Xcel's Shockingly Low Forecasts for Community & Distributed Solar

Undercounting customer-sited and non-utility solar energy in Minnesota has significant financial and economic consequences and utilities need to instead plan for more competition.  

Why do we see utilities push back against customer- and community-owned energy? "The bottom line: 500 megawatts of community-owned solar represents a missed opportunity for Xcel shareholder profits."

    A core existing pillar holding up some degree of Energy Democracy in the U.S. is that so many utilities, including Xcel Energy, are required to present “Integrated Resource Plans” to identify their plans for power generation for the next 10, 15, or 20 years, which state regulators who oversee the utilities have to approve.

The oddest and most noticeable problem with Xcel’s revised 2020-2034 Integrated Resource Plan is that it assumes a dubiously low estimate for future Community, Distributed and Rooftop Solar. It forecasts only 21 Mega Watts per year of new Distributed/ Rooftop & Community Solar from 2021 through 2034. That amounts to only 273 MW total in that timeframe).

(SUPPLEMENT 2020-2034 Upper Midwest Integrated Resource Plan (Docket No. E002/RP-19-368). https://bit.ly/3guwYUX)

 For comparison, we had more than 200 MW of distributed and community solar added in 2018 alone and program capacity reached 688 MW of capacity in May 2020, nearly six years ahead of Xcel’s 2019 forecast.

(Farrell, John. Why Minnesota’s Community Solar Program is the Best. (Institute for Local Self-Reliance, updated monthly). https://ilsr.org/minnesotas-community-solar-program/)

When you take Xcel forecasting this current momentum will be quashed by 90%- 97% in coming years, and compare that decline with its recent growth trends plus the number of projects are already in the existing queue, we can realistically expect that new Community Solar added to Xcel’s system will far outstrip Xcel’s projections *** barring legislative action to curtail the program***. By 2013 State Law, Xcel is legally obligated to accept new Community Solar project proposals.

Xcel also has had a track record of lowballing estimates for Community Solar and has been wrong on a similar forecast before. Shortly after the law passed in 2013 requiring them to take on Community Solar Project, Xcel proposed allowing just 20 megawatts of development over the first two years.

(Shaffer, David. Xcel Energy opens way for solar gardens. (Star Tribune, 10/1/13). http://strib.mn/3732vd7)

What is so valuable about distributed renewable energy?

Distributed renewable energy creates value in these forms:

1) lower energy costs & customer energy bill savings by offsetting utility capital expenditures on system upgrades or expansion,

2) prevented pollution/ environmental externalities,

3) greater resiliency in the electricity system.

In addition:

4) Community-scaled and distributed power is more energy efficient because it has far less voltage loss than the standard transmitting of bulk power from remote sites to distant loads.

 

5) If a utility centralizes its solar power generation into just a few geographic areas, then it will cause significant disruptions in power supply when a cloud happens to go over that one area. On the other hand, when solar generation is more distributed, it helps add reliability to the power supply. Having less intermittency in power supply would undercut a big part of Xcel’s justification that building a new gas plant in Becker, MN is necessary.  

 

Despite all these benefits that distributed energy resources can bring into their system, utility companies often overlook their value in the process of making these detailed Integrated Resource Plans.

Why is that?

      Utility investors can’t profit from distributed renewables in the same way they can profit from building new fossil fuel power plant capacity that is owned or put out for bid by the incumbent utility and connected to consumers by long-distance transmission. That is why Xcel is showing a tendency to plan new solar capacity which mimics the central station power plant model. Xcel’s Integrated Resource Plan estimates between 3500 MW of solar power coming from large, utility-owned solar farms***.

Utility scale solar is indeed useful in areas where there is already more than enough grid infrastructure to accommodate it. But the disparity between 275 MW of non-utility solar and 3500 MN of Utility Solar in IRP expresses an intention to design new solar in a way that enables Xcel to maximize its market share and to rate base the assets. Instead of more people or communities owning their own solar panels, Xcel appears to be using their IRP to present us with a future where the right to profit from renewables is overwhelmingly controlled by monopoly utilities.

Xcel is a publicly traded for profit Fortune 500 company which has a better chance of maximizing its profits if it owns as much of the power generation as possible. Otherwise it just becomes a company that maintains the grid (great for the public but less great for a company that would like to keep its place in the Fortune 500)  

 

*** *Xcel's plan proposes adding over 3,500 MW of utility scale solar by 2030 (but not starting until 2025 because they expect the cost of technology to come down faster than the expense of federal solar tax credits expiring by then). Xcel does make one offering for accessible rooftop/community solar - which is to provide incentives for low-income homes/businesses/non-profits/schools to install rooftop solar - and a proposal to install Xcel owned solar on low-income households and provide bill credit.

 

Undercounting customer-sited and non-utility solar energy in Minnesota has significant financial and economic consequences and utilities need to instead plan for more competition.

      There are two big consequences of Xcel acting from this unrealistically low forecast of community and distributed solar energy. First of all, it will lead the utility to make investments in unneeded power generation which customers are obligated to cover the cost of (such as the proposed gas plant in Becker, MN). Such poor planning could end up hurting the financial viability of the utility itself if it results in resource acquisitions that they will not be able to recover costs from. Second of all, acting from these unrealistically low estimates will leave the utility unprepared for grid impact of what is likely to be far more a significant deployment of rooftop solar. Utilities have some technical justification for ignoring rooftop solar in their energy planning scenarios because the companies do not directly control deployment of these resources. But it is still unwise to craft a resource plan with unrealistically low estimates for the above reasons.

      The Public Utilities Commission (PUC) should instead both expect and support an accelerated scale-up of community-based clean energy because it has strong consumer interest with organized groups committed to making it happen. Furthermore, it falls in line with the PUC’s mission to protect the utility customer from being saddled with unnecessary expenses. Rather than designing the deployment of new solar power around what is best for a utility’s market share and capital formation, a more balanced approach to resource planning would be one of strategically sizing and locating new renewable power generation to fit within the capacity that each corresponding substation can accommodate. The goal of this approach is to avoid having to construct new million-dollar-per-mile high voltage transmission lines (HVT) that would saddle Xcel Customers with preventable expenses if they could be avoided. Furthermore, adding new HVT lines could become controversial political bottlenecks which can delay the clean energy transition to be slower than what Xcel expects in the IRP. 

 

Are there any other justifications for Xcel’s dubiously low estimates?

In Xcel’s May 20th stakeholder meeting, the company explained that this steep drop-off was due to “market conditions”. But that can’t be true because the actual market is a monopoly with trade secrets that shelter their assumptions. Neither market conditions nor available capacity on Xcel’s system overall could explain why their forecast for community solar assumes such a dramatic drop in the rate of growth.

 

Another possible explanation is that Xcel Energy’s low forecast is based on the expectation that the value of solar (a figure which goes through a rigorous approval process each year) will fall. If it continues to fall, then community solar subscribers could not be adequately compensated and would have to pay a huge premium to participate. Such an outcome would indeed disincentivize new community solar projects. But the decline in the Value of Solar figure from 2015 to 2019 was largely due to falling gas prices, which seem unlikely to fall much further.

 

The need for transparency and accountability

     Investor-owned utilities have a disincentive to present to the Public Utilities Commission possible energy future scenarios that would reduce the utility’s need to spend capital in ways which offer their most reliable route to earning a profit. They get the most profit by expending more capital on more utility-owned infrastructure. In other words, Xcel is almost certainly getting its distributed generation forecasts wrong because it has a built-in incentive to get it wrong.      Since this is a pretty clear case where the utility has a conflict of interest, it would be within the formal role of state regulators to either require electric utilities here to model an aggressive rooftop solar and distributed energy adoption scenario (or to to ask for a corresponding independent analysis of their capacity expansion and infrastructure plans).

      Without this obligation, utilities will act from an incentive to exclude this consideration from their models, assumptions, and underlying calculations in resource plan forecasts. Incumbent utility management is likely to have hesitation against seriously studying a high rooftop solar adoption scenario for fear that the results of study would find it to have superior financial and economic benefits to utility customers. Even without such an obligation, is Xcel even required to share and demonstrate their assumptions and modeling methods behind their dubiously forecasts for distributed solar deployment? Without any sort of transparency, how can Xcel’s resulting estimates on this matter have any merit?

       For the above reasons, I’d strongly encourage that Xcel be obligated in Integrated Distribution Plan to include energy modeling at the distribution level. It would be dishonest for Xcel to publicly downplay the potential for distributed renewable power in its IRP or make a blanket claim that the scenario is not possible if the company didn’t even do the modeling necessary that would reveal the possibility. Unless public regulators require a full and transparent assessment & exploration of how distributed generation can meet future electric grid resource needs, then they are complicit with the utility resource planning process not being in the public interest.

 

Entrepreneurial Clean Energy Developers face a tilted playing field due to lax enforcement of PURPA.

      In principle, you can’t have market competition without a fair price. A federal law from 1978 called PURPA provides a framework for entrepreneurial third-party renewable energy project developers to receive long-term contracts to sell their energy to a utility at a fair price that reflects the full range of benefits they would provide. But that assumes the law is properly enforced by state regulators. PURPA technically requires utilities to publish their “avoided costs” which obtaining this new energy generation and capacity would provide them. But monopolies are understandably reluctant to enable their potential competition. So, utilities have an incentive to play a game of “hide the peanut” when it comes to making these figures available for public inspection. In addition, neither the MN State Department of Commerce nor the MN Public Utilities Commission appears serious about enforcing this part of the law. As a result, utilities have managed to get around PURPA by claiming “trade secret” when it comes to publishing the full range of benefits and avoided costs that obtaining new distributed energy generation would provide for them. Entrepreneurial developers of distributed renewables can’t get the financing they need for their projects without adequate pricing data.

(Petition for Reconsideration by the Environmental Law & Policy Center and Institute for Local Self Reliance. (Docket 19-9, 3/12/20). http://bit.ly/2QcHq8R)

 Neither the developers nor the financiers and will have an incentive to take on these projects without the expectation of receiving full compensation for the benefits they provide to the grid. The utility management will finally disclose their avoided costs figures if the proposed projects get into the contract negotiation stage as PURPA requires. But the entrepreneurial developers need financing just to get to that stage. This Catch-22 results in a tilted playing field where only large developers who already have flush cash reserves, robust lines of credit and multiple financial backstops could compete in.

Lastly, MN community solar installers have been complaining loudly about delays of many months in getting connected to the Xcel grid (https://energynews.us/2020/07/20/midwest/solar-installers-say-theyre-waiting-too-long-for-xcel-energy-grid-connections/) indicating an explicit strategy in place to drag their feet on this issue as much as possible.


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