The Biggest Incentive for Solar in Minnesota
Did you know that the biggest subsidy for solar is hidden on your electric bill? While Democrats in the U.S. House of Representatives are trying to extend the federal solar subsidies, here in Minnesota, a policy called net metering serves as the biggest stealth subsidy that solar receives.
The impact of this sizable subsidy was spelled out in a recent article in the Mankato Free Press, although I don’t think the reporter realized this at the time. The piece begins with a feel-good story of an insurance company that put solar panels on their roof:
“Thomas Rekstein no longer minds looking at the electric bill for his Great River Insurance business on North Riverfront Drive.
‘My electric bill used to be $4,500 annually, now it’s down to $1,200 a year.’
Rekstein, who had 38 solar panels installed on the roof and awnings of his building, said the investment was well worth it.”
On its face, this seems like a good thing, but it is vitally important for Minnesotans to understand that the solar panels don’t erase the $3,300 ($4,500-$,1200) Mr. Rekstein used to pay for his electricity, it simply forces other people to pay it. Because of net metering, solar panels are good for the owner, but bad for everyone else.
Net Metering Explained
Here’s how it works.
Solar panels are installed at a residence or business and hooked up to the grid. The panels generate electricity that can be used in the household or business, and any extra electricity generated by the solar panels is sent into the grid and is credited to the homeowner’s or business owner’s account by rolling back the numbers on the meter.
When the solar panels cannot produce enough electricity because of lack of sunshine at night or on cloudy days, these homes or businesses use electricity from the grid (typically generated from coal or natural gas), causing the meter to move forward.
At the end of the billing cycle, the homeowner is charged for the electricity purchased from the local power plant (the grid) minus the amount of electricity generated from solar “sold” to the grid, resulting in households paying for the “net” difference of electricity used, hence the name “net metering.”
Here’s where it becomes unfair: Minnesota requires power companies to pay the full retail price for electricity generated from rooftop solar, instead of wholesale prices. As a result, the people with solar panels on their roofs are not paying their fair share to upkeep the rest of the grid, and these costs are then foisted upon people without solar panels.
In 2017, the retail residential electricity rate in Minnesota was 13.04 cents per kilowatt hour (KWh). This means someone with solar panels on their house would be paid the full retail cost of 13.04 cents per KWh.
While using solar power will reduce the need to burn some fuel, the cost of fuel is a tiny part of the total retail price of electricity, as you can see in the picture below.
The cost of coal in Minnesota is about 2 cents per KWh, or 15 percent of the retail residential cost of electricity. The remaining 85 percent of the retail cost of electricity goes to maintaining the power lines, transformers, distributions systems, paying employees of the power company, and maintaining the reliable power plants we need to use when the sun isn’t shining.
Unfortunately, these costs don’t go away because someone installed solar panels on their roof, they just get paid by someone else.
When people with solar panels are paid the full retail price of 13.04 cents per KWh, instead of the 2 cents of avoided fuel costs, they are effectively forcing their neighbors to pay the remaining 11.04 cents per KWh to maintain the grid, hence the reason all the houses in the neighborhood who don’t have solar panels are so sad in the graphic.
The Biggest Incentive in the State
The Mankato Free Press article quoted Mike Allen, CEO and co-founder of All Energy Solar, as saying:
“Utilities in the state offer net metering. It doesn’t sound sexy but it’s a really strong incentive. It says that if you don’t use some of the electricity from your system, the utility will buy it back from you at the same or similar rate you pay for electricity. That’s the biggest incentive in the state.”
Unfortunately, few people understand the biggest subsidy in the state, or how it is affecting their finances.
There’s No Such Thing as Free Money
According to Allen, most people take a 10-year loan to pay for their solar projects. “A solar system is warrantied for 25 years and will last longer than that.”
Rekstein told the Free Press he spent $65,000 for the 38-panel solar system on his insurance building, installed in 2016. “My payback period is eight years. After that it’s all free money,” he claimed.
However, this isn’t true. The money is “free” for Mr. Rekstein, but it is funneled into his bank account because everyone else is forced to pay more for their electricity. Furthermore, Mr. Rekstein’s payback period would never arrive if he was paying his fair share for the upkeep of the grid.
One of the most unfortunate parts about these programs is how regressive they are. Few middle or low income households could pony up the $65,000 that was used to install the solar at Great River Insurance, but they are the ones who will be forced to pay more for their electricity.
Those who argue that “the market” is driving the demand for solar are either disingenuous with their talking points, or painfully unaware of the fact that the heavy hand of government promotes solar every step of the way, and they’re using your money to do it.
My frequent criticisms of solar probably make me appear to be “anti-solar,” and there might be some truth to that. However, my opposition to solar is less about the technology itself and more about the way state mandates and subsidies force other parties to pay for someone else’s solar panels.
It’s important for all Minnesotans to understand that every card in the deck is stacked in favor of wind and solar, and you’re paying for it.