On Wednesday, the Minnesota Public Utilities Commission voted to become the first state in the nation to come up with a methodology for calculating the value of solar power generated by consumers — and not just how much that power is worth to the utility company and its customers, but to society and the environment as a whole.
[Editor's note: This article, by Kiley Kroh, originally appeared on ThinkProgress, and is reprinted with permission.
As solar energy in particular skyrockets in the U.S., placing a dollar value on that power has been challenging and is often ignored, which makes Minnesota’s effort an even bigger step. “Minnesota has really set itself apart by determining a methodology to calculate the true value of solar to the electricity grid — a value that should include the full range of benefits as well as the costs,” said Mari Hernandez, energy research associate at the Center for American Progress. “This decision could influence other states as they evaluate how to move forward with their own solar-related policies.”
Why do we need to find the ‘value of solar?’
When customers install a solar system on their homes, it doesn’t just provide them with a good feeling that they’re boosting clean energy and cutting back on the electricity they get from fossil fuels. It also provides a clear value to utility companies. Solar generates during peak hours, when a utility has to provide electricity to more people than at other times during the day and energy costs are at their highest. Solar panels actually feed excess energy back to the grid, helping to alleviate the pressure during peak demand. In addition, because less electricity is being transmitted to customers through transmission lines, it saves utilities on the wear and tear to the lines and cost of replacing them with new ones.
The tricky piece of the equation, however, is determining how much that excess solar power produced by customers and sold back to the grid is worth.
Why is Minnesota’s calculation special?
Minnesota’s value of solar is particularly groundbreaking because the commission chose to look beyond the economic value of solar power to the utility and take into consideration the cost to society and the environment that comes from burning fossil fuels. The decision comes after “nearly two years of discussions among state officials, utility representatives and solar advocates,” prompted by a 2013 bill “requiring the state’s energy office to develop a formula that utilities may use to determine how it should compensate customers who generate electricity from solar panels,” Midwest Energy News reported.
In the end, at the urging of environmental groups and the state’s Department of Commerce, the commission voted to adopt the U.S. government’s social cost of carbon figure.
Put simply, the social cost of carbon is the government’s estimate of how much carbon emissions harm the economy — such as the cost to public health, agricultural output, sea-level rise and other damaging effects that stem from carbon pollution and climate change. Clean energy advocates argue that the cost of carbon doesn’t really get accounted for in the current energy economy; even when customers are compensated for generating solar power, that calculation typically doesn’t include the larger benefit that comes from decreasing the amount of carbon pollution that’s emitted into the atmosphere.
One of the dissenting votes in Minnesota’s decision came from Commissioner David Boyd, who argued that the government’s social cost of carbon figure hadn’t been adequately vetted. The U.S. government’s mid-range estimate for the cost of carbon in 2015 recently increased to $37 per ton of carbon dioxide, a number the Natural Resources Defense Council, Environmental Defense Fund, and the Institute for Policy Integrity argued was far too low in a report released Thursday.
As Jeff Spross explained on Climate Progress, estimates vary widely and “the relevant science has put together studies pegging the SCC at anything from $55 per ton, to $100 per ton, to as much as $900 per ton.”
While the social cost of carbon will likely be debated for some time, Minnesota’s decision to incorporate the federal government’s calculation is a significant milestone for states determining the true impact of clean energy.
How will it work?
“Investor-owned utilities will now have the voluntary option of applying to use the value-of-solar formula instead of the retail electricity rate when crediting customers for unused electricity they generate from solar panels,” according to Midwest Energy News.
Even though the new formula is optional, solar customers in Minnesota will be backed up by their current compensation structure, a policy called net metering. Hernandez notes that it’s worth pointing out the differences between this new voluntary tariff and the state’s current net metering policy. Through net metering, customers who generate their own renewable power, such as solar power, receive a credit for any excess electricity they produce beyond what they use on-site. Under a value of solar tariff — also considered a feed-in tariff — customers buy all of the electricity they use on-site from the utility, and then sell all of the solar power they produce to the utility. “Essentially, the state’s net metering policy values customer-generated renewable power used on-site and sent back to the grid at the retail electricity rate,” she explains, “while the voluntary tariff will be based on the state’s methodology, could eventually be set above or below the retail electricity rate, and would not differentiate between power used on-site or put back on the grid.” Rates under the new tariff structure in Minnesota will be set for a 25-year term and adjusted annually for inflation.
As solar establishes itself in several states across the U.S., clean energy advocates, consumers, and utilities are quickly finding themselves at odds over the value of solar power and how much it’s worth to all of the stakeholders involved, as well as to society and the environment as a whole. 43 states and the District of Columbia currently have net metering policies in place and several key solar states, such as Arizona and Colorado, have seenheated battles over the future of net metering. Last year, Arizona added what amounts to a $5 per month surcharge for solar customers and other states are considering similar measures.
Minnesota solar installation photo CC-licensed by Minnesota Solar Challenge on Flickr.