Community solar in Minnesota

Solar panels are a great addition to rooftops, but rooftop installation is not the most practical clean energy solution for most people. In fact, only about a quarter of residential rooftop areas can even support photovoltaic (PV) panels.

To make solar accessible to a wider number of people, another option has proved very popular in Minnesota: community solar.

What is community solar?

Anyone who receives an electricity bill can access the benefits by becoming a community solar subscriber. When you subscribe, your electricity payments are still serviced by your utility, but your source of energy changes. Instead of receiving electricity derived from conventional fossil fuel sources, you will receive energy produced at local community solar farms.

Community solar farms are local, off-site arrays of solar panels which feed electricity into the nearest utility grid. Developers of the farms can receive tax rebates and other incentives to build the solar energy farm, and the cost-benefit is further aided by subscriptions. Even though a community solar subscriber does not own any solar panels, they support clean energy production in their state.

Solar energy prices have dropped significantly over the past few decades, so the cost of energy derived from solar panels is sold at a cheaper rate than the energy produced by conventional fossil fuel-based sources.

With community solar, everyone can receive rebates on their electricity bill at no cost by signing up and subscribing to a community solar retailer like Choose Solar.

Minnesota’s Community Solar Program

Minnesota has the most successful community solar program in the United States. At the start of this year, it had the highest amount of installed community solar capacity of all states with 384 projects producing 784 MWs. That’s almost a quarter of the US total of 2579 MWs.

Today, about 19,000 subscribers access clean energy through Minnesota’s community solar program. Here’s why community solar is such a great opportunity for the residents of Minnesota:

Subscribers of community solar benefit from the environmental, health and economic benefits of solar energy while also receiving cost savings on their electricity bills.

Anyone can subscribe including renters, low-income households and small businesses:

  • You don’t need to own or install solar panels
  • You don’t need to own property
  • With Choose Solar, you don’t have to pay a fee to subscribe
  • Each month, you’ll receive rebates of roughly 5 to 10% off of your regular utility bill

Here’s how it works:

  1. The electricity is produced at a solar farm in Minnesota in a nearby county.
  2. Subscribers of community solar can access that energy.
  3. By signing up for free, you’ll get credits from this local, clean, solar energy.
  4. Choose Solar calculates your solar usage and electricity cost savings for no cost.
  5. When you receive the utility bill from Xcel Energy, you’ll see your community solar savings deducted off the standard electricity price.
  6. Your electricity savings will range from roughly 5-10%, depending on the going electricity rates.

Cost of electricity in Minnesota

Residents of Minnesota pay a similar rate for electricity (13.04 cents per kilowatt hour) to the national average (13.01 cents per kilowatt hour). Residents pay roughly $97.58 per month, which amounts to $1170.96 per year for electricity.

With community solar rebates you’ll earn somewhere between a 5% savings ($58.5 per year) and a 10% savings ($117 per year), and the best part is this comes at no cost to you.

Community solar gives access to people who couldn’t use renewable energy before:

  • Renters of homes and apartments
  • Anyone leasing space for business
  • Mobile home owners who can’t install solar
  • Home owners unable to invest in rooftop solar

As you can see, community solar is especially beneficial to low- and medium-income (LMI) households and subscribers. It’s perfect for renters, or people living check-to-check who need discounts most. Besides, renters and people unable to afford rooftop solar care about the future of the planet as much as anyone else.

But other subscribers can and do benefit from Minnesota’s community solar program as well. The majority of electricity generated through the project (84%) goes to commercial subscribers with a higher electricity demand.

But community solar in Minnesota isn’t just about shaving off costs at home, it has broader community benefits.

How has community solar benefited the economy of Minnesota?

  • It starts with the savings. In the month of February 2018, with higher use as a winter month, Xcel energy credited $2.2 million for 17.3 million kilowatt-hours of electricity.
  • Much of the monthly savings (87%) went to commercial subscribers, most of these (61%) entities are important public entities, which serve the community. This includes entities like hospitals, schools and local governmental offices.

Interesting fact: In Minnesota, residents use the least amount of energy per community solar subscription. They total 84% of the total subscribers, but consume just 11% of the overall community solar energy produced.

  • Community solar farms are privately owned small holdings, so a wider number of local developers can financially benefit from the investment. If all of the farms were owned by a single utility, only that one company would benefit from the sector’s growth.
  • Beyond that, the rapid growth of community solar panel installation has resulted in a significant number of jobs in Minnesota. As of late 2020, 4,335 workers were employed by 146 solar companies in the state. And this number is expected to grow.

Unique Features of Community Solar in Minnesota

What makes Minnesota so unique? In fact, each state has unique strengths and challenges when it comes to adopting equitable renewable energy solutions. In spite of its success, Minnesota faces its own unique challenges, too as you’ll see.

  • No cap on total capacity of solar farms built each year

Minnesota allows unlimited community solar projects to go online, as long as they satisfy the other requirements related to colocation, which I describe below. In other states, such as Colorado, the amount of solar projects that can be installed each year are limited. The cap in Colorado is a total of 6.5 MW for each utility per year.

  • Value of Solar Compensation to Energy Producers

The way that community solar reimburses developers helps the growth of community solar in the state. In 2018, Minnesota changed its reimbursement scheme to one known as the “value of solar,” which considers the value of solar across a timespan of 25 years. To implement the value of solar calculation, each individual project must generate under 1 MW of energy.

Under the value of solar scheme, the rate of purchasing electricity is not impacted–the utility’s retail rate is still applied. However, reimbursement for a separate VOS rate determined by the state’s unique “avoided distribution” formula is returned to the solar array owner based on the kilowatt hours produced.

A total of eight factors are used to determine the rate each year, by calculating how each of the following costs are avoided:

  • Environmental cost
  • Fuel cost
  • Generation capacity cost
  • Transmission capacity cost
  • Distribution capacity cost
  • Plant operations and maintenance (fixed and variable) costs
  • Reserve capacity cost

The calculation is complex and Xcel energy, which operates the community solar program, has criticized the valuation for its high variability.

Minnesota chose this alternative for several reasons:

  • Value of solar looks at different frameworks of value for solar including societal importance
  • It is a simpler method of valuation from net metering
  • The calculation is transparent and easy to modify

By separating the rate of consumption from production and localizing a number of factors to the specific utility the community solar farm interacts with, Value of Solar offers a clearer link to the specific usage and utility factors impacting the solar farm’s production.

In contrast, most states rely on net energy metering to value the power generated by distributed solar. Along with Austin, Texas, Minnesota is just one of two jurisdictions operating with the VOS alternative.

From 2015 to 2018, however, Minnesota used a different method for the projects that came online: the “applicable retail rate,” which based rates on customer electricity rates, similar to net metering.

  • Adder for Residential Subscribers

The state of Minnesota aimed to incentivize residential subscriptions to benefit the people community solar energy is designed to serve: Low and Medium Income residents of the state. In order to do so, it created an “adder” which gives an additional compensation of 1.5 cents per kilowatt-hour to developers when they bring on residential subscribers for their projects.

  • Colocation Guidelines

Projects built adjacent to one another had a 5MW cap, but this cap was decreased to 1MW in 2016. Critics have argued that this rule should be removed, as it would reduce the cost for customers.

  • Community Sourcing

At present, subscriptions for community solar in Minnesota should be sold in the county the project is located and its neighboring counties. Based on this law, there is only room for another 200 to 300 MW to be developed that could still meet this requirement.  This is another potentially limiting rule for the growth of community solar, whose advocates are supporting a measure to remove this rule.

  • Five subscriber rule

For each developer who provides energy through community solar subscription, a few guidelines on the make up of their subscribers apply. No one subscriber can claim more than 40% of the electricity generation and the project must have at least five subscribers.

Challenges for community solar in Minnesota

A central policy debate between supporters of community solar and the utility which services the community solar projects: Xcel energy. The investor owned utility responsible for administering the value, has raised concerns that the projects primarily benefit commercial entities rather than the vast majority of the state’s residents, who subsidize the cost of building the projects. In contrast, Xcel Energy promotes the development of utility-scale solar energy projects.

So far, the utility company hasn’t fully swayed public opinion, however, as its preference would clearly consolidate the economic gains from developing solar under its ownership. The benefits that community solar provides are strongly supported by people in Minnesota. It has added jobs, distributed the economic benefits of solar power generation to multiple developers, and led to the rapid expansion of solar energy in the state.

The state’s community program has received the top score of “A” on the Interstate Renewable Energy Council’s scorecard, above New York, which received an “A-”. The scoring criteria awards programs with the following qualities:

  • Long-term programs
  • Participation from LMI consumers
  • Portable and transferable subscriptions
  • Clear systems in place for community solar ownership and management
  • How bill credits are valued
  • Treatment of renewable energy credits (RECs)

In Minnesota, the majority of community solar projects are serviced by Xcel Energy, an investor owned utility operating in a variety of states. Xcel Energy has a reputation for fostering renewable energy growth.

In 2018, it became the first major US utility to make a net-zero pledge, aiming to reduce its carbon dioxide emissions 80% by 2030 and 100% by 2050, in line with Paris Agreement targets.

Community Solar Energy Legislation Timeline in Minnesota

For decades, Minnesota has supported efforts to expand clean energy and mitigate the harm caused by greenhouse gas (GHG) emissions through energy efficiency measures and energy policies. Here are the key pieces of Minnesota legislation that have promoted solar energy growth:

  • 2001: Minnesota Renewable Energy Objective (REO) – A requirement for utilities to derive 10 percent of their energy sales from renewable energy sources by 2015.
  • 2007: Minnesota Renewable Energy Standard (RES) – An amendment to the state’s REO, which mandated renewable energy goals in 2010. New clean energy sources were made eligible for the standard, and it required the Minnesota Public Utilities Commission to establish a renewable credits trading system.
  • 2007: Next Generation Energy Act – A requirement for the state to reduce greenhouse gas emissions by 80% between 2005 and 2050 with the following benchmarks: 15% reduction by 2015 and 30% reduction by 2025.
  • 2013: Minnesota Community Solar Garden Program – The state established a way for all electricity users who pay for rates through a utility to access solar energy through a subscription. It is now one of twenty states to offer such a service. The program led to a vast expansion of solar development and doubled the number of jobs in the solar industry for the state.
Going forward, there are several additional proposals which could expand the role of clean energy in Minnesota. These include the following:
  • Energy conservation and Optimization Act (ECO) – Since passing its Conservation Improvement Programs (CIP) in 1980, Minnesota has shown strong interest in using energy efficiency and energy conservation to reduce the harmful impacts of carbon dioxide emissions. ECO would update CIP, which was last updated in 2007. It would allow fuel switching to improve cost and energy savings by allowing energy consumption shifting at key times.
  • Clean Energy First – A proposal to update Public Utility Commission (PUG) regulation on utility proposals. It would include considerations for serving the public interest and meeting Minnesota’s targets for reducing GHG emissions.
  • 2019 100% Clean Energy Bill – A bill that would require electric utilities to use 100% carbon-free energy sources by 2050. Though the bill did not pass the Minnesota Senate after passing the House, the proposal remains a policy aim of Governor Walz, who now aims for 100% clean energy by 2040 through a combination of policies.

In spite of this positive progress, these efforts are not enough for Minnesota to achieve a 100% carbon-free economy by 2050, in line with the 1.5 degree Celsius atmospheric temperature rise scenario, which the IPCC, the leading global authority on climate change urges the world to target.

Achieving net zero emissions by 2050 would require Minnesota to increase renewable energy, reduce GHG emissions related to land use and mass transit, and improve the land’s carbon sequestration (absorption) through regenerative agricultural methods and environmental conservation. These recommendations were outlined in a 2016 report by the Climate Solutions and Economic Opportunities Initiative.

Clean energy in Minnesota is just getting started

Even with such a successful community solar program, Minnesota only derives 3% of its total energy from solar energy. Still, it is the only state in the Midwest using more than 1 GW of installed solar energy. In total, the state ranks 14th in the nation for solar energy production with an installed capacity of 1,508 MW.

Since 2005, electricity generation emissions fell by 29% in Minnesota, and the governor hopes to use this momentum to adopt clean energy even quicker in the coming years.

Democratic Governor Tim Walz has announced a state goal of 100% clean energy for 2040. He hopes to achieve this goal through a variety of policies: improving renewable energy standards, ensuring investor owned utilities choose clean energy for adding or replacing power generation, and making buildings more energy efficient.

Minnesota energy resources

To understand what it means to shift to 100% renewable energy, it helps to look at the makeup of energy sources in Minnesota. The following data is from the U.S. Energy Information Administration for 2019:

  • Coal (32%)
  • Nuclear (25%)
  • Wind (20%)
  • Natural Gas (18%)
  • Solar (3%)
  • Hydroelectric (1%)
  • Biomass (1%)

Reducing dependence on coal and natural gas, means shifting 50% of the state’s energy to alternative sources. This could mean a very bright future for solar energy in Minnesota. Ideally solar development will benefit the local community, just as community solar does for residents of Minnesota.

Key takeaways

Minnesota’s success in community solar won’t likely be overshadowed in coming years, and many people will start to see how enabling development without caps and choosing a value of solar compensation system may offer key solutions other states could take advantage of.

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