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Fixing Old Law Opens New Energy Paths

September 06, 2012 By Will Nissen, Fellow

If Minnesota is serious about incentivizing small-scale renewable energy projects, it must update its outdated net metering law, mainly by increasing generation capacity limits.

In this year’s Freeing the Grid report, an ongoing collaborative effort evaluating state policies regarding net metering and interconnection practices, Minnesota was one of four states to receive an “F” for how well its net metering policy facilitates small-scale renewables like rooftop solar.

Net metering is essentially a contract between a utility and a customer who chooses to produce electricity onsite. If a customer produces more electricity than can be used on the property, the resident or business can sell that excess generation to the utility to distribute on the grid. Net metering policy ensures that the utility will pay the “average retail utility rate” for that electricity, or roughly what the utility charges that customer for electricity.

Minnesota law, enacted almost 30 years ago in 1983, sets a capacity size limit of 40kW for eligible systems to qualify for the benefits of net metering. For perspective, the IKEA solar array that just went online at the Bloomington, MN store has a roughly 1,000kW capacity, is currently the state’s largest installation, will provide about 80% of the store’s electricity needs, and could power about 100 homes.

Any project that is over the net metering capacity limit, like the IKEA solar array, can still sell excess electricity to the grid, but that customer has to negotiate the price for that electricity individually with the utility. The negotiated price would likely be lower than the average retail utility rate, and the extra negotiations add unnecessary steps and costs to the process of building distributed generation sources.

For a multi-national company like IKEA, these extra steps may not be significant hurdles to jump. But for a small business looking to build a small wind turbine or a rooftop solar array, these additional burdens raise time and financial barriers that can deter these customers from adopting beneficial small-scale renewables.

Net metering protects customers with projects under the capacity limit by standardizing the power purchase price, giving customers greater certainty about the price they will get for excess electricity generation. This certainty is critical in the project financing process, and simplifies the process of implementing small-scale renewable projects.

Effective net metering capacity limits are particularly important for broader development of distributed photovoltaic (PV) solar energy. A solar array on a single-family home will likely fall under the current limit of 40kW, but a larger structure like an apartment complex, farm building, warehouse, or other commercial and industrial buildings would likely exceed that limit.

A look at the National Renewable Energy Laboratory’s open source database of solar installations in Minnesota (an incomplete but useful source) indicates a ceiling of 40kW for many solar projects. These projects may not be sized at the most effective scale if customers are forced to cap projects at 40kW due to our state policy.

For example, the ideal size, in terms of financing and electricity generation, for a solar array on a customer’s building rooftop might be 80kW. But because the project would exceed the net metering capacity, the process of negotiating with the utility for a price lower than the average retail rate can incentivize the customer to limit that project to 40kW. This situation fails to maximize the benefits of that solar project for the customer and for the broader implementation of distributed solar energy.

It is important to note that net metering is not a subsidy or tax credit. It doesn’t take money from one group of utility customers or taxpayers and give it to another group pursuing a specific technology. Furthermore, raising the net metering capacity can be done at minimal cost to utility customers and taxpayers.

Other states across the country have figured this out. The top 5 states in the U.S. for installed solar capacity (in order: California, New Jersey, Arizona, Colorado and New Mexico) have net metering capacity limits of 1,000kW or higher, or use a percentage of the customer’s consumption load. Minnesota has a better solar resource potential than the state of New Jersey, which does not have a statewide capacity limit, but less than 1% of the installed solar capacity.

Minnesota policymakers don’t need to reinvent the wheel on this issue. The Freeing the Grid report recommends a best practice of eliminating the net metering capacity limit at the state level, or catering it to the technical specifications of the customer. Our public officials should at least raise the net metering capacity limit to 1,000kW, and consider removing it altogether. This is an effective and inexpensive way for policymakers to facilitate development of renewable energy projects among a valuable and untapped customer base.

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