Xcel looks to fine-tune Minnesota solar rebate

(Photo by Mike Carter via Creative Commons)

The sun is setting on Xcel Energy’s current solar rebate program in Minnesota.

The utility reported this month that less than $1 million remains unspoken for in its Solar Rewards rebate fund.

The company has already committed or reserved $7.5 million of the $8.5 million it plans to give out this year to customers who install solar PV systems.

“The funding is going very quick and it’ll be expired in the very near future,” said Lee Gabler, Xcel’s director of demand-side management and renewable operations.

Over the next few months, the company will be deciding whether to continue the program in 2013, and if so, what changes should be made.

Solar Rewards was proposed in 2009 as part of an energy conservation plan that Xcel files with state regulators every three years. Under the program, residential and commercial customers get a one-time, upfront rebate based on the size of the system they install ($2.25 per installed watt, up to 40 kilowatts). To qualify, customers need to also go through an energy audit.

In exchange for the rebate, Xcel gets to take credit for the projects’ environmental benefits via renewable energy credits, which it can apply toward meeting the state’s renewable electricity standard.

Xcel committed $15 million for rebate fund. About $6.5 million of that was spent in 2010 and 2011. Applications have been coming in fast during the first part of 2012, probably in part because the mild winter and early spring has given installers a jumpstart to the year.

As of March 16, only $943,920 remains unassigned, though much of this year’s money has yet to be awarded and may become available again if projects don’t move forward. Xcel is asking participants to finish their installations by August so that any leftover funds can be reassigned before the end of the year. All of the money needs to be spent by Dec. 31.

The Solar Rewards program is separate from the Minnesota Bonus, or Made-in-Minnesota rebate, which pays out an additional rebate for installations using Minnesota-made solar panels.

The future of the rebate will be decided between now and June 1. That’s when Xcel will file its next conservation improvement plan with Minnesota regulators for 2013 through 2015.

The first three years were largely about gauging the level of interest in solar rebates, Gabler said. The company is reviewing feedback from customers and installers and studying how the economics of solar have changed since it designed the initial program three years ago.

“How do we get to the right pricing is one of the major things we’re working through right now,” Gabler said.

They know $2.25 per watt is enough to motivate many customers, he said. The question is whether a smaller rebate – which would allow the program to support more projects – would be as effective.

John Farrell, a senior researcher with the Institute for Local Self Reliance who studies the economics of solar (including this report on grid parity projections), doesn’t think Xcel has room to go much lower.

At the current $2.25 per installed watt rebate, a residential customers who wanted to break even on their investment within 25 years would need to have the system installed for no more than $4.50 per watt of capacity — below the going rate for PV nationally and locally.

That means Solar Rewards is still only reaching customers with other, non-economic motivations, such as marketing or environmental concerns.

“Any smaller rebate is really going to shrink the field, I think,” says Farrell.

For now, though, the money is going fast.

3 thoughts on “Xcel looks to fine-tune Minnesota solar rebate

  1. The 25 year break-even statement in this article is not correct–it’s not THAT bleak! A 4000 watt PV system at current gross installed prices of about $5.50 per watt, comes to a break-even during year 13 after the $2.25 Solar Rewards rebate, taxes paid on the rebate at a 28% tax rate, and the 30% federal tax credit are accounted for. And that’s assuming the electric rates never go up. With a small electric rate inflation, the break-even drops to year 10 or better. The Solar Rewards program has been extremely valuable in helping bring the net cost of PV systems down for Xcel customers. Seems to me that a 10 year break-even is a minimal target and if the rebate is reduced, there will be much less PV activity in our area.

  2. Thanks for the comment, Charlie. I will check-in with John Farrell to see if he can provide a little more information on his 25-year break even calculation.

  3. A few thoughts on differences in payback calculations:
    – I include finance costs, assuming 80% debt with a 5% interest rate
    – I use net present value, discounting future revenue
    – I only used the 30% federal tax credit and Xcel solar rewards rebate, and no other incentives (like the state’s rebate)

    All three of these are more nuanced (and accurate) calculations of payback, but they also extend the payback period.