Last week, Governor Mark Dayton signed an economic development bill that contained several powerful incentives for solar development. This confirms what many have been saying for quite some time — that solar is careening toward widespread adoption and will create jobs while reducing emissions along the way.
This development is a good indicator of some fundamental dynamics that are playing out in the energy space. First, if you were to look at a map of US solar potential, Minnesota would not be the first place you’d put solar panels. This can also be said of Germany — not exactly heralded for its sunny weather — but which still has 1.3 million installed solar power systems that just set a new peak output record of 22.68 GW. So why is solar getting traction in these places?
Well, with the cost of solar PV dropping 80 percent since 2008 alone; the truth is that economic inertia has made solar practical even in places like Minnesota and Germany. In addition, the secret to solar success has not been finding the places with the most sun, but rather finding places where the political will is ready to galvanize around smart, forward looking investments that create good jobs.
The Minnesota bill isn’t perfect, but it’s a great, replicable model for future legislation. Here are the three best parts that others should look to:
The Solar Standard
Minnesota is now home to a solar energy standard that requires 1.5 percent of the state’s electricity to come from solar by 2020. The law stipulates that 10 percent of those projects must be under 20 kilowatts. This will encourage widespread development of distributed generation across the state, with utilities needing to add about 450 MW of solar power to their portfolio.
The bill will also transition the state from a rebate-based system to a production-based system. In other words, instead of providing consumers with up-front compensation for their investments, they will be compensated based on the amount that their solar panels produce. There will be $5 million per year available in the fund to compensate electricity generation. A particularly interesting aspect of this program is the “Made in Minnesota” provision, which gives special incentives to locally produced panels. This allows the solar standard to save consumers money while simultaneously spurring local industry.
So a ton of solar is going to have to be built between now and 2020, the only remaining question is: when?
Advocates are debating this question, but many are leaning toward “frontloading” the mandate by building lots of solar right away. This is because solar projects currently qualify for the Investment Tax Credit, meaning that Minnesota could take advantage of available federal dollars to help pay for meeting this mandate. However, others believe that with rapidly falling costs it may be cheaper to “backload” the mandate and build progressively more solar as the years go on. This is not a settled question, but in either case, meeting the mandate will spark investment and be an economic boon for the state.
Another neat thing about the bill is the new forms of solar it encourages. There is a provision for community solar, where many consumers can opt-in to owning a piece of a solar photovoltaic (PV) array that can be managed by the utility. This is an innovative way to aggregate PV and give consumers a piece of the pie, since individuals can own a part of the project and benefit from the cheap power it creates without having to manage and maintain it themselves. These projects have to be under 1 MW, require at least 5 participants, and no one person can own over 40 percent. There is no limit on how many projects can be built, and the ability to be flexible and have several people own a stake in a strategically placed solar garden is a smart move.
The Price is Right
One challenge with solar PV is that it has different qualities than a coal or gas power plant, but it is competing in a market that is designed around coal and gas power plants. As more solar gets integrated into the grid, the market is going to have to do two things. First, regulators are going to have to find a way to accurately value solar — instead of relying on the same metrics that coal, gas, or nuclear are judged by. Second, consumers are going to need a mechanism that compensates them for their individually-owned little power plants.
The bill makes an attempt on both counts. Net metering, which essentially allows consumers to get paid for the energy they produce through offsets in their bills, has actually been in place since 1983 for systems producing under 40 kilowatts of power. The trouble is that this did not compensate consumers for the excess electricity that they generated. The new law, which applies to systems generating over 40 kilowatts, changes this dynamic and compensates consumers fully.
But what price should consumers get for the power they generate? That’s where the second provision, called the Value of Solar Tariff, comes in. The law tasks the Department of Energy Resources and the Public Utility Commission to determine a price for solar that takes into account its many benefits. For example, when a consumer’s solar panel is pumping out electrons to their home — transmission lines don’t need to carry as many electrons from hundreds of miles away. This is what’s known as an “avoided cost” because it reduces what will have to ultimately be paid to maintain and manage those wires. Another example is the avoided emissions. In some cases, when a solar panel generates 1 MW of power that is 1 MW less of power coming from a coal plant. There is value there that needs to be recognized.
There is obviously some redundancy between these policies, but the period of time where they overlap is crucial. As Michael Noble, Executive Director of Fresh Energy, explained:
“What we are doing here with the value of solar tariff is inventing a new pair of suspenders. But we don’t want to get rid of the old 30 year net-metering belt until we know it works. We have to make sure that consumers can finance projects with the revenue streams from their panels first.”
Minnesota joins Austin in creating a Value of Solar Tariff to try and create smart markets that acknowledge the unique attributes new technologies bring. For more great information on what the bill will do for Minnesota, see John Farrell’s great slidedeck. Hopefully, coming months will see more advocates, cities, and states working together for clean economic growth.