Clean Energy

How solar beat gas in Minnesota

On New Year’s Eve in Minnesota, an administrative law judge who normally labors in obscurity made a big news splash by ruling that solar beat natural gas in a head-on comparison.

Judge Eric Lipman ruled in a contested case comparing the costs and benefits of three natural gas plants and one solar project. The solar project, proposed by Geronimo Energy, was a 100-megawatt nameplate project, costing approximately $250 million. The solar farms would be spread across 20 locations around the state (sized at 2 to 10 megawatts apiece), each strategically located at substations. The gas plants were proposed by Xcel Energy at the location of a retiring coal plant, and by Calpine and Invenergy at other locations. The judge ruled that the solar project was best for consumers, and now the ruling goes to the Minnesota Public Utilities Commission for a decision, possibly as early as next month.

Some background is useful.

Xcel Energy, Minnesota’s largest electric utility, was ordered to seek bids to meet new demand for electricity in the coming years. Routinely, peak demand is met by gas “peakers,” typically running during four to eight percent of the operating hours of the year, when the utility faces its highest demand for power. For Xcel, that has historically been hot summer days when air conditioners are most likely to be running. The truth is, when gas plants run so infrequently, the levelized cost of energy isn’t so cheap. Enter Geronimo Energy, who hatched a game plan to beat gas on its own terms—as a capacity resource, meeting peak demand at a lower cost than natural gas could. You see, solar is predictable on hot days, so 100 megawatts of solar PV can be accredited by the Midcontinent Independent System Operator (MISO) as worth 71 megawatts, when solar availability and peak demand are compared.

While the exact costs of each competitive proposal are proprietary, it’s ambiguous who was cheapest on price alone, because different analyses made different operating assumptions about the gas plants’ run time and natural gas price escalation over time.

What the judge found is that solar energy’s other benefits constitute a tie-breaker, and on balance, the solar project was the best deal for consumers. First, the solar project requires no new transmission lines, and for some of the competing gas projects, the transmission upgrades were either not estimated, or not included, in the bid price. Second, the solar energy project will strengthen the grid by providing voltage support at substations nearby, adding reliability. Third, the project is a fixed price proposal with a guaranteed price over 20 years. Gas projects, on the other hand, have uncertainty in the fuel price escalator, and utilities assume that fuel costs will be automatically passed along to ratepayers. Fourth, the solar energy project was the smallest project bid, and the judge viewed the solar project as less risky because Xcel’s future load growth was so uncertain. Based on these findings, the judge ordered that the solar project was the best deal.

Now, Michael Levi has argued that Minnesota policy drove the decision, not economics. You see, Minnesota has a solar energy standard that requires Xcel procure about 300 megawatts of solar over the next six years. In addition, Minnesota policy requires that fossil resources not be chosen unless it is established that the renewable energy alternative is not in the public interest. Although the “renewable preference” has been on the books in Minnesota for over 20 years, utilities try to brush it aside by arguing that if fossil projects are lower cost, renewable energy won’t meet this requirement. Clean energy advocates in the case, including Fresh Energy, argue that cost is not the only factor in determining what’s in the public interest.

According to experts who know all the documents in the case, Levi is wrong on two counts—there was no green thumb on the scale from the judge or the law. In the cost comparison, no Solar Renewable Energy Credit (SRECs) price was factored to make the case that solar was the best bargain. The judge only mentions the value of SRECs as evidence that there should be some value in this project contributing to meeting the solar standard. In fact, according to the modeling used by Calpine, the solar deal was the lowest cost energy, and Invenergy and Geronimo reached the same conclusion. Using different analysis software and different input assumptions, Xcel found that the gas plants were the best deal. The Department of Commerce agreed. Further, the Commerce Department argued that to find the cheapest solar project to meet the solar standard, solar should compete only against solar. Given that the costs of energy of the competing technologies were very close—with some assumptions,  gas is cheaper, with other assumptions, solar won—when it’s a toss-up, the other variables break the tie: no transmission needed, a strengthened grid, a fixed price hedging against gas price risk, the right-sized project, and no pollution.

As a bonus (and not as an input weighed in the economic analysis), the solar project is preferred over fossil fuels in state law, and contributes to meeting Xcel’s solar standard.

In the words of Judge Eric Lipman,

Finally, it bears mentioning that this procurement represents an important turning point in Minnesota’s energy resource planning process. Since 1991, Minnesota has had a statutory preference in favor of renewable energy sources. Yet, that preference is overridden when the nonrenewable source has a lower total cost. Notwithstanding the statutory preference, it seemed that nonrenewable energy sources always won the head-to-head cost comparisons. Not anymore. Geronimo entered this bidding process as the sole renewable technology and beat competing offerors on total life-cycle costs.

On New Year’s Eve in Minnesota, an administrative law judge who normally labors in obscurity made a big news splash by ruling that solar beat natural gas in a head-on comparison.

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