Workers install solar panels on a roof.
Workers install solar panels on a roof. Credit: CoCreatr / Creative Commons

Xcel Energy is proposing to shrink the size of its popular small-scale solar rebates in Minnesota in order to extend the incentive to more customers.

The utility’s Solar Rewards program has typically been funded year-round, but a recent increase in applications tapped out its annual $10 million budget in April. The state Legislature recently renewed funding through 2024.

Now, Xcel is asking for changes aimed at making that money go further. Starting next year, residential rebates would be reduced from 7 cents to 4 cents per kilowatt-hour. Commercial rebates would be halved from 6 cents to 3 cents.

The utility also proposes to increase the share of money set aside for low-income customers from 20% to 30% of funding going forward. Residential customers who qualify receive an upfront $2 per watt incentive, enough to pay as much as two-thirds of the cost of a solar system. Commercial income-qualified customers would see a 50-cent-per-watt incentive.

Solar installers and advocates have generally agreed with Xcel’s proposal and say smaller rebates would still be effective while helping more customers. But there wasn’t consensus in recent stakeholder meetings on the right amount to set them at or how quickly to transition to lower reimbursements.

Xcel proposed the changes to the Public Utilities Commission as part of its most recent annual report on Solar Rewards. The utility approved 1,841 applications in 2020 and more than 1,000 projects were completed. The program’s budget last year increased to $13.5 million after Xcel accounted for 2019 funding that had not been allocated. Of that money, $2.52 million was spent on 44 low-income participants.

“The Solar Rewards program continues to grow and adjust to the market,” the utility said in its filing, noting growing demand and new challenges including crowded interconnection queues and application processing times that have been “slower than desired.”

Money for the program comes from the state’s Renewable Development Act, which is funded by a tax Xcel pays to store radioactive spent nuclear fuel at two plants in Minnesota. The state Legislature must approve spending from the fund. This year’s bill included money for school solar projects, along with the Solar Rewards extension.

Bobby King, state director for the national nonprofit Solar United Neighbors, likes Xcel's proposal to increase the low-income carve-out and another provision that would create a 10% carve-out for residential customers. Typically, only nonprofit organizations serving low-income populations have used the Solar Rewards incentives to install projects on their buildings, King said.

Maintaining a $2-per-watt subsidy for low-income residential participants is vital because they do not earn enough to take advantage of federal tax credits, King said.

Timothy DenHerder-Thomas, general manager for Minneapolis solar energy company Cooperative Energy Futures, said he worries making the change over one year is too abrupt, but he supports lowering it and thinks it could decline to 2 or 3 cents. Xcel in May removed a barrier to renters participating in net metering programs, he said, and that move combined with the low-income carve-out should propel more installations.

DenHerder-Thomas said Xcel’s net metering change allows his company and others developing coordinated financing solutions to offer projects with no upfront costs to building owners or renters. Cooperative Energy Futures will use Solar Rewards, tax credits and other financing options to deliver net metering benefits to tenants and owners, he said.

But DenHerder-Thomas would like all Minnesota utilities to eventually use ratepayers’ money to reward solar producers for reducing peak demand power and other grid costs. Solar for far too long has been seen as an expense instead of an asset, he said.

“I think the real issue is that we're trying to support all solar funding in Xcel's territory with a limited program of $10 million a year,” he said.

Regulators have not announced when they will make a decision on the proposed changes.

Frank is an independent journalist and consultant based in St. Paul and a longtime contributor to Midwest Energy News. His articles have appeared in more than 50 publications, including Minnesota Monthly, Wired, the Los Angeles Times, the Minneapolis Star Tribune, Minnesota Technology, Finance & Commerce and others. Frank has also been a Humphrey policy fellow at the University of Minnesota, a Fulbright journalism teacher in Pakistan and Albania, and a program director of the World Press Institute at Macalester College. Frank covers the state of Minnesota.