Solar energy industry advocates in Minnesota expect a slowdown in development under the Community Solar Gardens (CSG) program this year following state regulators’ approval of Xcel Energy’s proposed 4% reduction in the value of solar (VOS) rate (13-867).
The VOS rate — which sets compensation levels for CSG projects in Xcel’s territory — has been reduced in three of the last four years and now stands at 13% below 2017 levels.
Similar in concept to an urban farming co-op, CSGs were created for customers who want to use solar energy but can’t add rooftop panels. Customers who purchase shares of a participating solar site receive bill credits in return. Half of all U.S. households do not have access to rooftop solar resources, the Yale School of the Environment reported in 2019.
The state passed legislation in 2013 requiring the Department of Commerce to establish a methodology to compensate customers who provide distributed solar PV generation “for the value to the utility, its customers and society.”
The VOS methodology, which could be adopted by utilities as an alternative to net metering, has been used since 2017 to set rates for the CSG program in Xcel’s territory. It includes several categories of avoided costs, including fuel, plant operations and maintenance, generation capacity, transmission and distribution capacity, and environmental damages.
The program’s capacity has expanded to 784 MWac as of January 2021, including 435 applications submitted in 2020, about half of which are likely to be completed based on historical attrition rates. But David Shaffer, executive director of the Minnesota Solar Energy Industries Association, predicted only 150 MW in new capacity will be added during 2021 following the Public Utilities Commission’s VOS reduction, approved Jan. 28. The commission’s order was published March 9.
The VOS rate reduction doesn’t affect projects already developed or in production, but it does affect future development, said Timothy DenHerder-Thomas, general manager of Cooperative Energy Futures (CEF), one of the 115 solar site operators represented by MnSEIA.
Cooperative Energy Futures, which has completed at least eight community solar projects in Minnesota, says it does not plan any new projects in 2021 because of the reduced rate for solar bill credits. | Cooperative Energy Futures
He said the group is still completing projects begun in 2020: “That’s our major focus now.” Absent other economic changes, he said his co-op will probably not develop projects in 2021 under the value of solar rate approved by the commission.
“We’ve put a pause on new development” in 2021, he said.
Both Shaffer and DenHerder-Thomas said new CSG development has dropped in every year the VOS rate was decreased.
The commission’s order supported the Department of Commerce’s conclusion that “although certain aspects of the methodology leave some room for discretion, Xcel’s calculation is consistent with the approved methodology.”
“The VOS isn’t perfect, but it has been successful,” said Commissioner Matthew Schuerger at PUC’s Jan. 28 meeting. “It’s not intended to be perfect. It’s a balancing exercise. It’s balancing accuracy and simplicity and transparency. It’s a triangulation that’s really hard to do.”
The levelized rate was set at 12.75 cents/kWh for 2017, then reduced in 2018 to 12.02 cents and to 11.09 cents in 2019. The only increase came in 2020, when it was boosted to 11.52 cents. The levelized rate for 2021 is 11.04 cents/kWh, a 0.48-cent (4%) cut. (The levelized value is adjusted for inflation over the projected 25-year life of the solar project.)
Three-year Average
Industry groups and other stakeholders raised several issues in the docket, including Xcel’s decision to calculate solar production on an unweighted three-year average of 2017-2019.
MnSEIA and CEF said it was improper to use an unweighted average because 2017 data was based on only 27 MW of solar, while 2019 was based on 495 MW.
Cooperative Energy Futures’ 199-kW community solar array on the roof of Pax Christi Church in Eden Prairie, Minn., came online in July 2019. | Cooperative Energy Futures
DenHerder-Thomas said Xcel used only selected data from simulations and from only one CSG site, the Minneapolis-St. Paul Airport, in developing the proposed 2021 rate.
Xcel responded that its use of unweighted data over the three years smoothed out the impact of weather, resulting in a more reliable predictor of solar production for 2021. It also contended the methodology does not allow weighting as proposed by MnSEIA. The utility also rejected Cooperative Energy Futures’ suggestion to use multipliers to fill gaps in hourly metered data for systems of certain types, saying it would be inconsistent with the methodology and past commission orders.
There also was criticism of Xcel’s use of New York Mercantile Exchange natural gas futures for determining avoided fuel costs. Critics said NYMEX futures weren’t the best way forecast natural gas prices over the 25-year life of a project because of its volatility and short-term emphasis.
Natural gas prices bottomed out during the beginning of the pandemic, Shaffer said, and that was the price Xcel chose to use in the calculations. MnSEIA offered suggestions to represent the price more accurately during 2020, but they were ignored, he said.
The PUC said it was “not persuaded that the balance between precision, transparency and accessibility has shifted enough to compel a different approach to calculating avoided fuel cost at this time.”
Several parties also challenged the assumption that solar PV displaces only natural gas, contending coal is more often the marginal fuel displaced. The VOS methodology notes that changing to include displacement of coal might reduce avoided fuel costs while increasing avoided environmental costs.
“The comments challenging Xcel’s solar-weighted heat rate, avoided fuel cost and marginal-fuel assumption do not demonstrate that Xcel failed to apply the approved methodology; rather, they ask the commission to modify these components of the methodology, or to endorse one permissible option over another, equally permissible option chosen by Xcel,” the PUC said. “Because Xcel appropriately applied these components of the methodology, the commission will not reject Xcel’s proposed 2021 value-of-solar rate on these grounds.”
Delayed Interconnections
The PUC also heard calls to penalize Xcel for allegedly delaying interconnection of projects under the CSG program.
MnSEIA said Xcel’s failure to reduce interconnection delays harmed hundreds of customers and job creation in the sector. The association said it lost customers, had to idle workers and overpaid Xcel for interconnection studies because of the delays.
Xcel responded that the interconnection issue is not germane to the 2021 VOS determination. Xcel denied allegations that the company has a financial incentive in delaying customers from entering the CSG program, saying all program expenses are directly passed through to customers through fuel cost adjustments. It countered that MnSEIA’s motive in raising the issue was to delay approval of the 2021 VOS, keeping the higher 2020 rate in place.
The PUC also voted to order Xcel to provide a report evaluating the effectiveness of the residential adder — a bonus bill credit to residential subscribers to stimulate residential customer participation in the program — by March 26, when the adder is set to expire. Comments from MnSEIA, CEF and US Solar all supported extending the adder of 1.5 cents/kWh.
Cooperative Energy Futures’ 664-kW community solar array on the roof of the Public Works building in Edina, Minn., went online in November 2018. | Cooperative Energy Futures
The five-member commission unanimously directed Xcel and the Department of Commerce to discuss a new “profile-based” approach to determining the proxy fleet shape used for the 2022 VOS.
This profile would include larger solar operations in addition to CSGs and would utilize “as-built” information on all installations.
The fleet shape impacts values for effective load carrying capacity, peak load reduction, loss savings and solar-weighted heat rate. The solar-weighted heat rate attempts to capture the emissions of fossil fuel resources displaced by new solar.
The PUC ordered Xcel to propose changes for its 2022 value of solar by July 1.