Last month, a Value of Solar Tariff (VOST) emerged in Minnesota, and it was accompanied by extensive commentary from the solar industry.
What is a VOST and why is it interesting?
VOSTs are utility rate tariffs. They are similar to Feed-in Tariffs (FITs) because the utility pays the system owner for all the solar electric generation; there is no net metering calculation to account for solar energy consumed by the host. However, VOSTs and FITs differ in the way the rate is calculated. Theoretically, VOSTs account for the positive and negative attributes of solar, such as avoided cost, alleviation of grid congestion, and environmental benefits. Although it is not the first VOST (Austin, TX claims that precedent), the Minnesota VOST has attracted attention because it is the first statewide precedent for calculating the value of consumer-generated solar power.
So far, the industry is split on how to view VOSTs. Some VOST supporters (Jigar Shah included) purport that VOSTs are a necessary compromise, the next evolution of net metering, and a victory for the industry. On the other hand, VOST critics contend that a VOST is a wolf in sheep’s clothing. Why?
VOSTs require solar-generating ratepayers to sell all of the solar electricity they produce to their utility while they must purchase all the electricity they consume via another transaction. This “buy all, sell all” (or in this case, “sell green, buy brown”) transaction erodes the principle of what happens behind the meter, stays behind the meter and inserts the utility as a middleman. In other words, VOSTs represent a way for utilities to maintain more control of solar and avoid net metering, and numerous solar advocates believe net metering is an essential pillar of solar policy – and the solar industry’s success.
VOST critics also emphasize that homeowners may be unable to monetize the federal investment tax credit (ITC), and could be taxed on the payments that they receive from the utility. Perhaps most importantly for solar developers and investors, Minnesota’s VOST calculation will be revisited in 3 years, and after that, could be recalculated every year. This may add uncertainty and discourage third party financing in areas with VOSTs.
Despite all the talk, our opinion is that VOSTs are not something to fear because they will not be adopted quickly or widely. VOSTs must be approved through utility rate cases, which happen slowly, on a state-by-state basis – exactly the way that net metering cases are being fought across the country. However, one critical piece for any energy project is stability in cash flows, and so long-term stable VOST rates are essential for any successful VOST policy.
About Sol Systems
Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystemscompany.com.