Solar incentive program in cross hairs this legislative session

A solar power subsidy program could be killed this legislative session — and the renewable energy fund that largely pays for it could be significantly revamped.

Made in Minnesota — which doles out $15 million annually — not only helps the homeowners and businesses that receive the subsidies, but it also helps solar manufacturing facilities in the state because the panels must be assembled in Minnesota to qualify.

The Renewable Development Fund, or RDF, funds at least 80 percent of the Made in Minnesota budget, and Republicans also aim to rejigger that program essentially funded by Xcel Energy customers.

While House Republicans have tried before to roll back Made in Minnesota, the party now controls both chambers, and has some important DFL support. A bill already has been introduced this session by state Rep. Marion O'Neill, R-Maple Lake, and has cleared the House energy and ways and means committees. A companion bill has been introduced in the Senate.

Made in Minnesota is a "boondoggle," said state Rep. Pat Garofalo, R-Farmington, chairman of the House committee on Job Growth and Energy Affordability and Finance. "It's super expensive, reduces very little pollution and creates very few jobs."

But Bill Grant, the Minnesota Department of Commerce's deputy commissioner for energy, said the program has been effective. "Without Made in Minnesota, it's fair to say we wouldn't have a rooftop solar market," he said at a recent House energy committee hearing.

Made in Minnesota has approved 1,105 small-scale solar projects for residents, small businesses and nonprofits, commerce department data show. The program has created an estimated 495 jobs.

The legislative proposals would repurpose the Renewable Development Fund as a general energy account. The fund, currently aimed at fostering clean power technologies beyond nuclear, was created by the legislature in 1994 as a condition for allowing Xcel to store nuclear waste at its Prairie Island plant.

Xcel must make an annual contribution each year to the RDF, accounting for each cask of spent fuel that the utility stores at either of its Minnesota nuclear plants. In 2017, the payment is expected to be $26 million.

About two-thirds of the fund is currently used to pay for legislatively mandated programs like Made in Minnesota, said Laura McCarten, a regional vice president for Xcel, which administers the fund under supervision of the Public Utilities Commission (PUC).

With the remainder, Xcel periodically bestows grants for energy research and nascent renewable energy projects. Xcel's last funding round was in 2014, when $42 million was granted. The projects are chosen by an advisory board to Xcel and approved by the PUC.

Xcel is neutral on the proposal to retool the RDF, McCarten said.

Any change in the fund concerns the Prairie Island Indian Community, which is next door to Xcel's nuclear plant and played a key role in the 1994 legislation creating the RDF.

"From our point of view, the [RDF] has been very successful in getting renewable energy out there," said Heather Westra, a consultant to the Prairie Island Indian community. "We would be very concerned about how the money would be used and the oversight of it" under the proposed legislation.

Details about the replacement for the RDF are scant so far. But Garofalo said the new fund would be for energy projects, with specifics to be laid out later in the session. "Nothing will happen unless we have bipartisan support."

Made in Minnesota ties indirect subsidies for manufacturers with direct incentives to consumers. Created to last for 10 years, Made in Minnesota also gets money from payments made by Xcel, Minnesota Power and Otter Tail Power into a state conservation improvement program.

The program covers about 40 percent of a solar installation's costs by giving homeowners and other participants an annual rebate for the power they produce, over 10 years. To get the rebate, solar panels assembled in Minnesota must be used.

Usually, participants also get a federal tax credit that has cut the cost of a solar array by another 30 percent. An average-size residential system cost about $20,800 in 2016's third quarter, according the Solar Energy Industries Association, a trade group.

Dave Clements, who lives in St. Paul, last summer bought a rooftop solar system that cost about $40,000 before any government incentives. "I was motivated by wanting to be as green as possible, but if we wouldn't have gotten a Made in Minnesota grant, we wouldn't have done this," Clements said.

The program has a richer benefit than another Minnesota solar subsidy program, Xcel's Solar Rewards. Clements said that for him, Solar Rewards' benefit would have been about one-third that of Made in Minnesota's.

Solar Rewards, which also is funded by the Renewable Development Fund, pays participants for power generated beyond their own needs. But it pays at a lower rate and has more restrictions than Made in Minnesota — plus, it doesn't require solar panels to be made in Minnesota.

The state Commerce Department, which administers Made in Minnesota, fielded three times more applications for the program in 2016 than it could fulfill, said Ross Corson, a department spokesman. Participants are chosen by lottery. The number of awards has risen from 281 in the program's first year to 464 in the most recent year.

The falling costs of solar power systems have allowed for greater participation in the program, Corson said.

If Made in Minnesota is killed, its effects on manufacturers and solar installers will differ.

Minnesota-made panels — though their prices are failing — are still considerably more expensive than panels on average in the open market. Indeed, the Made in Minnesota subsidy's lucrativeness helps sell the program to residents and business owners, solar panel installers say.

The program has helped many Minnesota solar installers build their businesses. Some have now grown beyond the program, but some are still dependent. The same goes for solar panel manufacturers.

Paul Krumrich, president of Itek Minnesota, said his manufacturing plant in south Minneapolis, which employs five to seven people, would likely close if the program is killed. Washington state-based Itek opened the plant in 2015, aiming to achieve a base level of business through Made in Minnesota. "But we haven't gotten the roots we need."

For Bloomington-based Ten K Solar, Minnesota's oldest and largest solar panel maker, the program's demise would have a minimal effect, said Corey Orehek, manager of marketing communications.

"10-K started heavily in the Made in Minnesota program, but it's become less of a strategic play and is a very small part of our business," Orehek said.

Critics say the program's costs are exorbitant relative to the amount of electricity produced. "You are paying a lot of money for not very much power," said O'Neill, the House bill's sponsor.

The plan to kill the program has the backing of two Iron Range DFL legislators who were critical supporters of its creation in 2013. At the time, there were only two solar panel manufacturers in Minnesota, including the fledgling Silicon Energy in Mountain Iron. (There are five now.)

State Rep. David Tomassoni, DFL-Chisholm, co-authored the Senate bill that mirrors O'Neill's house bill. State Rep. Jason Metsa, DFL-Virginia, voted for the House bill as a member of the jobs and energy committee. Both represent Mountain Iron.

"The intent of Made in Minnesota was not met to where it should have been," Metsa told the committee at a recent hearing. "We have the opportunity to admit mistakes when we make them."

Tomassoni and Silicon Energy, which has received $7 million in public support, did not return calls.

Mike Hughlett • 612-673-7003