The Minnesota Solar Garden program has turned out to be much larger and more popular than expected. Originally expected to be about 100 MW in size, the program received 400+ MW of applications within the first week. Unlike experience in other states where residents and smaller entities such as schools made up the bulk of subscribers the Minnesota program is seeing large commercial and industrial subscribers as well. Most notably, Ecolab signed a subscription with SunEdison for 16 MW of solar garden output (see here), and the St. Paul Public Housing Agency signed a subscription to cover 85% of the electricity use at 16 residential high rise buildings (see here).
The Minnesota Legislature established the Community Solar Garden Program in 2013, and Xcel Energy launched the Solar*Rewards Community program in December of 2014. The program was designed for Xcel customers who can’t install onsite solar because they rent, live in a multifamily building, or otherwise don’t have a site or roof that is suitable for solar. The program enables residents and businesses to participate in an offsite solar project by subscribing to a solar garden; for each kilowatt-hour (kWh) produced by their share of the garden subscribers receive a credit on their Xcel bill. The MN Clean Energy Resource Teams (CERTS) have put together a good primer on the program, including a list of Frequently Asked Questions, which can be found here.
One aspect of the program that is not well understood is whether subscribers are able to make the claim that they are using renewable (aka “green”) energy. Most who participate in the program assume that their subscription to a solar garden, a green energy source, enables them to claim that they are now using green energy, but this is not the case. In order to understand why, we first need to understand what Renewable Energy Certificates (RECs) are, and how they are used to encourage the development and use of renewable energy sources.
The Environmental Protection Agency’s Green Power Partnership defines a REC as the environmental, social and other non-power attributes of one megawatt hour (MWh) of renewable electricity generation. RECs can be generated from renewable sources such as solar, wind, or hydro power; and are often sold separately from the physical electricity. The owner of the REC has the right to claim the use and benefits of renewable generation.
The benefit of being able to sell RECs separately is that they can then be used as a policy tool to incentivize the development of solar projects. For example, states such as New Jersey, Massachusetts, and Pennsylvania have Renewable Portfolio Standards (RPS) that requires utilities to get a certain percentage of their generation from solar. Utilities comply with this mandate by purchasing and retiring RECs from third-party solar developers. Revenue from the sale of RECs creates an incentive for developers to spend capital developing solar projects. In compliance markets where there is an RPS requirement RECs can sell for hundreds of dollars. In voluntary markets, where purchase is not mandated, they sell in the range of one to tens of dollars.
Subscribers to solar gardens are not able to claim they are using renewable or green power because they are selling their RECs to Xcel. The value of the credit that solar garden subscribers see on their Xcel Energy bill is made up of two components: 1) compensations for the electricity generated, and 2) compensation for sale of the RECs generated. The diagram below shows the breakdown of payments in more detail.
Solar garden subscribers are compensated for the power their share of the solar garden puts onto the electrical grid, and for the RECs delivered to Xcel Energy. The price Xcel pays for the power is the Applicable Retail Rate (ARR), which is set once a year for each rate class. Xcel pays $.02/kWh for RECs from solar gardens larger than 250 kW, which are the most common, and $.03/kWh for RECs from solar gardens smaller than 250kW. Unlike the ARR, the REC payments are fixed for the 25 year term of a solar garden subscription. For General Service customers (i.e., larger commercial and industrial customers) the 2015 ARR is $.09914/kWh, adding in the $.02/kWh REC payment you get a total bill credit of $.11914/kWh. Thus, the REC payment is a significant portion of overall compensation.
What can subscribers do if they want to claim they are using renewable energy? The easiest solution is to buy and retire RECs in sufficient number to cover the percentage of electricity they want to claim is renewable. One may ask why they just don’t just keep the RECs generated from their share of the solar garden. Xcel is paying $.02/kWh for the RECs, which is equivalent to $20 per MWh (RECs are the non-power attributes of 1 MWh). On the voluntary market RECs can often be purchased for around a dollar. So, it makes financial sense to sell the solar garden RECs for $20 and purchase RECs for about 5% of that price on the voluntary market.