Last week the state of Minnesota officially enacted a solar carve-out of 1.5% by 2020, totaling 450MW of capacity, above and beyond the existing renewable energy standard (RES) of 25% renewable energy by 2025. The carve-out applies to investor-owned utilities (IOUs) and affects about two-thirds of electricity sales in the state. Due to a compromise made early in the bill’s negotiations, certain large industrial electricity consumers like iron mining operations and paper mills are exempt from the standard, making the carve-out in practice about 0.88% of total retail electric sales. Provisions in the bill also create a production-based incentive (PBI) for small projects; community solar gardens; an expansion on the upper size limit for net metering with IOUs; and a standard offer program for projects 1MW and smaller that IOUs may choose to enact.
The bill includes a 10% standard for small projects capped at 20kW each, resulting in a 45MW set-aside for residential and light commercial development. The set-aside is supported by a production-based incentive paid out over 10 years for systems 20kW and under in Xcel Energy’s territory. The PBI will open in 2014 and stay open for five years, with $5 million allocated each year. The program must be designed by the utility and approved by the commissioner of commerce.
Similar to a program already up and running in Colorado, the bill sanctions community solar gardens with five or more subscribers and capacities of 200kW or more. Community garden subscribers earn the “value of solar”, described below, and not the current retail rate. A subscriber may purchase up to 120% of their overall energy consumption.
IOUs (investor-owned utilities) also have the option to file to create a new program loosely structured as a feed-in tariff. Projects under 1MW could opt into a standard offer based on the “value of solar” – not on the current retail rate, like traditional net metering. While the price is adjusted each year for the standard offer, once a utility customer executes a contract they lock in the rate for a 20 year term. The “value of solar” is designed to reflect the utility’s current valuation of solar, including avoided costs relating to transmission and line losses. The bill lists five elements of the value of solar:
- Generation capacity,
- Transmission capacity,
- Transmission and distribution value,
- And environmental value.
Under the standard offer, all energy from a solar installation must be sold to the utility while the host continues to purchase all of its electricity from the grid. The two accounts are reconciled annually and any surplus generation from solar is scrapped. Thus, participants in the program must be utility customers and will still need to size their system to their yearly consumption. Although the program sounds like a feed-in tariff or power purchase agreement, in reality it more closely resembles net metering since customers may not profit above and beyond offsetting the entirety of their electricity bill.
The new legislation will jump-start the Minnesota solar industry over the next seven years and provides ample opportunities for Minnesotan ratepayers to go solar. However, due to the new “value of solar” methodology and the cap on revenue earned from projects using the standard contract offer, it remains to be seen to what extent the new programs present third-party financing opportunities, and if additional opportunities for larger projects emerge. Sol Systems will continue tracking the programs as they develop and keep our developer and investor partners appraised of evolving market opportunities. For more information on this market, please contact our project finance team at firstname.lastname@example.org or (888) 235-1538 x2.
About Sol Systems
Sol Systems is a boutique financial services firm that offers investor clients direct access to the renewable energy asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has arranged financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals.
For more information, please visit www.solsystemscompany.com.