Regulators and solar advocates may soon see how Minnesota’s utilities will apply the just-issued first U.S. legislatively mandated and PUC-approved state Value of Solar Tariff (VOST).

“If Minnesota utilities report favorably on the value of solar, it may change the debate on other state battlegrounds over distributed generation,” explained John Farrell in Minnesota’s Value of Solar; Can a Northern State’s New Solar Policy Defuse Distributed Generation Battles? from the Institute for Local Self Reliance.

Inside Minnesota's landmark Value of Solar Tariff

As a net energy metering (NEM) replacement, VOST differs mainly in the units used for accounting, Farrell wrote. It “preserves much of the simplicity of net metering,” he explained, but “instead of netting the kilowatt-hours consumed and produced, the customer nets the dollars paid for energy [at the retail electricity rate] with the dollars earned selling solar energy to the utility [at the value of solar rate].”

The other major difference is that VOST is “locked in by a solar energy producer on a 25-year contract,” Farrell wrote. Both NEM and VOST could go up or down over time, “but Minnesota’s law gives solar energy producers surety by guaranteeing their per-kilowatt-hour payment for the expected life of the solar panels.”

The first indication of how Minnesota’s utilities will use the VOST will likely come from Xcel Energy on or about May 1, said Fresh Energy Electricity Markets Director Erin Stojan Ruccolo.

The Minnesota PUC issued the Order Approving Distributed Solar Value Methodology April 1, she explained. And its preceding decision, on community solar gardens, required Xcel to act within 30 days of the issuance to either “file a value-of-solar tariff with the Commission for the purposes of the solar-garden program” or “make a filing with the Commission that includes a calculation of the value-of-solar rate for the solar-garden program and show cause why the rate should not be implemented.”

Minnesota’s community solar garden program is part of the state’s Solar Energy Standard law requiring its three IOUs—Xcel Energy, Minnesota Power, and Ottertail Power—to get 1.5% of their power from solar by 2020.

Community solar gardens are projects of between one kilowatt and one megawatt in which people who live where rooftop solar is not an option can own one or more solar panels. The state’s NEM gives solar garden participants retail rate credit for the electricity their panels send to the grid.

But the NEM retail rate bill credit was always just a proxy for the value of the electricity solar owners send to the grid, Stojan Ruccolo said. “Now we have an actual calculated value.”

Will utilities embrace Value of Solar? 

Former Xcel exec and Center for Energy and Environment Policy Director Mike Bull agreed VOST’s first test will be on an Xcel solar garden proposal. Farther out, “increased solar penetration and increased utility average rates might lead to different decisions,” he said.

According to Xcel VP Christopher Clark, who authored the utility’s filings during the PUC’s VOST proceedings, Xcel is reviewing the commission’s order and has “not yet determined whether to file a VOS tariff.”

As a replacement for NEM, and if properly designed, a VOST would “level the playing field for distributed solar, such that the utility and customers are indifferent from a cost perspective as to whether their energy comes from distributed solar or from the broader energy mix,” one Xcel filing noted.

“By basing solar rates on facts and objective analysis, we can transition to higher levels of distributed resources while maintaining a reliable grid, offering affordable rates, and avoiding cost-shifts between customers,” Clark wrote.

In a preliminary estimate done for the hearings that will likely be revised if Xcel files to use the VOST, its tariff came out at $0.145 per kilowatt-hour, well above the residential retail electricity rate of $0.115 per kilowatt-hour, according to Farrell.

With federal and state incentives, the $0.145 rate is close to Minnesota’s 25-year levelized cost of energy. It is below the $0.172 per kilowatt-hour rate for residential projects built at $4 per watt and above the $0.129 rate for commercial projects built at $3 per watt.

But Xcel-recommended changes of some values, rejected by the PUC, would have cut the $0.145 rate by almost half to $0.074 per kilowatt-hour, Farrell noted.

Electric coops may someday use the methodology to compensate distributed solar owners, according to a filing from Minnesota Rural Electric Association Government Affairs Director Joel Johnson. But at present there is a concern that “choices in the current design were made toward increasing the bottom line VOS rate.”

The methodology is “comprehensive, transparent, and reasonable,” wrote the Union of Concerned Scientists’ Michael Jacobs in support.

There is something in Minnesota’s VOST for both sides of the NEM debate, according to Farrell. Because its methodology is rigorous and aligns with other cost-benefit studies, he said, solar advocates will adopt it.

Some utilities will reject it because the debate is “a convenient proxy for saying ‘we really don’t want our customers generating a lot of power and get out of our business,’” Farrell explained. But other utilities will use it because they can point out solar benefits that do not apply on their systems and reduce their tariff value by that factor.

Farrell wouldn’t promise the VOST methodology would end the debate. “People are still very nervous about leaving net metering behind,” Farrell said. “It is a known quantity.”