Minnesota community solar developers are adjusting their business plans as the state’s program undergoes some of the biggest changes since its launch over a decade ago.
One of the oldest and largest in the country, Minnesota’s community solar program has spurred development of more than 800 megawatts worth of solar capacity since launching in 2013. Customers subscribe to shares of projects and receive monthly credits on their utility bills, typically lowering overall energy costs.
The concept has been hailed as a way to spread the benefits of solar to customers who lack rooftop space, sun exposure, or the financial means to install solar panels on their own. In practice, the biggest beneficiaries have been commercial customers, which subscribe to 82% of the program’s capacity, according to data tracked by the Institute for Local Self-Reliance.
State lawmakers passed legislation last session aimed at increasing the share of power going to residential subscribers, especially low- and moderate-income customers, as well as attempting to address long-simmering complaints by solar companies about the program’s administration by utility Xcel Energy.
“I think there were thoughts that it could be handled in a more unbiased way outside of the utility,” said Rep. Patty Acomb, a Democrat whose district covers a suburban area west of Minneapolis.
The Minnesota Department of Commerce will now manage the program and has formally begun accepting applications. However, Xcel Energy will continue to handle interconnection applications, which have been a source of friction between the utility and developers.
Community solar developers will be allowed to build larger projects with fewer geographic restrictions, up to 5 megawatts anywhere in Xcel’s service territory. Previously, projects were limited to 1 megawatt, and developers could only sign up subscribers who lived in the same or an adjacent county as the project’s location.
The biggest changes come with the mix of subscribers developers must recruit for projects. At least 30% of a project’s subscribers must be low- or moderate-income residential customers. Another 25% must be allotted for schools, government agencies or other public interest organizations. Each project must have at least 25 participants.
“We were trying to address equity and economics and making sure that the benefits are going to a more underrepresented group,” she said.
What happens next
With the new application process and subscriber requirements, as well as ongoing congestion in Xcel’s interconnection queue, developers expect a slow first year under the new rules but generally support the program’s new direction.
Brendan Dillon, president of Minneapolis-based solar developer Nokomis Energy, said the new program “much better reflects what community solar should be, which is a tool that allows people who, for whatever reasons — whether it’s financial, or they don’t own their home or condo or they don’t have roof space — to be able to access clean energy and apply its financial benefits.”
Nokomis Energy plans to work through existing community groups and those associated with local governments to reach the designated income-qualified subscriber pool. Dillon said solar developers will do more community outreach and engagement to reach potential low-and-moderate subscribers.
Rob Appelhof, CEO and president of Cedar Creek Energy, said he works with another company to market subscriptions, and they already have a strong representation of low and moderate-income participants, so recruiting “should not be a problem.”
Developers said removing the geographic restrictions will help them build more projects and allow more farmers to benefit from leasing land to solar companies.
“It opens up more opportunities for urban residents to subscribe to community solar,” said Eric Pasi, CEO of Enterprise Energy.
US Solar Corporation President Reed Richerson said that “there are plenty of farmer landowners who want to host community solar on a portion of their land, and they’ve been unable to because they live in areas where, despite there being achievable permitting and achievable interconnection, there was a constraint with accessing subscribers.”
The dual application process splits the interconnection approval, Xcel’s responsibility, with the project approval from Commerce.
“In these early days, it is becoming a bit stickier than I think we might have imagined, mainly because I think Xcel isn’t necessarily on the same page as the Department of Commerce or the way the law is written,” Richerson said.
Richerson said he does not expect projects under the new rules to win approvals from Xcel and Commerce “until, at earliest, March,” he said. “And then, upon the award, you can go build your projects. But with timelines of these things, having anything online by the end of the year will be challenging.”
A race against time
Unlike before, the program will now have annual caps, starting at 100 MW from 2024 to 2026, 80 MW through 2030 and 60 MW from 2031 on. That will create new pressure and uncertainty for developers, who could spend thousands of dollars to secure a site and an interconnection agreement only to have Commerce turn the project down.
“I guess the biggest uncertainty is getting your projects approved when there’s only a limited amount of them,” Appelhof said.
Cooperative Energy Futures has served low-income subscribers through community and rooftop solar for years. Policy and Regulatory Director Pouya Najmaie said developers will leverage income-qualified participation necessary for the state program to take advantage of incentives in the federal Inflation Reduction Act.
With enough low-income subscribers, a developer can add as much as 20% to 30% tax credit available for community solar, reducing the cost of a project by half, he said. “We’re doubling down more on low-income (customers) because of the IRA,” Najmaie said.
Cooperative Energy Futures will not seek to build larger, remote projects but instead focus on smaller ones built nearer to subscribers’ homes.
“We’re going to be concentrating a lot on the city and looking for warehouses and large building rooftops for hosting,” he said. “The capacity is much better there, and you’re closer to load, so it’s generally more efficient.”
Xcel Energy is still studying the cost impact of the legislation and “won’t know more until we understand what the customer makeup of the new gardens will be, because the legislation creates several different bill credit rates based on customer groups,” said spokesperson Theo Keith.
The utility supports the focus on residential, income-qualified and public interest subscribers because it will “expand options for income-qualified customers to participate directly in the clean energy transition,” he said.
Xcel has also asked regulators for more time to solve a persistent and confusing issue for community solar. Customers currently receive two bills, one from the community solar developer and another from Xcel that includes credit for the electricity their subscription produces. The legislation requires Xcel to develop a combined bill for those customers.