Minnesota Crafts a Formula to Calculate the Value of Consumer-Generated Solar Power

Yes, everyone values solar power—except maybe Big Oil—but how much is it actually worth in terms of dollars and cents? At least the start of an answer came last week from the Minnesota Public Utilities Commission.

Minnesota is the first state in the nation to craft a “value-of-solar” formula for calculating the value of solar power generated by consumers. The big deal is that the methodology is not just about how much solar power is worth to the utility company and its customers, but to society and the environment, according to a ThinkProgress article.

“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, as quoted in the article. “This decision could influence other states as they evaluate how to move forward with their own solar-related policies.”

Why is this important? Well, for one thing we put values on fossil-fuels: Stocks rise or fall as the cost of a barrel of oil fluctuates. Carbon-pricing is also a factor in calculating the cost of various sequestration and emissions reduction technologies. When a consumer installs a solar system, it’s not all about feeling good and doing the right thing to cut back on the electricity that comes from fossil fuels. There’s also a clear benefit to the utility companies.

As the article relates, solar panels feed excess energy back to the grid, helping to alleviate the pressure during peak demand hours. Also, 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 trick lies in determining the worth of the excess solar power produced by customers and sold back to the grid. All of which makes Minnesota’s move groundbreaking: 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.

Thus the commission adopted the U.S. government’s "social cost of carbon" 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.

As Jeff Spross has explained on Climate Progress, such 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.”

That’s a huge and potentially meaningless range, which makes Minnesota’s decision to use the government’s calculation a precedent for states looking to determine the true impact of clean energy.

“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 the Midwest Energy News report.

It’s all about the metering, apparently. The state’s new formula is optional, but solar customers in Minnesota will be backed up by the current compensation structure, a policy called net metering. Hernandez says it’s worth pointing out the differences between the state’s 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.

That’s where calculating the value of solar power—including its worth to the stakeholders involved as well as to society and the environment—becomes a bit dodgy, difficult and likely controversial. The point is that utilities don’t really want to pay customers using solar power, they want to get paid.

Image: Williams/Rooftop Solar Panels by SolarEWorld via Flickr CC