Minnesota is on track this year to issue the first statewide utility tariff in the nation that gives consumers credit for the carbon-free energy from rooftop solar units that they sell into the grid.
The "value of solar" methodology, under development by the state's Department of Commerce with industry and public input, is to be submitted to the Minnesota Public Utilities Commission by the end of January.
If approved, the approach would be a voluntary alternative that the state's investor-owned utilities could select instead of the current contentious "net energy metering" approach used to compensate solar panel owners for the surplus power they deliver to utilities. How Minnesota's utilities and its solar customer would fare under the proposed solar value hasn't been determined, but in Austin, Texas, the value of the solar tariff this year was better for most solar owners than the regular utility rates.
The groundbreaking methodology in Minnesota would add a climate factor to utility rates based on potential dollar damage to society from future storms and flooding caused by the impact of rising global temperatures.
The initiative exposes flip sides of a dilemma. How can regulator-approved utility rates, which calculate fairness for consumers past the decimal point, include estimates for unpredictable climate damage from power plant smokestacks decades from now? To which supporters of the initiative reply: Given the power sector's outpouring of carbon emissions, how can they not?
A draft of the Minnesota plan issued in November creates a special solar rate derived from a formula for giving a credit on utility bills to owners of rooftop solar units who deliver surplus power back to a utility. Solar power owners would pay normal electricity rates for power they had to buy from the utility when the sun doesn't shine.
Most of the solar value formula components are obvious, experts say. For example, by using customers' solar power, utilities would avoid additional costs for generating plants, substations and power lines, and these "avoided costs" would be part of the price solar owners would receive.
The Minnesota Legislature went further, requiring that the formula include projected economic damage due to climate change attributed to power plant carbon emissions. Carbon-free solar power reduces that damage, and solar owners get the benefit. The lawmakers also added a solar carve-out to the state's renewable energy standard, requiring investor-owned utilities to supply at least 1.5 percent of their energy output from solar power by 2020.
The climate damage calculations are based on computer modeling of the "social cost of carbon" by an Obama administration interagency team headed by U.S. EPA.
Such an attempt to estimate damage decades and even generations into the future raises "serious questions of science, economics and ethics," EPA acknowledged.
"There is a ton of controversy" about the process, said Anthony Paul, a fellow at Resources for the Future's Center for Climate and Electricity Policy, which published a paper on the social value of reducing carbon emissions. But the issue can't be avoided, he said.
Karl Rábago, a former executive of Austin Energy, agrees. The municipal power company in Texas' capital pioneered the "value of solar" rate concept.
"We sure as hell do have a lot of very good analysis estimating the fiscal impact on our nation, businesses, homes and lives from the damages from carbon emissions, and the compliance costs of keeping carbon emissions within reasonable bounds," Rábago said.
"I don't buy it that we can't come up with a reasonable number, and any number is better than zero," he added. "If the government doesn't try to figure out the impacts on society, who will?"
In fact, the number should be zero, at least in Minnesota currently, counters Brian Draxten, manager of resource planning for Otter Tail Power Co. in Fergus Falls, Minn., serving western Minnesota and parts of North and South Dakota.
The state's value of solar calculation is supposed to be based on the actual avoided costs that a utility is spared from making because of the surplus power from rooftop installations, he said. That calculation naturally includes estimates of power lines and substations that utilities don't have to build thanks to customers' solar output, for example.
But Minnesota's utilities aren't being charged for carbon emissions now, Draxten said. "People are saying that there is a social cost [related to] global warming. But we don't have money flowing out of the company's checkbook for that. It's not avoided costs. It's theoretical costs. ... Until there is money we're avoiding, the whole CO2 thing should be zero," he said.
Minnesota's draft plan, prepared by the Clean Power Research consulting firm, includes a hypothetical example in which the solar value comes to 12.6 cents per kilowatt-hour. About half of that is avoided costs of fuel for power plants that isn't needed because of customers' solar power. Another 3 cents per kWh is attributed to the reduction in future climate-related damage.
A price of 12.6 cents is a big increase over the current retail rate of about 8 cents, Draxten said.
"The value of solar approach is ambitious," said Michael Jacobs, senior energy analyst with the Union of Concerned Scientists in Cambridge, Mass., "but the ambition is to try to get out of this argument about net energy metering and adopt something with a greater degree of consensus."
The net metering challenge
Net energy metering plans, adopted in various forms in 43 states, are a growing challenge to the power industry, which brands them a major long-term threat to its businesses.
These plans generally require utilities to purchase consumers' self-generated solar power at the existing retail power rate. This arrangement doesn't fairly compensate the utilities for the fixed costs of power lines, substations or generators that the solar customers must draw on when the sun isn't shining, power industry officials insist.
"The consequences could be increased rates for those customers who choose not to adopt PV [solar photovoltaic units] and an inequitable shifting of costs" to those customers, noted the National Renewable Energy Laboratory (NREL) in a report last month.
Photovoltaic solar units provide less than 1 percent of electricity in the United States today, according to NREL. But the installed capacity jumped by 36 percent last year compared to 2011, totaling a record 3,300 megawatts -- more than the installations in the entire 1990s, NREL said.
A brief by the Edison Foundation, an affiliate of the Edison Electric Institute representing investor-owned utilities, calculates that an average residential customer paying an electric bill of $110 a month is receiving $60 worth of fixed charges for grid services, including a share of the transmission and distribution charges. The utility does not recover these fixed charges on power the customer self-supplies from solar panels, even though these customers depend on the grid for power whenever the sun isn't shining.
"Are they paying their fair share of the costs of the grid?" said Lisa Wood, co-author of the Edison paper. "The answer to that, quite frankly, is no," she said at a conference of state regulatory officials in Orlando in November. The cost shift from customers with solar panels to those without the units comes to $25 to $60 a month, she added. "It could actually be higher than that."
Wood's report did not include a value of solar energy to society.
Modeling climate damage
The EPA analysis in Minnesota's draft drew on three standard computer models to translate emissions from power plants into atmospheric greenhouse gas concentrations. These were converted into changes in temperatures and, from there, into year-by-year estimates of damage to human health, crops, property and other economic sectors.
The result was a figure for annual environmental damage for each additional ton of carbon emissions, and a corresponding dollar of "benefits" for carbon-free solar power that avoided that economic damage. The results vary greatly depending on how future damage is discounted or converted into today's dollars.
"We recognize that these representations are incomplete and highly uncertain," the EPA report said. But it could find no better way of making the calculations.
EPA said the estimates may turn out to be overly conservative. They did not include the impact of potential severe "tipping point" events such as a fast-moving dieback of the Amazon rainforest.
"There are umpteen dimensions of uncertainty in all this modeling. ... I know none of these models are the exact answer, but the number isn't zero," Resources for the Future's Paul said.
Austin's utility, an innovator in clean energy strategies and smart grid technologies, adopted a cost of solar tariff in 2012 that last year credited distributed solar owners with 12.8 cents per kWh for the energy they supply. That rate was about 3 cents per kWh higher than the conventional rate customers pay the utility for power, Rábago said. Austin Energy customers are charged varying rates based on electricity usage, with an average customer paying 9 to 10 cents, the utility says.
The solar payment figure will drop to 10.7 cents per kWh next month, because of generators' declining natural gas costs, but it will still be higher than many solar customers' rates to buy power, the utility says.
"It takes 10 cents to generate, transmit, regulate, meter, bill and ultimately turn your toast brown," Rábago said. "Solar is doing at least that much work, and it is only traveling from the roof to the toaster. And it's climate-proof and waterproof," neither emitting greenhouse gases nor drawing on large amounts of scarce water resources, as conventional power plants do, he said.
Right now, Minnesota stands alone in its value-of-solar initiative. Whether utilities conclude it's a better deal for them depends on how rate-makers figure out the cost of future climate damage, officials say.
It remains a subjective calculation. "There is small 'p' politics in all this," Rábago said. "If you set the initial value of a solar rate and you get too big a premium, the guys that don't like it are going to choke on it. You pick a starting number that is within the range of reasonableness and the realm of the possible."