Back in 2013, Minnesota passed the Community Solar Garden law, requiring the state’s largest utility company—Xcel Energy—to plan and operate a community solar garden program, which would enable Minnesotans without ideal roofs for solar to buy into a shared solar system and reap financial and environmental benefits.
Well it’s now 2016, and plans for the Solar Garden Program have finally come to fruition, with various community solar projects popping up all over the place, from Northfield and Fairbault to the Twin Cities. The result is that some people in the state are starting to receive unsolicited marketing materials for contracts to purchase a share in the solar projects, which has led some to worry about the claims of financial performance of an investment in one.
So should you be worried? Let’s take a look at the factors that have Minnesotans wondering if community solar is a scam, or if it’s right for them:
One thing that has got people worried is the length of the contract. Will solar panels even still be working after 20 years? Yes they will. Any solar panel worth its salt will carry a 25-year warranty, and will still be working at better than 80 percent of its rated output at 25 years. The thing about solar panels is they pay you back for your investment with energy savings, so buying in for the long haul is the only way. Here’s how an investment in a solar garden should work:
- You purchase the output of five panels in a community solar array for $600
- Your contract term is 20 years, and you agree to buy each kilowatt-hour (kWh) of power the panels produce for 11 cents, whereas Xcel charges you 13 cents/kWh.
- The panels produce about 100 kWh per month, or 2400 per year, saving you about $54.00.
- Over the 20-year term, you save $1,080, meaning a $480 profit.
- The math is a bit more complicated than this, because electricity prices rise over time (about 3.5% per year), and so might the amount you pay for the solar electricity. Because of the price increases, you might save a little more or less each year. Avoid any solar garden contract that raises rates more than 2.5% per year.
Of course the benefit of community solar is that you can live in an apartment or home, and as long as you’re still within Xcel’s service territory, you’ll still get the money off your electric bill. That might be a bad thing for some people who aren’t sure they’ll stay in the same geographic region for 20 years, but it does offer some flexibility, whereas having panels on your roof doesn’t.
There isn’t any regulation
This is a big worry. Solar gardens and the claims they make are not regulated by Xcel, the MN Public Utilities Commission, or anyone else, really. An article from Minnesota Public Radio quoted one new community solar garden subscriber who found the system he bought into was not even built, but who was told he’d be saving between $5 and $50 per month.
He had signed up for a pay-as-you-go contract, under which he would presumably buy output from the garden to offset all or nearly all of his usage. That raises a red flag, because usage rises and falls month by month, and so does the amount of electricity solar panels make. It’s hard to see how a solar garden can promise variable amounts of electricity to multiple homeowners, because they don’t even know how much the sun will shine in a given month.
What you should look for
Ideally, you should look for a contract where you pay up front for the entire output of the panels over the contract term. That means that each kWh the panels produce goes directly to reducing your electric bill at retail rates. In this arrangement, you pay a flat fee and reap all the benefits. An example would be paying $500 up front for 20 years of power from a 200-kW solar panel. The initial investment might seem high, but the advantages are huge. You keep getting the power even as the retail rate of electricity goes up, saving you more money each increase. Take a look at a chart of our estimated returns:
Using our numbers, a $500 up-front investment saves you about $794 over 20 years, meaning a net investment income of $294, representing a 5% internal rate of return. Not bad for doing good for the environment. It’s not nearly the return of a rooftop solar system in MN, because you’re not getting the tax credit or any rebates—those incentives accrue to the builder of the community solar project.
Furthermore, get a guarantee that the panels will stay functioning, with stipulations as to what happens if their output drops below a certain level. Like we said above, panels should produce greater than 80% of their initial rated output after 25 years, so they should produce relatively similar amounts of electricity, year after year, for the life of your contract.
Be wary of contracts that are pay-as-you-go and have a yearly increase in the rate you pay to keep pace with inflation. That annual increase is a source of worry, because it could end up raising your solar rates above the rate you pay to Xcel. Our best advice is to avoid any contract with an annual price increase of more that 2.5%. Ideally, you’re looking for a 1% increase, to avoid ever having to pay more for solar that you do for fossil fuel electricity.
If you have any questions or concerns about community solar marketing materials you’re getting in the mail, we’d love to hear them, and we’ll do our best to give you our honest opinion about their potential for saving you money. Drop us a line!
Last modified: July 24, 2018