Many utilities offer special rates to demand-metered customers that are willing to undergo demand-response curtailment during peak demand periods—a so-called “standby tariff.” By this curtailment, utilities can shave the top of the peak demand curve and therefore be required to build less capacity. This approach to demand response is more economically efficient for the system as a whole, and, for commercial and industrial customers that participate in a standby tariff, provides opportunities to reduce a major variable cost.
On-site, behind-the-meter solar arrays can have a similar effect of reducing demand on a utility’s grid. This phenomenon led to a push in 2016 from the Minnesota Department of Commerce and Xcel Energy to transform the Capacity Credit given to co-generation facilities—which had previously applied to this kind of photovoltaic facilities—into a PV-specific tariff that accounts for solar’s effective reduction of demand, instead of the value of additional capacity. The structure of the Capacity Credit tariff was awkwardly situated between the world of dispatchable co-generation and intermittent rooftop generation, and led to time-consuming, done-by-hand accounting for the utility and a lack of predictability for customers. So, it was time for a change.
During the transition from the Capacity Credit to the new PV Demand Credit Rider (also known as the “PV Rider” or “PV Demand Credit”), MnSEIA negotiated with Xcel, the Department of Commerce, and other stakeholders to develop an interim rate that ultimately resulted in over 50 projects (14MW) in a year. As projects were being developed under the interim rate, MnSEIA again negotiated with the other stakeholders to determine a permanent methodology for the PV Rider. In the end Xcel Energy did not sign on to a negotiated agreement, but MnSEIA, the Department of Commerce, and a cohort of commercial customers were able to convince the Minnesota Public Utilities Commission that our joint methodology was superior to Xcel’s.
In February of 2020, the PV Demand Credit Rider was updated in Xcel’s Ratebook for commercial use. There are two rates, Closed and Standard. Both rates incur a customer charge of $25.75 per month to participate. Participants in either rate must be demand-billed, have a PV system larger than 40kWAC, which is interconnected via a single production meter and not subject to another incentive program, and have no on-site storage. PV Demand Credit Rider projects are not able to receive solar rewards compensation, but may be located on the same premises where a solar rewards project is located.
The Closed rate applies for customers whose projects were deemed complete (not at the mechanical completion stage) by February 14, 2020. This “grandfathered-in” rate compensates customers at 7.139¢/kWH produced between the hours of 1 PM and 7 PM during all months of the year. The Closed rate expires April 20, 2027, when all projects will be transferred to the Standard rate. This is the interim rate, referenced above, that MnSEIA negotiated with Commerce and Xcel Energy.
The Standard rate applies to all generation produced between the hours of 1 PM and 7 PM during all months of the year, and compensates customers at 6.9648¢/kWH. The standard rate will be updated with Xcel Energy rate cases and should increase with utility costs, because the credit’s methodology is based on “embedded costs” as opposed to “avoided costs.” Xcel Energy tends to engage in rate cases every three years. This duration between rate cases serves as a de facto three-year term for the PV Demand Credit.
The total package in the new PV Rider—net metering, the compensation rate for the PV Demand credit, the de facto three-year term based on embedded costs, and an inflationary increase—should yield many megawatts of commercial and industrial projects each year. It creates a fantastic market opportunity for developers of Commercial and Industrial systems that is predictable, scalable, and iterable.