What was on track to become the nation’s most ambitious community solar program is clouded with uncertainty after Minnesota’s largest utility said that within a month, it will disqualify most of the 560 megawatts of solar projects that have been proposed.
In a filing with the Minnesota Public Utilities Commission last week, Xcel Energy Inc. said it will cap community solar projects proposed for any site at 1 MW — a change aimed at proposals to co-locate numerous "solar gardens" to take advantage of shared infrastructure and economies of scale.
Minneapolis-based Xcel said the size limit would still enable 80 MW of community solar development while protecting customers who aren’t participating in the program from subsidizing utility-scale projects.
"What we want to do is make sure the solar gardens program is sized right and we want it to be successful over the long haul," said Lauren McCarten, an Xcel Energy regional vice president, in an interview.
The change drew an immediate backlash from the industry.
Solar developers said they have already invested millions of dollars in projects under Xcel’s existing community solar tariff, and to change the rules now would send the message that Minnesota is an unstable regulatory environment.
"The actions Xcel Energy proposes would decimate the [community solar] program and potentially render long-lasting and far-reaching concerns over an unstable regulatory market in Minnesota," an industry coalition known as the Solar Garden Community said in a response.
15 years’ worth of solar in 1 year
The community solar program, authorized by the 2013 Solar Energy Jobs Act passed by the Minnesota Legislature, was intended for renters and property owners lacking capital or whose property isn’t suitable for solar array to install their own solar systems.
So-called solar gardens are projects up to 1 MW in size. Subscribers agree to 25-year contracts with developers for a share of the energy output. In return, they receive credits from Xcel for their share of the output.
Xcel began accepting applications for community solar projects in late December. Within a week, it received applications for 420 MW — a response that stunned most observers, including utility officials.
Almost immediately, Xcel began to express concern about the aggregate size of multiple small projects being clustered together by single developers. They included projects for Ecolab Inc., a Fortune 500 company based in St. Paul, as well as plans being pursued on behalf of two local colleges that seek to offset all their electricity use with solar garden subscriptions (EnergyWire, Feb. 17).
McCarten said the 1 MW limit is not an attempt, as some critics contend, to stymie solar development. The utility has proposed 2,000 MW of solar development in its long-range plans filed with the PUC earlier this year, about one-third of which would come from distributed solar projects, she said.
But the utility said the Minnesota Legislature intended a more gradual phase-in of community solar than is represented by applications received so far. "If all current gardens in the queue were developed, the company would add nearly all of its planned distributed solar resources, not over 15 years, but in a single year," Xcel said in the April 28 filing.
The limits being imposed are instead intended to minimize costs that would be passed on to customers who don’t participate, McCarten said.
Matters of scale
Xcel said some developers are exploiting law by aggregating individual solar gardens for the purpose of building utility-scale projects. In fact, 95 percent of the 560 MW of community solar projects in the interconnection queue consist of multiple projects with an aggregate size of greater than a megawatt, McCarten said. At some sites, plans have been submitted for projects as large as 40 MW.
The utility said the larger projects would enable developers to realize advantages of utility-scale development, including more favorable financing terms. But projects would be treated by regulators as smaller community-scale developments, receiving credits of 12 to 14 cents per kilowatt-hour for the energy generated.
McCarten said Xcel can develop utility-scale projects for far less, based on a project approved by the PUC last year.
"It’s twice as expensive as bringing on solar through the competitively bid program," she said.
While neither the statute nor PUC rules explicitly state a maximum total size of clustered solar gardens, the commission’s prior order setting the rules for Xcel’s program did recognize the benefit of co-locating projects.
The order approving the project specifically states: "multiple community solar garden sites may be situated in close proximity to one another in order to share in distribution infrastructure."
That point was raised by the solar industry in multiple filings as well as the Minnesota Department of Commerce, which on Friday filed a protest asking the PUC to find the utility’s size limits to be in violation of previous commission orders.
‘Retroactive is a no-go’
Solar advocates said they’re open to ways to refine the community solar program for the future.
"We’re certainly happy to look at ways the program can be improved," said John Farrell, a senior researcher with the Institute for Local Self-Reliance, among the parties that submitted objections to Xcel’s filing. "But retroactive is a no-go. It’s going to undercut 80 percent of the solar garden development."
Farrell said Xcel might have a fair point on rates for larger community solar projects at the center of the dispute. But, he said, Xcel’s cost comparison is invalid because the rates paid to subscribers of the community solar projects represent a retail transaction and the cost to the utility for energy from a large solar project is a wholesale transaction.
What’s more, he said, the 2013 law that enabled community solar in Minnesota contemplated the use of a value-of-solar rate that factors in all of the costs and benefits of distributed solar energy (EnergyWire, Aug. 6, 2014).
But the utility chose not to offer the 13.6-cent value-of-solar rate, prompting the PUC to approve separate rates for community solar projects.
The PUC in an order Friday gave parties until May 18 to submit comments on the Xcel proposal to limit the aggregate size of community solar gardens as well as other outstanding issues.
Even with the changes, Xcel would add up to 80 megawatts of community solar, making the utility program among the largest in the nation, Xcel Energy’s McCarten said.
In the meantime, the utility said it will refund deposits and application fees for projects with an aggregate size greater than 1 MW and scale down larger projects to meet the new limit. The utility said it would reject future applications for large developments.
But the solar industry says even full refunds of millions of dollars in fees and deposits being held by Xcel won’t make developers whole. And the uncertainty generated by last week’s filing is only compounding existing delays in getting projects built.