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Can A Fair Solar Price Win Over Utilities?

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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Written By

John 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.

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