MN Value of Solar Process Confirms that Net Metering is A Fair Deal

Last week the Minnesota Public Utilities Commission approved a first-ever statewide value of solar methodology. Some are proposing that this process be more widely used to establish Value of Solar Tariffs (VOST) as an alternative to tried-and-true net metering.

Installing solar panels

Full disclosure: I admit it – I’m a net metering geek. The policy adopted by nearly all the states is a simple and effective way to ensure energy consumers get credit for their valuable solar investment.

Having participated in the Minnesota proceeding, my takeaway is this: Minnesota’s value of solar process confirmed what we have been saying all along – rooftop solar delivers tremendous benefits to all ratepayers, and full retail net metering is a fair way to account for those benefits.

We have already expressed reservations about the Value of Solar Tariff approach first used in Austin, Texas. The VOST approach essentially performs an analysis of the value or benefits that distributed solar generation provides to the grid, utilizing the result as a rate at which the subject utility would pay to the owner of the distributed solar generation for a defined period of time. The real challenge is that correctly accounting for the benefits of distributed solar can be, well, challenging, and most of our nation’s utilities have a track record of significantly undervaluing distributed solar.

Minnesota is establishing a VOST as a result of legislation passed last year. During the legislative session, the concept many advocates were promoting was a VOST as a complement to net metering, i.e. an alternative the customer would have the option to choose. Unfortunately, the bill that finally passed (Minn. Statute §216B.164, Subd. 10) is being interpreted as establishing a VOST not as a choice for customers, but for the utilities to implement in lieu of net metering. In return, the bill required the VOST to be equal to or higher than retail rates for a period of three years. It also required the Minnesota Department of Commerce (DOC) to develop the VOST methodology and provide it to the PUC by January 31 of the following year. The PUC would then have 60 days (to March 31) to approve, modify, or disapprove the methodology.

The DOC brought in a veritable who’s who of clean energy to comment, to speak, to manage, and to participate in a series of four public workshops from September through December 2013. Participants included the Rocky Mountain Institute, Clean Power Research, the Interstate Renewable Energy Council, the Environmental Law and Policy Center, Fresh Energy, Vote Solar, Institute for Local Self-reliance, The Alliance for Solar Choice, SunEdison, the local solar industry, local utilities and many others. The workshops with this wide ranging cast of characters was managed very effectively by Matt Schuerger (Esys Consulting) and Lise Trudeau of the DOC with Deputy Commissioner Bill Grant keeping all of us on track.

The DOC and its consultants provided great leadership, and the give and take among the stakeholders assured a reasonable result. The process was accelerated and timeframes were short, and yet the DOC delivered an on-time report to the PUC. While the final Order has not yet been released, we applaud the Public Utilities Commission and its staff for its forward-looking and forward-thinking approach to establishing the value of distributed solar generation. There are several key points that are worth highlighting for other states that are undertaking similar DG benefit studies: 1. Values calculated over 25 years: The term to be used for determining values was tied to the life of the resource – 25 years for a solar energy system. 2. Established a fuel price guarantee: While most net metering valuation, or VOS studies include a category for fuel cost savings related to the reduction in utility generation, and most include some value for hedging the volatile costs of fossil fuel, especially natural gas, the fuel price guarantee goes even further. In the words of the DOC Methodology document:

PV displaces energy generated from the marginal unit, so it avoids the cost of fuel associated with this generation. Furthermore, the PV system is assumed to have a service life of 25 years, so the uncertainty in fuel price fluctuations is also eliminated over this period. For this reason, the avoided fuel cost must take into account the fuel as if it were purchased under a guaranteed, long term contract.

We think this is a common sense approach that minimizes risk from both short and long term price fluctuations. When natural gas producers are willing to lock in prices for the long term, say 25 years, then we will all have a more comparable picture of the value of this component. For now, it will need to be a calculation.

3. Included a comprehensive environmental cost category:

The methodology uses the EPA’s 2013 Social Cost of Carbon values, which in 2020 will be set at $43 per metric ton. Similar calculations were done for other pollutants. Call us crazy, but we think actually valuing healthy air, and a livable planet makes sense.

With the kudos out of the way, let me now turn to my concerns. First, it is important to remember that this is just a template for a methodology – it’s not a final number. It’s now up to the state’s utilities to use this value of solar methodology to fill in the numbers, and implement the tariff in good faith. Just as my colleague Annie Lappe discussed in the case of Austin Energy’s and CPS’s experience– where similar utilities came out with radically different numbers–that process is susceptible to monkeyshines. Need further evidence? Just look at the official filings of the Edison Electric Institute, the trade association representing utilities, on a similar docket in Arizona: they think the value of solar shouldn’t include much of anything.

A process that puts these key decisions in the hands of companies that have traditionally shown resistance and hostility to valuing solar fairly has real risks.

Which brings us to my second concern: VOSTs should be designed and implemented as an additional option to net metering, not a forced alternative. As per PURPA and commonsense, customers should always have the ability to generate electricity for their own usage. We believe that every retail electric customer has a right to use as much or as little grid electricity as they would like. Utilities cannot dictate that. The method by which a customer reduces consumption – be it energy conservation or rooftop solar – should be irrelevant to the utility. As an added benefit – offsetting retail locks in value in ways less susceptible to manipulation.

Looking at the template that Minnesota process produced, some advocates believe that the final calculation, if conducted in good faith, should result in a number greater than the retail rate. We agree that it should – but as this isn’t our first rodeo, we’ll wait to see how the utilities respond before making final judgment. The takeaway for utilities and advocates where cost-benefit studies are under consideration? Net metering, with its simple one to one retail credit, isn’t such a bad deal after-all.

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