Solar, will you marry me? (for a contract period of 20 years)

Just in time for Valentine’s Day, the Minnesota Department of Commerce (DOC) released an extensive proposal for a value of solar (VOS) methodology, as required by 2013 legislation.

Under this new state energy law (HF 729), utilities will be able to apply with the public utility commission (PUC) to replace net metering with a contracted, 20-year VOS rate, compensating customers under a bill credit mechanism that proponents of the VOS rate claim will more accurately reflect the value of that solar generation to the utility.

Distributed generation (DG) is a two-way street:  it provides benefits as well as some costs to utilities. At the previously low solar penetration levels, retail rate credits under state net metering policies have traditionally been viewed as adequate and easy compensation for excess energy. As solar ramps up however, discussions and studies have also been ramping up to determine solar’s actual net value for a particular state or utility. Just which benefits and costs to include, and how to account for them in these studies, has been a matter of rather diverse opinion. IREC has provided guidance on the topic in a series of papers including the recent A Regulator’s Guidebook: Calculating the Benefits and Costs of Distributed Solar Generation.

In the case of Minnesota, however, legislators specified the minimum factors that should be included in the VOS methodology, including: energy and its delivery; generation capacity; transmission capacity; transmission and distribution line losses; and environmental value.  However, the state law also provided the DOC some leeway to incorporate other costs and benefits as it sees fit, including credit for locally manufactured or assembled systems, or systems installed at high-value locations on the distribution grid.

IREC has been participating in the initial stakeholder process to determine what factors should go into such a bill credit. The VOS methodology ultimately put forth by the DOC (prepared by Clean Power Research) included a capacity credit for systems installed in high value locations as well as placeholders for the future calculation of voltage control benefits and integration costs that a utility may incur when incorporating additional variable solar generation onto the grid.  Using these parameters, the report calculated an example VOS with a levelized rate of $0.135 and an example inflation-adjusted VOS that increases steadily from $0.109 in 2014 to $0.199 in 2038. While these numbers were provided for illustrative purposes, by comparison, the average retail rate for residential customers is about $0.116 in Minnesota.

This proposal is currently up for discussion. The PUC has issued a notice requesting comments (available in Docket 14-65) on whether the proposal meets the requirements of the state law, and whether it is a reasonable approach.  We expect this proposal to be deliberated at the PUC’s March 12, 2014 meeting.

As utility business models begin to shift and solar deployment figures continue their upward climb, we will likely see more valuation methods being proposed. Several states are already working on them, including:

  • On the heels of a contentious net metering debate, the Arizona Corporation Commission (ACC) recently opened a docket and issued a memo requesting comments from stakeholders on the methodology for establishing the costs and benefits of DG. Comments are (lovingly) due on Valentine’s Day.
  • The Nevada PUC recently chose consultant E3 to perform a cost-benefit analysis for net metering under Docket 13-07010.
  • North Carolina will likely address VOS, after Duke Energy’s recent media attack against net metering.
  • In January, the Hawai’i PUC posted a report that analyzes the estimated economic costs and benefits of Hawaii’s various renewable energy procurement programs, including the state’s net metering program, feed-in tariff, and competitive bidding framework.

So, show your love for distributed solar this Valentine’s Day —read up on the topic and stay informed on this red hot issue.

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