset the water and electricity production lost.

          • Bob_Wallace

            Wind is currently about five cents. Solar has reached six cents in the SW US. (Those are the LCOEs with no subsidies.)

            New nuclear would be greater than eleven cents, plus subsidies.

            Pump-up hydro is about five cents per kWh.

            Adding an appreciable amount of wind/solar or nuclear would require more storage.

            Were one setting up a grid from scratch a certain amount of production could come from nuclear without adding storage. Assuming no load-following by nuclear (which is both difficult and expensive) the amount of nuclear would be equal to the annual minimum demand.

            We could also meet that annual minimum demand with wind + solar + storage. So let’s do some math.

            Assume 40% of the an-min comes direct from wind, 30% direct from solar and 30% is stored wind/solar.

            (0.4 * 5c wind) + (0.3 * 6c solar) + (0.3 * (5.5c wind/solar + 5c storage) = 7c/kWh.

            7c/kWh < 11+c/kWh

            (We have hundreds, if not thousands of existing dams which can be converted to pump-up storage. Plus thousands of locations for installing closed-loop PuHS.)

          • Bob_Wallace

            Let’s throw in one more thing so that we keep the discussion based on facts.

            Here’s what has been happening to the wholesale price of electricity in Germany. Don’t be mislead by the taxes paid by retail customers.

          • NorskeDiv

            If this trend continues, Germans will be paying $1 per KWH and the wholesale price of electricity will be negative.

            “The industrial price of electricity in Germany is below the EU27 average. And has been dropping ever since Germany started scaling up renewables.”

            That’s true, German industry receives highly favorable electricity rates that are likely illegal under EU law. This is one thing Energiewende has undeniably done efficiently: the transfer of money from the pockets of small consumers to large corporations.

          • NorskeDiv

            Great, if solar has reached six cents per KWH then it has no need for subsidies or feed in tariffs. I’m happy to hear that.

            As to your very optimistic calculation, you are ignoring the energy loss of pumped storage. Pumped storage has at best a 50% efficiency, so it should be:

            (0.4 * 5c wind) + (0.3 * 6c solar) + (0.3 * (11c wind/solar + 5c storage) = 8.6c/kWh.

            Yes, I realize most of a German consumers electric bill goes to taxes which pay for feed in tariffs and subsidies which flow to solar and wind producers. This ties in well with the graph you linked below. Feed in tariffs makes it profitable for solar and wind producers to sell power at a negative price to the grid because they still make a profit after receiving their tax payer funded feed in tariff!

            Any other power source could work the same way, if coal power received a $.12 feed in tariff per kwh, then within a few years the wholesale price of electricity would be NEGATIVE. This would not mean that coal power has become a form of free energy, it only reflects a financial shell game.

          • Bob_Wallace

            70% to 80% RT efficiency with some claiming as high as 87%.

            http://en.wikipedia.org/wiki/Pumped-storage_hydroelectricity

            You can redo the math. Even 8.6c/kWh is significantly cheaper than new nuclear.

            Here’s how the German retail price of electricity broke down as of a few months ago -

            8.0 cent – Power Generation & Sales

            6.5 cent – Grid Service Surcharge

            5.3 cent – Renewable Energy Surcharge

            0.7 cent – Other Surcharges (CHP-Promotion, Offshore liability,…)

            In addition there are some taxes & fees that go straight into the governments budget:

            2.1 cent – EcoTax (federal government)

            1.8 cent – Concession fees (local governments)

            4.6 cent – Value added tax (19% on all of the above) – (federal, state & local governments)

            So 8 + 6.5 or 14.5 euro cents go to electricity purchase and delivery. About 19 US cents. That’s higher than the US 12.5 cent average, but less than a penny higher than New York and Connecticut.

            You’ll note the taxes which have nothing to do with the FiT and go into government coffers.

            ” Feed in tariffs makes it profitable for solar and wind producers to sell power at a negative price to the grid because they still make a profit after receiving their tax payer funded feed in tariff!”

            No, the FiT is the price they are paid.

          • Onefinity

            50% efficiency at best? You are very much mistaken. Most of the older pumped storage in the US averages 70% to 75%. With adjustable speed pump turbines, it should be 80%. Possibly higher if the conduits are short.

          • Bob_Wallace

            “Your correct that France does still have some coal power plants, however they run at a low capacity factor and most of them will be shut down by 2015. Unlike Germany, no replacements are re quired. A far sight from Germany which is building new coal power plants. Also, France is a net exporter of power to Germay (1).

            (1) Google: electricity-production-from-solar-and-wind-in-germany-in-2012.pdf (Page 48)”

            Let me give you some numbers for German and French electricity exchanges.

          • NorskeDiv

            Those indux Mundi figures are strange, and don’t match up with either Frauenhoffer or Tennent.eu, whoever extrapolated them from the CIA world factbook (IndexMundi’s claimed source of that information) did not do a good job.

            Again, I point you to the Frauenhoffer institute, which is avowedly pro-renewable. Their grid report is the most comprehensive report I am aware of, and even breaks down imports and exports by day on page 48.

            electricity-production-from-solar-and-wind-in-germany-in-2012.pdf

          • Bob_Wallace

            Upon checking, I cited the wrong source when I put that table together. Mundi does not break down where imports go to or where they come from for individual countries. They give only total import/export.

            Here’s the source for the power purchases between France and Germany.

            http://energeia.voila.net/electri/france_allemagne.htm

            The author of that page cites their data source as –
            RTE Network of Transmission of Electricity

          • Bob_Wallace

            This should be the corrected table.

          • Bob_Wallace

            Here’s what the RTE has to say about France’s electricity industry in 2012….

            “As in 2009 and 2010, the balance of trade in electricity showed net imports from Germany, of 8.7 TWh.”

            http://www.rte-france.com/en/news-cases/news/rte-publishes-the-2012-french-electricity-report-1

            13,985 – 5,200 = 8,785. (Apparently they did a bit of self-serving rounding.)

  • actofcourage

    This is a “no Brainer” Utilities should be contributing to this concept. They are jsut to greedy…..As always…FOLLOW THE MONEY

    • NorskeDiv

      The money is coming from solar manufacturers who fund ILSR.

  • JamesWimberley

    Another authoritative poster here, Karl Rabago, with experience of the Austin VOST, wrote that VOST tariffs are reviewed annually (using the same methodology). (http://cleantechnica.com/2014/04/05/value-solar-approaches-merit-support/) This is a crucial difference from FITs, which are long-term fixed guarantees.

  • Mahdi

    That electricity consumption in that example is HUGE. My all electricity house at 50 deg latitude consumed about 600 kWh/month.

    • Otis11

      2000 kWh is pretty typical in hotter portions of the globe – 50 degrees latitude puts you in a pretty cool climate. If you go down to 25-35 degrees latitude it can get quite hot. There it’s very common for your AC to make up more than 600 kWh/month.

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