The Long Lake Community Solar Garden is shown in Long Lake, Minnesota. (Photo courtesy of New Energy Equities)
Xcel Energy can retroactively reduce payments to most of the roughly 30,000 Minnesotans who subscribe to community solar gardens, the Minnesota Court of Appeals ruled on Monday in a significant victory for the utility company.
The decision ratifies an earlier Minnesota Public Utilities Commission order that cut compensation for customers who subscribed to “legacy” gardens built in the last decade. Those facilities still account for most of Minnesota’s community solar capacity and more than half its total solar energy capacity.
Community solar subscribers pay solar garden operators for the energy produced by their shares and receive corresponding bill credits from their electric utilities. Xcel Energy argued the wildly successful program unfairly shifted costs onto non-subscribers, but consumer advocates along with Minnesota cities, school districts and universities warned reducing the credit rate would broadly increase costs to the public.
In public comments last January, the cities of St. Paul, St. Cloud and Burnsville said the change from bill credits based on the retail rate of electricity to a lower “value of solar” formula would cost them each millions over the remaining years of their 25-year contracts. Minneapolis said 65 of its 80 community solar subscriptions would flip from saving to costing the city money, risking a property tax rise. The University of Minnesota warned its projected $1.2 million annual loss “could increase costs for students and taxpayers,” according to a PUC staff report.
“This hurts everyone in the tax base, not just the subscribers,” said Pouya Najmaie, policy and regulatory director for community solar developer Cooperative Energy Futures, which opposed the compensation change.
Changing how bill credits are calculated could reduce credit values by around 30% for some subscribers, Najmaie said.
Though it said in its initial proposal that the new bill credit calculation would serve the public interest by saving non-subscribing ratepayers an estimated $48.4 million each year, Xcel Energy also warned of a “potential shock to subscribers and public budgets” in subsequent comments filed with the Public Utilities Commission.
As of 2023, nonresidential entities represented 10% of unique community solar subscribers but received 82% of all bill credits, according to Minnesota House nonpartisan research staff. One public commenter last year said public entities that subscribe to community solar gardens serve some 2.75 million Minnesota residents, including families whose children attend public schools.
“This decision will significantly and negatively affect the many Minnesota school districts that are community solar subscribers,” Minnesota School Boards Association executive director Kirk Schneidawind said in a statement Monday warning of “potential property tax increases and reduced school programming that might result from the change.”
Xcel filed the compensation change proposal in 2023 at the commission’s request. It did not take a formal position on the issue before the commission approved the rate change in a May 30 order last year. That order modified Xcel’s proposal to include a gradual transition from retail to value of solar credits and delayed implementation until April 1, 2025.
The commission denied a subsequent request by community solar subscribers, developers and industry groups to reconsider its decision. In an order last August, the commission characterized the effect of the change as a reduction in savings, rather than an increase in costs and said the delayed implementation date would give subscribers and developers time to address any financial impacts.
Meanwhile, it added, “the harm to non-subscribing ratepayers identified in the May 30 Order will continue so long as (community solar gardens) remain on the (retail) rate.”
The Court of Appeals broadly agreed in a Monday decision rebuffing three solar developers’ claims that the commission lacked the statutory authority to retroactively change compensation for legacy solar gardens. The 2013 law authorizing community solar gardens describes the retail-rate calculation as a temporary bridge to a permanent value of solar framework, Judge Jon Schmidt wrote, and the commission has discretion to modify rates “consistent with the public interest” so long as it “reasonably allow[s] for the creation, financing, and accessibility of community solar gardens.”
Xcel Energy hailed the ruling as a win for ratepayers and its efforts to source all of its electricity from carbon-free sources by 2040.
“As we continue to integrate more renewable energy into the grid, we are focused on keeping energy service affordable for our customers. Today’s Court of Appeals ruling supports that objective by upholding the Minnesota Public Utilities Commission’s unanimous decision from May 2024 (that) lowered the cost of the community solar garden program for all customers,” spokesperson Theo Keith said in an email.
The decision will save Xcel customers an estimated $28 million this year and $39 million in future years, Keith said.
But it’s far from clear that the value of solar rate truly allows for “reasonable” community solar development, Najmaie said. CEF and many other community solar developers all but halted development work in 2017, when the lower value of solar rate took effect for new projects, he said.
That hiatus continued until 2024, when a state law easing restrictions on community solar development and expanding access for public entities and lower-income subscribers took effect. CEF now has five solar gardens in development, Najmaie said, despite federal policy changes expected to increase the cost to build them.
The 2024 law also makes it more difficult for the Public Utilities Commission to retroactively change bill credit compensation, Najmaie said. But that’s no help for legacy subscribers left in the lurch by Monday’s court decision, which Najmaie said could erode public trust in the community solar program, make it harder for projects to sign up new subscribers and potentially scare off the lenders community solar developers rely on.
“Financiers are looking at Minnesota and saying, well, if they can change rates now, why can’t they change them later,” he said. “Is it worth coming to Minnesota at all when we now have 20 other community solar states where we don’t have to deal with this stuff?”
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