Wayne Hesse, a semiretired southwest Minnesota farmer, wants to install a raft of solar panels on his property. He’d generate electricity for his home and farm, and sell excess power back to his electric co-op.

But his plan has hit a big roadblock. His co-op, Lyon-Lincoln Electric, recently rolled out a new fee for residential solar customers. It would cost Hesse $49 per month, a blow to the economic feasibility of his project, he said.

To Hesse, Lyon-Lincoln is penalizing him for producing and selling more power back to the co-op than he would buy from it. “I think they feel very threatened,” he said. “I think they feel it will cut into their energy sales.”

To Tim O’Leary, Lyon-Lincoln’s general manager, the fee ensures that Hesse and others who produce surplus power pay their share of grid maintenance. “There are costs we are no longer recovering through revenues.”

Electric co-ops across Minnesota have instituted such fees on new residential solar arrays after the passage of a 2015 law, stirring anger among renewable energy advocates. The issue hit a boiling point in June when the Minnesota Public Utilities Commission (PUC) ordered an investigation of the fees.

The solar fee flap here is part of national debate that’s risen with the popularity of residential solar. Essentially, some utilities worry that lost revenue from residential solar will erode their business model.

Battles have erupted in Nevada, Hawaii and other sunny high-solar demand states, with big investor-owned utilities at the center of the fray. In Minnesota, Xcel Energy and other investor-owned utilities have steered clear of such controversy with policies that are relatively friendly to residential solar.

In Minnesota, residential solar poses a bigger threat to cooperative power suppliers. The co-ops, which cover more sparsely populated areas, spread their grid costs over fewer customers than investor-owned utilities, which serve cities and larger towns.

The co-ops’ median solar fee is about $35 per customer, while the highest in the state is $89, according to the Minnesota Solar Energy Industries Association, a trade group for solar developers. Investor-owned utilities charge around $5 per month.

“If you want to go solar, the co-op fees are a huge disincentive,” said David Shaffer, an attorney for the group.

Profit math

Under state law, utilities and electric co-ops must purchase power from residential solar or wind generators. They do so — up to a certain limit — at nearly the same rates they charge their customers for power. When residential power producers make more power than they buy, they reap the balance through cash or bill credits.

Investor-owned utilities serve most Minnesotans, but co-ops cover a far larger portion of Minnesota geographically. Co-ops were the conduit for the 1930s federal program that brought electricity to the countryside, which private investors had shunned due to its low profit potential.

There’s a simple profit math that still applies. The average number of customers per electric line for Minnesota co-ops is about six; for investor-owned utilities, it’s 38, said Jim Horan, a lawyer for the Minnesota Rural Electric Association, a co-op trade group.

Lyon-Lincoln Electric, which mostly serves farm country in Lincoln and Lyon counties, has 3,400 members, or only 2.4 members per mile of line. “We have lots of miles of line that doesn’t serve a lot of members,” O’Leary said.

Lyon-Lincoln’s solar fee is based on a formula devised by co-ops through their trade group. It’s a sliding charge based on energy production and unrecovered fixed costs. While it differs by co-op, the charge doesn’t kick in until after 3.5 kilowatts of power production. (The average size of a residential solar installation in Minnesota is 6.9 kilowatts, according to the Solar Energy Industries Association. The co-ops’ fee is capped for larger renewable energy projects.

The cap fee is $49 at Lyon-Lincoln, where Hesse, 65, has been a member for decades. He’s also been a longtime wind farm developer and has a 39.5 kilowatt wind turbine on his property. Last year, surplus power from wind generation netted him about $5,000. “I’m kind of a renewable guy. I like the idea of making my own power, and that’s something your power company isn’t too happy about.”

Hesse has been planning to install a 39.5-kilowatt solar array, which would eventually help replace his aging wind turbine.

But he said the co-op’s $49 monthly fee would cut his solar production earnings by 25 percent and extend the payback time on his investment from 12 years to up to 15. Residential solar installations can cost tens of thousands of dollars, even after federal tax breaks.

To make matters worse, Hesse said, Lyon-Lincoln told him that when both his solar and wind generators are operating together, he’d be paid at a lower rate for his excess energy than if he was operating just one. With both, Hesse would be over a production threshold in state law, the co-op says.

Hesse disagrees and plans to take his dispute with Lyon-Lincoln to the PUC.

O’Leary defends the co-op. “The cost of service for our system is pretty high.” he said. “(Fees) will help us not push costs on to other members of the co-op.”

In other words, to Lyon-Lincoln and other co-ops, traditional customers — who simply buy power — are picking up a greater share of grid costs as independent solar generation rises.

Fee confusion

Ramsey-based Connexus Energy recently implemented a monthly solar grid access fee — capped at $26 — for the same reason. “It’s to mitigate cross subsidies from one class of customers (nonsolar) to another,” said Brian Burandt, Connexus’s vice president of power supply and business development.

Connexus is Minnesota’s largest electric co-op with 130,000 members. Its territory includes suburban and exurban areas, and it has more than double the members per line of the average Minnesota co-op. Connexus has its own 245-kilowatt solar garden, allowing customers to buy power without setting up their own solar panels.

Historically, Connexus customers have voiced a lot of interest in rooftop solar, Burandt said. “But not a lot do it.”

Sam Villella of Blaine did. Villella, 43, installed a 9-kilowatt rooftop solar array six years ago. “Connexus was very helpful initially with the logistics and setting it up,” he said.

The solar garden has become integral to Villella’s overall renewable energy strategy. He has a geothermal heating system, which draws a lot of electricity. And his family owns two electric cars.

Villella says that from April through November he’s cranking out 1,000 kilowatt-hours of electricity — “that’s 1,000 kilowatt-hours I don’t have to buy.”

In 2014, Connexus began charging $2.65 a month for residential solar and wind to account for the type of meters they require. The amount was small, but it irked Villella. Then, when he planned to add another 9 kilowatts of solar production — a $20,000 investment after federal tax breaks — Villella discovered Connexus’ new fee for solar arrays coming on line after June 1.

He’d pay the cap charge of $26 a month — an extra $312 a year. Plus, Connexus’ fee (like most co-op’s), could rise over time, adding uncertainty, Villella said. “I don’t want to risk having to pay that. If that fee wasn’t there, I would have already gone forward with the addition.”

The new fees being charged by co-ops also apply to residential wind generation, though like solar installations, they cover only new projects since the 2015 law.

With complaints against co-ops pending with the PUC, the agency’s commissioners voted in June to review whether the fees comply with state law. The PUC will look at the methodology used to determine the fees.

In the interim, there’s been confusion as to whether the fees are suspended, and both co-ops and solar advocates have sought clarification from the PUC. Co-ops are continuing to levy the new fee, said Horan of the co-ops’s trade group.

“Until we are told expressly not to, we feel like we should be charging it.”