As the penetration of distributed PV has increased, concern over cross-subsidization has grown as fewer customers are available to pay for fixed infrastructure costs (e.g., transmission and distribution costs). In 2013, Minnesota passed legislation allowing investor-owned utilities to offer a Value of Solar (VOS) tariff as an alternative to net metering which compensates excess PV-generated electricity at full retail rates. On March 12, 2014, the Minnesota Public Utilities Commission voted 3-2 to approve the specific methodology for calculating the value of distributed solar generation.

Key Details

• The VOS credit includes the following components: avoided fuel costs, avoided plant O&M cost, avoided generation capacity cost, avoided reserve capacity cost, avoided transmission capacity cost, avoided distribution capacity cost, and avoided environmental cost
• Minnesota’s VOS legislation separates usage charges from credits received from the VOS tariff, thereby creating two separate transactions
• This structure ensures infrastructure costs are recovered by the utilities, as designed in the applicable retail tariff
• The methodology includes placeholders for the future inclusion of voltage control and integration costs
• The VOS value will be recalculated each year; new customers will receive the new value while existing customers will have their first-year value adjusted annually using the Consumer Price Index

Implications

The VOS tariff is emerging as a potential replacement to net-metering policies. If successful, the VOS rate will create a rate that “will account for the real value of the PV-generated electricity, and the utility and its ratepayers [will] be indifferent to whether the electricity is supplied from customer-owned PV or from comparable conventional means.” Regulators, utilities, and the solar industry will be closely watching Minnesota’s implementation to understand the impact and effectiveness of VOS tariffs.

More information

SNL: http://www.snl.com/interactivex/article.aspx?id=27254572&KPLT=6

GTM: http://www.greentechmedia.com/articles/read/minnesota-becomes-first-state-to-set-value-of-solar-tariff

Full Methodology: http://bit.ly/1ie7J5x

This report is part of the Clean Tech & Sustainability Minute series. To view all featured Minutes, please click here.