Minnesota's solar requirement could change how we see electrical grid

Minnesota lawmakers this year required utilities to start buying more solar power from homeowners with panels on their roofs, but a key decision in coming months could determine how much anyone will take advantage.

By the end of January state regulators are expected to design a system to determine how much utilities will have to pay residents and businesses for the solar electricity they generate with their panels - the so-called "value of solar."

Minnesota is the first state to tackle this solar tariff question. It's a discussion that involves the workings of the 100-year-old electrical grid the nation relies on, and it could lead to a transformation in how utilities do their business.

The Legislature this year required the state's big investor-owned utilities to get 1.5 percent of their electricity from solar panels by 2020. Most of that will come from large installations the utilities or other big investors build themselves.

But at least 10 percent of their solar energy must come from homeowners and businesses around the state who put solar panels on their roofs. The state wanted to give a push to the solar industry in Minnesota, and to help lower the cost of solar power.

Utilities say they can handle the engineering challenges of having electricity run backward on the grid from this "distributed generation," but how much they have to pay for it is thornier.

The decision will affect people like Pat Ciernia in the Powderhorn neighborhood of Minneapolis. The south side of Ciernia's roof is covered with brand-new solar panels. A basement inverter is part of the system, converting the direct current generated by the panels into alternating current that Ciernia's appliances and those of everybody else on the electrical grid need.

The economics were a factor, he said. Ciernia took advantage of rebates and tax credits to bring the cost down and shorten the pay-back time.

"In the old days, it was always like 25, 50 years, something crazy," he said. "It will probably break even, I'm guessing, in about five years."

Officials hope solar panels like Ciernia's will sprout on rooftops everywhere, supplying power for neighborhood demand. This is where small, community solar gardens would also come into the discussion, increasing the amount of small solar power.

It's a potential engineering problem for an electric system based for a hundred years on producing power at big coal or nuclear plants and transmitting it long distances. And the inherent variability of electricity from the sun is a challenge. But utilities have learned a lot about handling variability as they've added more and more wind power, and they are confident engineering and equipment aren't where the real difficulty lies.

At Xcel Energy's distribution control center in downtown Minneapolis, workers monitor computer screens and occasionally glance at a giant wall map dotted with blinking lights that show power lines and power plants from the eastern Dakotas across Minnesota to western Wisconsin.

Director Greg Pieper, director of transmission operations, says wind can provide as little as 2 percent to as much as 40 percent of the power running through the system.

"So we need to be able to work with the fluctuations in the wind," Pieper said. "Pretty much we accept all the wind that's available, and then we make up the rest of the energy from the other resources."

When the wind blows hard, they ramp down other generators. They're used to doing this for wind, and they expect to be able to handle solar the same way.

But what makes utilities uncomfortable is not the technical challenges of small-scale solar, but the money side of things.

For 100 years utilities have bundled all their costs -- buying fuel, building and repairing transmission lines, paying salaries - and added them all together and paid for them by charging customers by the kilowatt hour.

In Xcel's view, that means people who produce some of their own electricity are getting a free ride, said Rick Evans, the utility's director of regional and government affairs.

"To the extent people are able to lower their kilowatt-hour usage through a solar panel on their roof, they're reducing not only the amount of energy they're paying for, which is appropriate because they're making their own energy, but they're reducing their contribution to all the infrastructure, which they're still using."

So how much should the utility have to pay those residents? Right now, the meter essentially runs backward when the sun is shining, and a residential solar electricity producer is paid at the same rate he or she pays when the meter runs forward.

But the legislation that set the solar standard called for creation of something called a "value of solar tariff." The state Commerce Department is working with utilities and other interest groups to define by the end of January a method by which utilities would calculate the value.

Then utilities can choose to charge customers according to this "value of solar" rather than the current system.

The "value of solar" will include several factors -- the value of the energy produced, the benefit of the fact that solar power produces best when the demand is highest, the advantage of not having to send the electricity through high-voltage power lines and losing power and ultimately the savings from not having to build so many power plants.

Utilities and energy watchdogs are likely to disagree on how to calculate these values. A high value would encourage more people to put up panels, but utilities have a built-in incentive to keep the value lower.

Energy markets are changing. At least one expert says it's time to revamp the whole system we use to pay for electricity. Utilities may need to start charging for services they provide, not just the kilowatt hours customers use, said Mike Bull, director of policy and communications for the non-profit Center for Energy and Environment.

"Right now the issue is the transition from the previous business model that the utilities are operating under, a commodity-based model, to this new business model that is not yet defined. How do we transition, and how do we make sure that they continue to make the investments we want them to be making during that period?"

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