Large customers of Xcel Energy Inc. that signed up for shared solar energy projects are getting squeezed by a new size restriction and may not get all the solar power or cost savings they expected.
This problem affects Ecolab Inc. and Macalester College in St. Paul, St. Olaf College in Northfield and many government units and schools, including the city of Minneapolis and the St. Paul Public Housing Agency.
They want to offset electricity use by subscribing to community solar gardens — acres of solar panels planned by independent energy companies on the metro-area fringe and plugged into Xcel's distribution grid. Large power users are seen as "anchors" for such projects, whose remaining output could go to residential and business customers that want solar.
State regulators' recent decision to limit the number of solar gardens per site — a change sought by Xcel and supported by some solar developers — has clouded the prospects for corporate and institutional deals. At least some are being renegotiated, and others face uncertainty about whether energy companies can deliver all of the promised solar power, customers say.
"It looks like everything is going to be scaled back, but I don't know how much that's going to be," said Louise Toscano Seeba, general counsel for the St. Paul Public Housing Agency, which intended to offset with solar all the power used in 17 buildings, saving $183,000 annually on electric bills.
At St. Olaf College, which aimed for an all-renewable campus, the solar size limit is an obstacle to that goal, at least for now. Its deal with solar developer Geronimo Energy of Edina called for a 15-megawatt solar garden to be built on college land, with St. Olaf subscribing to the maximum-allowed 40 percent of the electricity. Under new limits, the project must shrink by a third, to 5 megawatts, sharply reducing the college's share. A megawatt is 1 million watts.
"We just won't have as much clean generation coming online," said Pete Sandberg, St. Olaf vice president for facilities, who expects to get about two-thirds of the hoped-for solar capacity. "We're disappointed. It was a tremendous opportunity for Minnesota to really step up and be even more prominent in renewable generation."
Sandberg said that the college may seek deals with other solar developers if possible. The college already gets some electricity from wind power.
Program ballooned at launch
The solar garden program, established at Minneapolis-based Xcel under a 2013 state energy law, offers solar to customers who don't want to or can't install panels on their properties. Instead, customers subscribe to shared solar projects built by independent energy companies with a pricing structure that lowers electric bills. The law limits the size of each solar garden to 1 megawatt.
When the program launched in December, major solar companies decided to cluster up to 50 solar gardens together. Then companies like Sunrise Energy Ventures, SunEdison, Geronimo and SunShare looked for large power users to be anchor subscribers, with each taking 40 percent of the power from clusters of many 1-megawatt gardens.
Xcel, the state's largest electric utility with 1.2 million customers, grew alarmed at the size and cost of the program. In June, the Minnesota Public Utilities Commission decided that no more than five solar gardens, or 5 megawatts, could be built by a developer at any one site. Some solar companies went along with the limit, but others opposed it, including one that has asked for reconsideration.
By that time, institutional and corporate customers already had signed deals that envisioned larger clusters of solar gardens. Two of the first were Ecolab Inc., a Fortune 500 company, and Macalester College. Ecolab and its developer, SunEdison, declined to comment. But Macalester said it is renegotiating its deal with SunEdison, a worldwide solar developer based in Belmont, Calif.
David Wheaton, Macalester vice president for administration and finance, said the college still has a "pretty good shot" at getting enough solar to offset its campus power use. Essentially, SunEdison must develop a greater number of smaller solar clusters. Wheaton said some economies of scale were lost, and the financial terms, while still favorable, are not likely to be as good.
A group of 31 metropolitan-area cities and government units recently sought developers' proposals to build 188 megawatts of solar gardens — the output of a small traditional power plant. Just three solar developers submitted proposals to the Metropolitan Council, which coordinated the process and would share in the solar energy.
Although the results haven't been disclosed yet, the metropolitan governments likely will need to hold a lottery to distribute the less-than-hoped-for solar subscriptions. In Minneapolis, which intended to offset with solar about 20 percent of city-owned buildings' power usage, energy director Brian Millberg is not optimistic.
"I'm assuming it cut the availability in half," said Millberg. "We are still very bullish on the program. We want to do it … but how much we get is still up in the air."
Clean energy, marginal land
Met Council officials said they couldn't talk about the proposals until winners are selected. But two other, smaller community solar efforts are largely on track, with one exception — a solar garden at the Empire wastewater treatment plant near Farmington must be scaled back to meet the size cap.
"We are big believers in clean energy," said Jason Willett, director of finance and energy for the Met Council Environmental Services. "This can save money for the rate- and taxpayers. We think it is a good use of marginal land, such as wastewater buffer land."
The 1,800-student public school system in Foley, Minn., also got caught in the solar garden downsizing. Rick Olson, director of finance and operations, said the school system renegotiated the deal with SunEdison, and still intends to offset all its electricity with solar power. But the savings over 25 years will drop from more than $4 million to about $3.5 million, he said.
"They needed to make this kind of change for their project to be economical," Olson added.
Many solar developers also need the 30 percent federal solar tax credit, which drops to 10 percent after 2016. That's why solar companies are pushing to build next year, which puts pressure on Xcel to quickly authorize tie-ins to substations. Solar developers have complained that process is not going quickly enough, and the potential for delay means further uncertainty to solar subscribers.
Holly Lahd, electricity markets director for the St. Paul-based nonprofit group Fresh Energy, said she believes the solar garden market will continue after 2016 because the demand exists.
"Customers are eager to get new electricity options, and community solar is a way to provide those options," Lahd said.
David Shaffer • 612-673-7090 Twitter: @ShafferStrib