Policies such as the ‘value of solar’ tariff introduced in the US state of Minnesota could “help defuse” policy battles over distributed generation,” according to a new report by non-profit organisation, the Institute for Local Self-Reliance (ILSR).

John Farrell, senior researcher at ILSR authored the report. Farrell told PV Tech that he sees the policy as “likely to be seen as a precedent for pricing solar energy in the US because it's the first state-adopted value of solar policy.”

The new policy, introduced in mid-March, is left to the discretion of utilities to choose whether to adopt or not. The policy is designed to account for the value of energy and its delivery, the available generation capacity, transmission capacity, losses on transmission and distribution lines and environmental value.

According to Farrell’s report, the factoring in of environmental value “may be the most precedent setting” development in the new policy because “a utility is for the first time paying for the environmental harm of its fossil fuel energy generation".

In the report, Farrell said the new law kept much of the simplicity of net metering policies since it is also based on minimal fees and simple interconnection, while changing the methodology for assessing the value of generated electricity to a ‘value of solar’ rate rather than basing it on the retail electricity rate. Also new is the introduction of 25-year long term contracts for solar energy producers.

Farrell highlighted that long term contracts for solar energy producers based on a guaranteed payment per kilowatt hour could save customers money, reducing their borrowing costs also saving utility ratepayers money by locking in power purchases at fixed prices.

The report claims that from a customer perspective, over the short term the value of solar policy will result in savings on utility bills from net metering. ILSR took the hypothetical example of a Minnesota couple with a 5kW system installed at their home. According to ILSR, the couple would save around US$17 a month under a value of solar policy than under a net metering programme.  

Conversely, Farrell implies that utilities may be reluctant to adopt value for solar, since “during the legislative session, utilities successfully lobbied that they, and not customers, should have the choice to offer the value of solar policy". Farrell believes that in the short run value for solar may cost utilities more, but due to the long term nature of electricity purchase agreements ‘locking in’ solar’s market value for 25 years, the policy will cost utilities less in the long run, if they are prepared to adopt it.

Farrell did point out some of the differences between the proposed policy and the law which it eventually resulted in, but wrote in the report that: “In theory, everyone is a winner if utilities adopt Minnesota’s market value of solar.

“In the near term, solar energy producers, especially commercial businesses, will get a better price than they have under net metering. In the long term, the cost of solar will fall, perhaps significantly, below the market value, and the 25-year, fixed price contract will help small-scale producers secure financing. Utilities should also come out ahead. Over the 25-year life of solar projects, they will pay less for solar energy than under net metering. Furthermore, greater amounts of solar on the grid will over time erode the market price for solar energy.”