The Pathway to Larger-Scale Solar in MN

Community Benefits and Distributed Solar (Part 4)

Author: Ralph Jacobson

DG Solar is a nimbler non-wires alternative

A recent article in the New York Times documents the organized public opposition to utility-scale solar farms in upstate and western New York. That state has created some very effective incentives to attract big solar development, but there is no agreement among the public about how much solar is too much, and which landscapes are right for big solar arrays in the first place. This is a hard fight that’s heating up, not just about what we value besides money and property rights, but who has a voice in those decisions. 

We have seen similar fights in Minnesota about wind farms, and it won’t be too long before bigger solar is caught up in the fray. Several counties, townships, and cities have declared moratoria on any further permitting of the one-megawatt sized CSG, which occupies a ten-acre parcel of land. What kind of opposition will arise when the locals are asked to approve solar arrays which occupy several square miles of nearby land? Public attitudes toward larger-scale solar are driven by unrealistic expectations due to seeing miniaturization in most electronics. Unfortunately, the solar resource is extensive: if you want ten times more solar power, you have to deploy ten times more area in solar. 

As we shape the market for bigger solar arrays, we would do well to position DG solar as a smaller and nimbler alternative to the truly utility-scale solar. When sited to provide multiple local benefits, as discussed below, it can be more acceptable to locals and require a shorter development timeline. DG solar can play a key role as a non-wire alternative (NWA) to help minimize the overbuilding of distribution infrastructure.

Sacrificing System Efficiency for Economics of Scale

In a 2005 article, “Critical Thinking About Energy: the case for decentralized generation of electricity,” Thomas R. Casten and Brennan Downes show that electric power industry efficiency peaked at about 65% back in 1910, and decreased to 33% by 1960, where it has remained. The drive to lower the cost per megawatt of generation, by building bigger plants to harness the economies of scale, did not result in greater efficiency. Quite the opposite: in 1910, plants were much smaller and located near thermal loads which could utilize the “waste” heat as combined heat and power (CHP). By 1960, large coal-plants were situated nearer to coal fields and further from cities, and the heat was devalued and wasted as an acceptable loss. 

Keeping city air cleaner and economies of scale were valid reasons for building coal plants far from population centers and their loads. Following that trend, utility-scale solar is far from loads, as we see the largest solar plants built in desert areas. As mentioned above, ground-mounted arrays do take up a significant amount of land, and much of that land in Minnesota is considered prime agricultural land. This might be the toughest of a handful of issues to wrestle with in determining how much of the solar build-out should be DG solar and not utility-scale. A more complex web of issues may pull much of the expected deployment closer to towns and cities.

Land use issues

As was true for coal power plants, the further we build large solar arrays from cities and major loads, the more we have to overbuild them to make up for more line losses through the wires. In the US, large power plants must burn up to 15% more fuel to overcome just the transmission line losses. Because DG solar is closer to loads, it is inherently more efficient, and as a bonus its smaller footprint may result in fewer land use battles. Battles over land use can drag on for years and could become a major impediment to the solar contribution toward clean energy targets at 2030 and 2050. It would also make matters easier if we could move away from the single-use approach to land use. There would be more public support for putting solar arrays on prime ag land if the solar could be providing other benefits to a local community, as well. 

Don’t boil DG solar down to commodity electrons

There is a false dichotomy underlying the discussion about the economics of utility-scale versus DG solar that must be addressed in order to do serious planning. Anyone who was watching attempts at solar legislation at the Minnesota Legislature in 2019 saw the utility narrative make a stark U-turn from past years. Where previously the claims were that “solar is too expensive, so we shouldn’t be spending money on it” the message morphed into “utility-scale solar is so much cheaper, why do anything else?” As we saw in the last century around ever-bigger coal plants, that argument works if the only consideration is the cost of generating a flow of electrons, and other multiple benefits are cast aside as having little value. But little value to whom, as we consider it in the context of land use?

Aligning solar with multiple community benefits

The methodology for calculating the Value of Solar tariff includes the social cost of carbon, which utilities have balked at including in the rate structure because solar provides a benefit to the broader community, not just their customers. But it may be much more fruitful to consider this in the context of DG solar: to identify a variety of more specific public benefits, creating a pathway to monetizable value not paid by a commodity electron. 

This would be similar to the concept of renewable energy certificates, or RECs, which can be separated from the tariff with other funding mechanisms. In recognizing that environmental benefits have a value in allowing prime agricultural land to be used for solar, there is an implicit opportunity to monetize some of that value to help overcome the extra cost of DG solar arrays above utility-scale costs, to help make DG solar financeable. We could also go the other direction and apply disincentives to utility-scale solar to address the loss of opportunity to use solar to meet such public or societal benefits.

Identifying other public benefits

Aware that aggressive solar policies are getting pushback in mature markets like that in upstate New York State, Minneapolis-based Great Plains Institute is organizing a campaign of “Siting Partnerships” to build broad public support for use-cases in which solar arrays that are ground-mounted on agricultural lands would align with an environmental benefit. The campaign will enable the solar industry and the utilities to link arms with municipalities and other stakeholders to create site-specific agreements where deployment of solar arrays on prime agricultural lands can be defended. In each of five use cases identified, the landowner will benefit from payments for the use of their land, this aligns their interests with the solar deployment:

Protection of municipal water supplies
Siting appropriately designed, vegetated solar installations on Drinking Water Management Supply Areas and Wellhead Protection Areas currently under agricultural production.

Watershed protection 
Siting strategically designed solar arrays in impacted watersheds to serve as infiltration areas or buffer areas to limit non-point pollution.

Carbon sequestration 
Solar development designed to maximize ground cover or buffer areas to sequester carbon in the soil. Minnesota farmland has an enormous potential to help reverse the build-up of carbon in the atmosphere by building up black dirt.

Habitat protection 
Solar development designed to buffer critical habitat core areas and limit opportunities for development that would degrade habitat functions (pollinator-friendly, for example).

Buffer against unchecked urban sprawl
Use solar development to discourage sprawling development patterns, limit infrastructure expansion, and protect areas designated as having rural character.

Utility locational benefit plus community benefits

Although this will not explicitly favor DG solar over utility-scale, the opportunities for both will be quite literally “all over the map,” as communities cultivate local awareness and support. Any community benefits of solar arrays will be location-specific, as determined by the communities themselves. This can augment the work already being done under the Mn PUC Docket #13-867 to identify locations where solar arrays (as non-wires alternatives) could be electrically beneficial to the power distribution system. 

DG Solar Plays to the Modernized “Smart Grid”

In the electric power grid of today, power flows in one direction: from remote central station generators to the cities and towns where the loads are; utility-scale solar follows this model. DG Solar, on the other hand, can fit with the network architecture of the modernized grid, where power flows whichever direction is needed on the wires from local generation points to provide power for loads in the area. Every device will have an IP address identifier for communication and balance of power flows around the network. In this context, DG solar is considered as a distributed energy resource (DER), along with demand response, energy storage, efficiency measures and other non-wires upgrades to the electric power system.

Are we trying to pack too much into a DG solar tariff?

Larger-scale solar will have fewer non-utility players: contract guidelines may be more useful than tariffs. A tariff is a standardized contract, approved by the Public Utilities Commission for offer to the general public. Under net metering and CSGs, potential users of the tariff are mostly utility customers who wish to self-generate or subscribe to a CSG; they may number in the hundreds of thousands. 

However, DG solar developers will likely number in the dozens and will be working in a more complex market. While selling energy or through a PPA, the system owner might simultaneously be aggregating multiple solar and storage installations to participate in the wholesale power market, or be selling community benefits. This means that contracts must be useful to several participating entities and dovetail with other transactions which may be involved in making a financing scheme viable, and a tariff need only represent one piece of the cash flow. 

Where there are specific locational or functional benefits, or other income streams involved, the particular benefit or function may determine location, contract terms and conditions, and even which utility will be involved. 

The 4th market bucket of DG solar in 2050

By 2050, as little as 10% and as much as 60% of total solar deployment in Minnesota could be in that 4th market bucket. How much DG solar actually is deployed will depend heavily on how we go about shaping the market for it. Because locational and community environmental benefits will play key roles in making DG solar financeable, much of the opportunity is across the state in municipal and cooperative utility service territories. And we will need the support of utilities and municipalities to deploy bigger solar arrays on prime ag land. 

The “tried and true” strategy of asking the legislature and/or the regulators to make the utilities pay higher tariff rates for DG solar, will only reach the investor-owned utilities, and they will fight that. This will only get us a little past that 10% mark. To reach the lightly regulated coops and munis, and gain their support for a larger statewide market, we must limit how much we try to pack into DG tariffs. More effort must then be put into creating linkages with capital sources to monetize environmental benefits and unlocking the market for grid benefits with the addition of energy storage to the electric power system. 

– Ralph Jacobson, July 2020

Next: Energy Storage Will Enable Higher Solar Deployment

The Pathway to Larger-Scale Solar in MN 

How much can the CSG model be scaled up? (Part 3)

Author: Ralph Jacobson

What have we accomplished with the CSG model?

By the end of 2019, about 650 MW of CSGs had been installed and brought online, with another 200 MW under development. For comparison, Xcel is proposing to bring 4,000 MW of solar online by about 2035 and would prefer that most of it not be under the Community Solar Garden (CSG) model. Given that the CSG model appears as a place holder for larger scale solar in the Solar Potential Analysis report, as mentioned in Part 1, we need to consider the issues that exist now in that market segment. 

Then we should ask whether it makes sense to stretch the CSG model into duty for a much bigger role than it was designed for, or do we set a course to develop other models for larger solar? One thing to keep in mind is how much uncertainty attaches to the CSG model, and how likely this is to hinder the flow of capital into vigorous deployment of larger solar in the crucial decade ahead. 

Moving a half-step away from the net-metering paradigm

The CSG model was the first opportunity in Minnesota to develop larger-scale solar. There was no size cap per Garden site, and no overall planning target, until the regulators agreed to end the practice of collocating one-megawatt Gardens, which effectively limited the size to one-megawatt per site. Through this program, the local solar industry, Excel Energy, and the many affected communities have become familiar with the complex of land-use, engineering, financing, permitting, and other issues which pertain to larger-scale solar. We have all gone up a steep collective learning curve!

Although it was intended to be a step away from the “early market” net-metering framework, addressing the issue of cross-subsidization, some aspects of that paradigm have followed into the CSG model for Xcel Energy. First, it creates an open market where solar developers can originate and propose projects, instead of responding only to utility RFPs. As Gardens become more numerous and/or larger, Xcel will experience more uncertainty in its ability to plan for the timing, location, and financing of new generation. 

Second, the regulators set subscriber rates close to retail-level, using the Value of Solar (VOS) tariff for the first time in the state, as set forth in the 2013 Minnesota Solar Jobs Act, to enable the financing of one megawatt CSG installations. The intent of the VOS had originally been to address the tendency of net-metering programs to “cross-subsidize” one class of ratepayers at the expense of other classes and non-participating customers – to democratize solar by spreading the benefits over all rate classes. But has the ability to finance Gardens under the VOS adequately addressed the democratization issue? Most CSG developers find it easier and more profitable to find subscribers among municipalities, schools, churches, and corporations than among the multitude of residential customers. Although the issue is still unresolved, Minnesota is now host, over Xcel’s protests, to the most vigorous CSG market in the nation. More about the VOS further on.

Uneven access to the CSG model 

The language to enable the CSG model, under the 2013 legislation, was aimed only at Xcel Energy. While other utilities in the state have experimented with CSGs, such Gardens are only built as a service to those members who wish to participate. This will not support a market the way that the Xcel program does. Even in Xcel’s service territory, because of the requirement that subscribers reside in the same or an adjoining county as the CSG, farms which are located on slivers of Xcel territory in very rural counties of Minnesota do not qualify to host Gardens because there are not enough potential subscribers who qualify under that rule. Again, this seems to undermine the original intent of the program for broader access to solar.

Repeal of the contiguous county requirement would correct this uneven access with a “two-for” benefit: not only would those farmers be able to host gardens, but inner-city residents would have broader access to those solar gardens. This is because most of the CSG activity now is in a “doughnut” of counties which ring the metro area but are two counties away from residents of Hennepin and Ramsey Counties. Such a rural-urban connection could be constructed to help the program better meet the original intent. 

Impact on utility business model

Unlike net-metering, where most of the power is utilized onsite, the CSG delivers all of its power to the utility as a “merchant system.” Being on the large end of the net-metering framework, the CSG has more impact on the utility electrically and on the “wholesale to retail” business model. Without a better coordination regime to address hosting capacity and congestion, the utility loses control of the ability to target new generation siting in its planning, because solar developers are free to originate projects wherever they can. Furthermore, gardens capped at 1 MW are difficult to finance beyond a short distance from substations; this limits the number of good sites for solar gardens, clusters them near substations, and keeps the cost to build relatively high.

Two very different market structures

The CSG is a policy-driven market structure which the utility has had to accept from its regulators because, through the subscriber arrangement, consumers (ie: unsophisticated investors) are involved in the transactions. This complicates the model because it is illegal to take money from unsophisticated investors, and so capital has to be provided by third parties who expect to get a much quicker return on the investment than the utility is allowed to get on its investments. Furthermore, the cost of that power to the utility is set by a stakeholder process which the utility does not control; it is currently starts at just over 9¢ per kwh. 

By contrast, utility-scale solar transactions are almost entirely between the utility and its solar developer vendors. The wholesale market is more economics-driven, which aligns better with an updated utility business model where, unlike the richer context of the VOS approach, the goal is to generate electricity from solar arrays in the same cost range as from burning coal. This parity has already been achieved in some places, where the wholesale price of electric power from utility-scale solar arrays is under 3¢ per kwh (kilowatt-hour). 

Potential improvements to the CSG model

If claims made by us, the solar developers, at the legislature in 2019 are to be believed, the best sites for development of CSGs have already been utilized, and further sites are more expensive to develop (that was part of our argument). Adjusting the one-megawatt collocated cap on CSGs to two or three megawatts would somewhat alleviate this constraint and expand the range of sites for financeable installations; it would also somewhat lower the cost to build new Gardens. 

Allowing Xcel customers from non-contiguous counties to subscribe would fill out the CSG market in very rural areas and very urban areas of Xcel territory. Xcel  representatives consistently maintain that they originally believed that subscribers would mainly be residential customers. The “residential adder” incentive, which increases the subscription rate as more residential participants are included, will align the program better with the original intent. It will attract some developers to expand into cities and towns with urban rooftop CSGs. Further, having more residential subscribers could be made a requirement for allowing larger Gardens or subscriptions from non-contiguous counties.

The CSG program needs a cap for planning purposes

The trade-off is that any deal will most certainly require a cap on how many megawatts of solar gardens which Xcel will be required to greenlight each year. There is no agreement about that yet, but a realistic cap would be a useful planning tool for everyone’s purposes. The tug-of-war of the CSG pricing and rule-making process is a tough environment for utility planning. Recognizing that the utility needs a cap for good planning, the cap should be high enough to allow the solar developers to continue to build the program out over the next 5 – 10 years to an agreed-upon overall goal of perhaps 1,500 total MW of CSGs. 

How will the VOS perform at higher solar deployment?

The VOS tariff will need a different baseline as more solar comes online. The VOS is based on a thorough methodology for valuing solar in terms that are relevant to utility economics. However, the basis of the valuation is a comparison of the cost of the solar build-out, against the cost of distribution system upgrades which may be deferred or eliminated because of the solar. But at higher levels of penetration of solar into the electric power market, perhaps associated with grid modernization and microgrid development, there will be new costs for system upgrades needed in order to accommodate more solar and other DERs (distributed energy resources), and deferral-based valuation must give way to valuation based on new build-out. 

Would the VOS then become obsolete?

Consider that the genesis of this approach was the desire to move past a frustrating debate about the catch-all of “externalities” which could be mitigated by solar energy. By creating an itemized list of market-oriented benefits of solar to the utility and its customers, the VOS is a rational method to price solar in an already complex electric power market. Far being discarded, the VOS could be a foundation for the even more complex challenge of valuing DERs in a more interactive and time-oriented power grid, requiring optimization between solar, energy storage, curtailment, gas peakers, and load management. Let’s celebrate what the VOS methodology given us that can be applied going forward !!

A limited growth forecast for the CSG model

Here is a recap of the issues I have with the Xcel CSG program:

– CSG market only functions in Xcel territory

– Priced too high to be a major power source

– Doesn’t address utility planning needs well

– Hasn’t effectively addressed ratepayer cross-subsidization

– VOS tariff will need update for valuation of DERs

Here are some of the suggested improvements to the program :

– Remove the contiguous county requirement under conditions minimizing cross-subsidization

– Set a yearly cap for the Xcel CSG program

– Raise the Garden collocated size to at least 2 megawatts 

– Firm up incentives for more residential subscriptions

We have a strong Community Solar Garden program right now, viewed by many as the best in the country. Although Xcel chafes under some aspects of the program, and the solar developers chafe about others, the process has brought us all into a better understanding. We will need that going forward. Rather than watch the program fizzle out over the next couple of years, a better strategy would be to make all of the improvements to the program that we can, including agreement on the ultimate scope, and keep the industry healthy by letting the program make a strong finish at 1,500 megawatts of Gardens by 2030. That’s about 10% of the solar we will need by 2050, as mentioned back in Part 1 of this article. And then  let’s get to work on the DG solar models for the other 20% to 50% of the solar that we will need.

– Ralph Jacobson, May 2020

Next: Public Benefits and Distributed Solar

The Pathway to Larger-Scale Solar in MN

The 4th market bucket of Dispersed Solar (Part 2)

Author: Ralph Jacobson

What Do We Mean By The 4th Market Bucket?

Let’s look at this through the lens of tariffs offered by the utility for distinct segments of the solar market, affectionately called “buckets.” A tariff is a standard contract, approved by the utility’s regulators, which defines the transaction between the utility and its customers who own solar. The net-metering tariff is offered to residential, commercial, and industrial customers for PV systems up to 1,000 kilowatts. This first bucket for solar has been the foundation for the solar industry for decades.

The second bucket is the community solar garden, which uses a tariff based on the “value of solar” concept to price the bill credit given to subscribers. Utility-scale solar, a third bucket, is just entering the market in Minnesota as the price of solar continues to come down. Being larger and relatively few in number, these transactions involve power purchase agreements (PPAs) and other purchase contracts where price and longevity are the key drivers.

Creating The 4th Market Bucket: Dispersed Solar

Dispersed solar arrays, DG for short and sized from one to ten megawatts, may be too large to be supported by policy-driven incentives, and too small to be competitive by a wholly economics-driven analysis. But recognizing that DG solar can utilize smaller parcels of land closer to loads, be quicker to deploy, AND be more compatible with utility business models, DG solar models will actually gain more traction in the solar marketplace than the CSG model.

To facilitate DG solar, we would do well to identify what need there is in the clean power market for solar arrays at mid-scale, how this market differs from what we already know, and what is needed to make it work for both utilities and solar developers. This will be a planning-driven market, and this should be seen as the goal of the distribution planning process initiated recently under the auspice of the Minnesota Public Utility Commission.

Why Consider Dispersed Solar?

A recent article, “Is Bigger Best in Renewable Energy,” by Maria McCoy of the Institute for Local Self-Reliance, makes the case that there are limits to the economics of ever-bigger power plants. Very large solar arrays will likely require investment in new transmission lines, adding significant cost and longer timelines to utility-scale arrays. Other factors such as the cost of other infrastructure, powerline losses over longer distances, uncertainty in the market, and public attitudes about the use of agricultural land will take a great deal of political capital to overcome. In comparison, DG solar can be quicker and easier to plan and implement, as will be discussed further along. 

Another advantage of DG solar is that more widespread dispersal of solar arrays will tend to minimize the edge effects of clouds. The leading edge of a cloud bank can cause a sharp drop in power production, while a sharp increase in production can occur as the sun comes out from behind the trailing cloud edge. While electronics can minimize the edge effects of clouds by smoothing the ramping up or down of production, the fact remains that the more compact our solar is (i.e., fewer but larger arrays), there will be more impact from edge effects to be dealt with.

How Will Dispersed Solar Fit Into The Power Grid?

Utility-scale solar arrays are located on the transmission side of the power grid, more like central-station power plants. Dispersed solar arrays can be located on the distribution-side, much nearer to the farms, factories, and cities where the energy will be used. It may be more accurate to describe them by function or location in the electric system, such as feeder line support, than it is to describe by other categories.

A legitimate question to ask is, if community solar gardens are really taking off and very popular with electric customers of Xcel Energy, why can’t the model just be scaled up to take its place alongside utility-scale solar to realize the full potential for clean power? And furthermore, since it costs a little more per kilowatt-hour to build a dispersed solar array than it does to build a utility-scale solar array, what are the benefits which justify the extra cost and work of creating this 4th bucket for DG? So, let’s examine the market potential for community solar.

– Ralph Jacobson, March 2020

Next Time: How Much Can The CSG Model Be Scaled Up?