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.
I personally asked this same question to one of Xcel's lobbyists who devoted an evening last October to presenting and taking questions about Xcel's IRP. I started asking the question this video (~ minute 22:26). The Xcel representative appeared to quickly pivot to general facts on a related but different topic (until ~ minute 27:09) and offered platitudes along the lines of "we can't predict the future, and there are a lot of things to look at". https://www.youtube.com/watch?v=APXfAbWE6AA But he avoided acknowledging the basic premise behind my question which was that the forecast for community & distributed solar was low by perhaps a factor of ten. It is his job to paint Xcel in a good light, which suggests this question touched a nerve. Note that he was eager to volunteer to put an earlier audience member in touch with someone who could talk about Xcel battery technology, but with the question on lowballed community/ distributed solar forecasts he seemed all too eager to move on to another topic. Overall, I could have obtained a forecast from a recognized entity such as NREL or MISO and asked a question like "I noticed that the community distributed solar forecast from MISO Energy zone 1 differs from the number in the latest IRP - why are you using a different estimate?" or "If Distributed solar ends up being two to three times more than Xcel has forecasted, then does that mean Xcel has unnecessarily invested in energy from fossil gas?"
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.
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.
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.
There is more efficiency with less transmission (neighborhood generated energy doesn't need huge transformers and power lines); and that geographic consolidation of solar arrays is bad for overall solar collection (utility-scale solar will limit the amount of sunlight we can collect).
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.
Outside of including some figures in a table, Xcel's IRP does not have a whole lot of references on Distributed Solar. Because more distributed solar could offset the need for a future fossil gas power plant, a more robust analysis of it is warranted. Either the PUC should demand further research in Xcel's IPR on distributed solar or look into comparative models from other organizations on it. For example, Xcel's forecast for community solar is 75 percent lower than the modeling from Institute for Local Self-Reliance. Another example is from a December 2019 report in Renewable Energy, which shows that Xcel's forecast for the entirety of customer sited residential and commercial solar is less than half the amount which Renewable Energy has in its model forecasts for residential solar only. The PUC should demand better modeling from Xcel so that a more accurate forecast can be determined.
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 find a loophole 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.
In addition, here is the catch-22 that greatly limits the amount of distributed renewables that could be developed- Xcel (and other utilities) requires entrepreneurial developers of distributed renewables to get the financing required to develop their projects just to get to the stage of 'contract negotiation'. But they can’t get the financers to give the financing they need for their projects without adequate pricing data. The data the entrepreneurial developers need to get this financing would require utilities such as Xcel to publish their avoided costs. Xcel and others are able to avoid publishing these avoided costs by taking advantage of the "trade secret" designation.
(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.
In other states where utilities follow federal PURPA guidelines without hiding their avoided costs, we have seen a substantial amount of solar projects generated. In North Carolina, the Energy Information Administration reported in 2016 that over 90 percent of the state's 1,200 megawatts of utility-scale solar PV projects was due to its effective implementation of existing federal law. In states like Idaho and Utah, there was significant growth in projects until the required contract length between the developers and the utilities was slashed by their state PUCs (in the case of Idaho, from 20 years to 2 years). To maximize the amount of solar generation possible, the Minnesota PUC needs to demand that Xcel publishes their avoided costs and gives long-term (20 year or more) contracts to solar developers.
In Fairness, here is the distributed energy page from the Department of Commerce: https://mn.gov/commerce/industries/energy/distributed-energy/ as well as their solar potential analysis from late 2018:
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.
FURTHER BACKGROUND ON COMMUNITY SOLAR
Community solar was a significant change because it basically created a competitor for Xcel when it was used to having a virtual monopoly on electricity production in its area. For many years prior, too many individual homeowners who wanted to go solar expressed barriers to doing their own rooftop solar (up-front financial cost, too much shade, etc.). Community Solar was a way to tap into this unmet demand. Because both developers of solar farms and the subscribers have been able to make financial gains by participating in community solar, the program grew very quickly beyond anyone’s expectations.
There would be very little solar in the state without this Community Solar statute. Minnesota went from less than 5 MW of solar in 2013 to over 1,300 MW of solar production by 2020. More than half of that electricity (over 700 MW) comes from the community solar program (which is nearly the amount one of the soon-to-be-retired Sherco coal units generates).
But we can also consider quality of electricity not just the quantity. The electricity generated by community solar is particularly valuable to Xcel during summer peak load times when air-conditioning use causes huge electricity demand. This peak load time also happens to be when solar electricity generated also peaks. Without Community solar vastly expanding solar generating capacity, Xcel would have to go out on the open electricity market and buy some of the electricity needed to meet that peak demand at market prices, which happen to be at their highest at peak demand times in the summer.
Even though Community Solar enabled enough solar in general to provide these tangible financial benefits for Xcel and their customers...
Even though Community Solar has led to significant jobs growth number of jobs in Minnesota…
Even though a Community Solar program could be designed to benefit low income customers of Xcel…
Xcel’s management still opposes it because of their inability to generate any corporate profits from the existing community solar or further expansion of community solar.
Xcel is paid nothing for that electricity because they have to give a Community Solar subscriber a credit on their Xcel bill for the electricity generated from community solar.
Unsurprisingly, the rate at which Xcel had to credit CSG subscribers as well as the size of the solar farms were the two main fights before the PUC on community solar during the period from approximately 2013 through 2016. The PUC reached compromise on both issues which made the program less accessible than it could have been but left intact the basic incentivizes for more subscribers to sign up for community solar projects.