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Minnesota Community Solar Policy Guide for Asset Owners & Developers

Everything you need to know about Minnesota’s current community solar legislation, eligibility rules, crediting mechanism and other important market details, created by Perch’s internal policy team. We help asset owners navigate the growth of community solar in markets across the country, and as new laws are considered and passed, Perch will provide updates and perspective on how it impacts your business.

4 min read • Last updated: Sep 24, 2024

Topics covered

Minnesota’s LMI-Accessible Community Solar Garden Program
Program Details, Project Requirements, & Selection Process
LMI Definitions & Eligibility
Credit Mechanism, Incentives, and Billing
Market Analysis
Resources

1. Minnesota’s LMI-Accessible Community Solar Garden Program

Launched in 2013, the Community Solar Gardens (CSG) program led to the explosive debut of community solar in Minnesota reaching nearly 800 MW of installed capacity by 2020. That pace slowed with just over 900 MW installed by the end of 2023. That's when Minnesota introduced the most significant upgrades to the program since its inception with HF 2310—creating the Low and Moderate-Income (LMI) Accessible Community Solar Garden program and hopefully breaking its apparent plateau.

Administratively, projects will apply for capacity in the program, now managed by the Minnesota Commerce Department, while Xcel Energy—the only investor-owned utility (IOU) in the state with an existing program—will continue to handle interconnection applications for approved projects.

Other changes are mostly beneficial and in line with what the community solar industry considers best practice with some exceptions like a program cap and a significant change to how credits are valued. It leaves behind the Value of Solar (VOS), a value stack mechanism, in favor of a net metering rate that incentivizes projects to serve LMI and “public interest” subscribers over other kinds of electric customers.

The community solar industry, consumer advocates, and environmentalists preferred the VOS rates over net metering since it is generally a better value metric of the broader benefits that distributed solar has for the grid, consumers, and the environment. Projects approved before January 1, 2024, will be grandfathered into the VOS rate and are subject to all the previous subscriber restrictions including the adjacent county requirements. This change is perhaps reflective of a broader strategy that opponents of community solar are employing, essentially framing the “costs” of community solar to necessarily fall on non-participating ratepayers—while not accurately portraying the substantial benefits those non-participants also receive.

This is not to overshadow the significant improvements that have been made by HF 2310, however. The adjacent county restriction has been removed and projects can now be connected anywhere in the utility’s service area and serve customers anywhere in that same geography. Most importantly, Minnesota has included a 30% carveout for LMI customers and required consolidated billing, a crucial program component which will make the customer experience much smoother than the current clunky dual bill system.

2. Program Details, Project Requirements, & Selection Process

No longer a capless program, Minnesota has set a descending production cap in steps starting at 100 MW through 2026 decreasing to 60 MW in 2031 onward. Additionally, the original 1 MW limit on project size was expanded to 5 MW with the intention of decongesting the interconnection queue of numerous smaller proposals.

Program Details

Program cap for years 2024 - 2026: 100 MW
Program cap for years 2027 - 2030: 80 MW
Program cap for years 2031 - beyond: 60 MW
Program length: 25 years
Utilies must offer consolidated billing for all subscribers
Subscriptions are portable within the utility territory

Project & Subscriber Requirements

Maximum 5 MW capacity
Minimum of 25 subscribers per MW
No more than 40% of a project’s capacity can go to a single subscriber
55% of a project must benefit LMI or public interest organizations;
- At least 30% of a project’s subscribers must be LMI residential customers
- The remaining 25% must be allotted to:
  - LMI subscribers
  - Public interest subscribers like schools, government agencies or other public interest organizations, or
  - An affordable housing provider

LMI subscribers must receive a minimum savings of 10%
Credit checks are not allowed for residential customers
Exit fees are not allowed for residential subscribers
Prevailing wages are required for all contractors and subcontractors constructing a CSG

Project Selection

Acceptance into the program through the Minnesota Commerce Department occurs monthly starting on the first of each month. Proposed projects are reviewed for completeness and admitted to the program in monthly batches until the annual cap is met. If or when the annual cap is exceeded, projects will undergo a review and prioritization process with unchosen projects staying on a waitlist.

While not exhaustive, the Commerce Department will consider these project characteristics as part of the prioritization process:

Financial benefit to subscribers, utility ratepayers, and surrounding community from tax credits or incentives the project receives
Scale and degree of financial benefit that LMI, affordable housing, or public interest subscribers would receive
How much of a project’s capacity is attributed to LMI, affordable housing, and public interest subscribers
Project ownership and financing arrangements that provide a benefit to public, nonprofit, cooperative, and Tribal entities
Utilization of brownfields, rooftops, carports, or other contaminated sites
Availability of workforce development and apprenticeship opportunities with an equitable view towards historically disenfranchised groups
Grid resiliency and related local community benefits the project provides

Refer to the Commerce Department’s website and the LMI Accessible CSG Program application checklist for more details on how this works and criteria the Commerce Department will consider in prioritization.

3. LMI Definitions & Eligibility

Minnesota’s recent prioritization of LMI participation is a significant change from the legacy community solar program. Over half of the capacity of a solar farm must serve a combination of LMI customers and public interest subscribers like churches and schools, for example. This rule would effectively invert the legacy program’s subscriber base, which saw commercial customers make up the vast majority of the capacity in any given solar garden. For new projects, the emphasis sits squarely on LMI subscribers.

LMI Household Definition

A household whose income is 150% or less of the area median income (AMI) according to the United States Department of Housing and Urban Development (HUD), or
A household that meets the income eligibility standards required to receive financial assistance from a federal, state, municipal, or utility program administered or approved by the Minnesota Commerce Department.

Programs that can Qualify LMI Households

Bureau of Indian Affairs General Assistance
Tribally administered Temporary Assistance for Needy Families (TANF)
Tribally administered Head Start
Food Distribution program on Indian Reservation (FDPIR)
Weatherization Assistance Program (WAP)
Low Income Home Energy Assistance Program (LIHEAP)
Supplemental Nutrition Assistance Program (SNAP)
Medicaid/Medical Assistance
MinnesotaCare
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
Supplemental Security Income (SSI)
Minnesota Family Investment Program (MFIP)
Any federal public housing assistance including Section 8
Telephone Assistance Plan (TAP)
Veterans Pension and Survivors Benefit
Head Start
Received a Federal Pell Grant in the current award year

4. Credit Mechanism, Incentives, and Billing

With the VOS rate reserved to legacy projects, new CSGs will be compensated at various percentages of the average retail rate of electricity depending on the subscriber type that garden is serving. The most valuable subscribers under this new compensation mechanism are LMI, residential, master-metered affordable housing and non-small public interest subscribers.

Subscriber Type	Compensation Rate
Low- to moderate-income residential	The average retail rate for residential customers
Residential (not LMI)	85 percent of the average retail rate for residential customers
Master-metered affordable housing	80 percent of the average retail rate for residential customers
Public interest subscriber that is a small general commercial customer	75 percent of the average retail rate for the customer’s rate class
Public interest subscriber that is a general service commercial customer	100 percent of the average retail rate for the customer’s rate class
Other commercial subscribers	70 percent of the average retail rate for the customer’s rate class
Unsubscribed energy	Credited to the subscriber organization at the utility’s avoided cost

Backup Subscriber

Unique to Minnesota, is the new “backup subscriber”. This innovation in the community solar program allows for CSGs that have at least 50% of the project capacity subscribed to LMI subscribers to apply bill credits to a single backup subscriber—effectively the project’s anchor customer—if subscribers are delinquent or attrit from the project in one way or another.

This backup subscriber may temporarily subscribe to and receive credits for up to 15% of the project’s capacity for a year and add it to their current subscription capacity in this instance. The credit is valued at 90% of the average retail rate for their commercial rate class with possible additional compensation.

In essence, this policy prevents unsubscribed capacity from being sold at the utility’s avoided cost, making the rate of return better for these solar farms particularly as a hedge against projects that face higher churn rates from a residential-heavy subscriber makeup.

Consolidated Billing Implementation

Xcel must implement consolidated billing by January 1, 2024, according to the statute, but the law explicitly mentions that the Public Utility Commission may push that date back if Xcel reasonably demonstrates the temporal requirement is too burdensome. This is undoubtedly the case since consolidated billing is not yet available to community solar subscribers in Minnesota.

Xcel is instead required to establish consolidated billing for both legacy and new projects by January 1, 2025. Starting June 1, 2024, Xcel is required to make compliance filings which will provide greater clarity on the progress they’re making toward the modified deadline. Additionally, the Public Utility Commission (PUC) is reportedly considering an annual $500 per MW participation fee for projects using the consolidated billing option.

5. Market Analysis

Considering compensation rates, according to the US Energy Information Administration (EIA) the average residential and commercial retail rate for Minnesota in February 2024 was 14.36 cents and 11.68 cents, respectively. Assuming the ratio between the residential and commercial rates remains stable, the larger public interest customers at the commercial rate class would only be marginally more valuable than master metered affordable housing on a residential rate class, not accounting for the acquisition cost involved between the two customer types.

Master-metered affordable housing, therefore, could likely be a more valuable and cheaper subscriber to acquire on a project capacity basis compared to a technically higher valued public interest subscriber on a commercial rate class. This is significant because master-metered affordable housing in most states, and in Minnesota generally, are on a commercial rate class, but would be compensated at 80% of the average residential rate putting it more or less on par with a full commercial rate.

Considering project awards, asset owners and developers should submit their projects as early as possible to secure a more preferable spot in the program. If in the first month of each program year the annual cap is not exceeded, projects will not be subject to the prioritization review process.

However, as seen in virtually every state with a community solar program, cap or not, project capacity submissions often significantly exceed what the state can reasonably bring online in a given year. Therefore, Perch recommends submitting as competitive a project as financially possible to gain program access.

Perch strongly recommends working with local stakeholders and garnering local buy-in as much as possible for a few reasons:

It would increase the likelihood of finding and acquiring public interest and LMI subscribers,
Local community engagement will make the project more competitive in a prioritization scenario, and
This engagement would stem off potential local pushback from NIMBYs, which have proven frustrating to project development in Minnesota and other markets.

Since the adjacent county rule is no longer a factor, the perceived encroachment of solar development into more rural areas could be met with local resistance if not communicatively managed.

Utility Territories of Minnesota

Most of Minnesota by square milage, particularly in the northern half of the state, is served by electric cooperatives which are not bound by the CSG program rules. Inversely, Xcel Energy serves most of the population as found in its major cities and towns. There are other IOUs in the state—like Otter Tail Power—but have a small enough customer base that they are not bound by the CSG program rules.

Xcel Energy, or Northern States Power

~1.3 million electric customers
Xcel serves over 400 cities and towns in Minnesota including Minneapolis and St. Paul. Their service territory is concentrated in the southeast region of the state with several tendrils radiating from the core of the Twin Cities with some exclaves in the western reaches of the state