By Mary Jane Smetanka
As proposals for community solar gardens reach fever pitch in Minnesota, developers are dangling a big carrot to get cities to subscribe to their projects: up to 25 years of energy savings.
That money-saving lure and the attraction of being seen as environmentally conscious have enticed more than 20 Minnesota cities to sign agreements to be either subscribers or partners in an industry that is still in its infancy in the state. Taylors Falls, Chanhassen, and Mankato are among the cities that have signed agreements with community solar garden developers.
Lissa Pawlisch, who as statewide director of Clean Energy Resource Teams (CERTs) works to connect people with resources to develop clean energy projects, says one reason that usually cautious cities are getting involved is the clear budget advantages. “From a local government perspective, if you know you can control some part of your cost portfolio, that’s great,” she says. “For developers, they get a big partner and ensure that a large part of the energy will be subscribed. And local governments usually don’t move, they don’t die, and they don’t go out of business.”
State laws spur solar activity
The boom in proposals for community solar gardens is linked to a 2013 state law that required Xcel Energy to develop such offerings. Another state law requires investor-owned utilities to get 1.5 percent of their energy from solar by 2020. (However, the Public Utilities Commission recently issued decisions that may reduce interest in solar gardens, at least for cities; see more information in Recent Changes to Solar Garden Program.)
Solar garden developers responded with enthusiasm, bombarding cities with proposals to build solar arrays on city land and inviting them to subscribe to the power produced by solar projects. Chris Smith, risk management attorney with the League of Minnesota Cities (LMC), says he has talked to at least 20 cities that have been asked to subscribe to community solar gardens, “so I’m guessing there are many more.”
Usually, Smith says, a for-profit company develops, owns, operates, and maintains the community solar garden. The energy that is produced is delivered to a utility via the electric grid. The utility calculates the value of the electricity and converts that into credits per kilowatt hour.
Cities subscribe to and pay for a portion of the solar garden’s capacity based on their desired subscription size. Cities then get a credit on their electric bill from their utility company for their share of the electricity generated by the solar garden.
In Minnesota, contracts signed by cities generally last 25 years. While some solar developers offer contracts with credits that could change over time and could result in more dramatic savings—or cost increases—most cities have opted for a more conservative approach that guarantees a set savings rate for the length of the contract.
“Assuming that electricity rates continue to go up for the next 25 years, I think it’s safe to assume that cities will save money with the potential for fairly significant savings over the course of the subscription agreement,” Smith says.
Over 25 years, Taylors Falls expects to save more than $200,000 in electric costs. Over the same period of time, Mankato anticipates $1.25 million in savings, and Chanhassen expects savings of about $1.1 million.
One-acre garden in Taylors Falls
The City of Taylors Falls in Chisago County is allowing Community Green Energy to lease a one-acre site to build a solar garden. City Coordinator Adam Berklund says the city is considered a partner in the project with the opportunity to subscribe.
“It’s very small compared to other solar sites,” he says. “It’s out by our sewer pond. Nobody will see it and it is being done at no cost to the city. It’s unused land and just works perfectly. We will save about a month’s worth of electricity every year, about $8,000.”
Berklund says the contract was approved because the Council for this city of just under 1,000 was interested in green initiatives and “anything we can do to lower taxes is in the best interest of residents.”
Before approving the deal, Taylors Falls checked with other cities that had worked with Community Green Energy. All said they’d do it again, Berklund says. The city’s contract includes a surety bond to cover the cost of removing the solar array if the firm goes out of business.
Mankato’s garden set to start in 2017
In Mankato, city officials endured a barrage of solar garden proposals starting last year. “We struggled to get our arms around it at the beginning,” says Mankato Public Works Director Jeffrey Johnson.
After feeling a bit overwhelmed by the number of calls and the complexity of the issue, he says the city “shut it down and reviewed three proposals very closely, doing a lot of review in the city and with our legal team.”
Mankato (population 41,000) chose a proposal from Geronimo Energy, the only one of the three that wanted to build a solar garden using city land. Mankato sold about 60 acres of long-idle industrial park property to Geronimo for $1.19 million. The solar garden is expected to be operating by spring 2017.
As subscribers to the project, the city will get a penny back for each kilowatt hour their portion of the solar garden produces. There is no other cost to the city; energy savings average about $50,000 a year over the 25-year contract. Still, some city councilmembers were a little skeptical about being tied to the project for such a long time. The city held two work sessions with Geronimo and reviewed the contract and project in two Council meetings. In the end, the subscription agreement was approved.
“The agreement is pretty straightforward; I don’t believe there’s any downside to it,” Johnson says. “If there’s a default, there are contingencies in there. The city is absolutely safe. We took the most conservative approach to it. We don’t want to put citizens at risk for losing money.”
Two garden in Chanhassen
By next year, the City of Chanhassen (population 24,500) expects to get about 30 percent of its power from two community solar gardens. While some cities are aiming to get a greater share of power from alternative sources, that level is what Chanhassen councilmembers are comfortable with now, says city Finance Director Greg Sticha.
After developers contacted the city last year to gauge interest in community solar garden involvement, Sticha spent months educating himself on the issue. One source of information was the Metropolitan Council, which was developing a community solar garden at its Blue Lake Wastewater Treatment Plant in Shakopee. Chanhassen became a subscriber to that project and later subscribed to a U.S. Solar project. Both solar gardens will be open next year.
“We picked the most financially beneficial contracts,” Sticha says. With both agreements, the city locked in its electric rates for the duration of the 25-year contract, guaranteeing savings. “It’s fantastic from a budgeting standpoint,” he says.
While that’s the safest route for the city, community solar gardens are so new that the city’s decision to rely on traditional energy sources for 70 percent of its power leaves room for more participation in solar if the city wants it. “With technological change, the pricing on these contracts could change, too,” Sticha says. “If a smart financial opportunity came before us, we would certainly take it to the Council.”
So long as contracts are carefully written, Sticha sees little risk in subscribing to community solar gardens. The developers pay the cost of the projects, so the city’s only costs are staff time and paying for an attorney to review contracts. Future administrative costs should be small, he says, with savings exceeding the cost of staff time.
If a solar garden went out of business, the only impact on the city would be that it goes back to paying its old electric rates.
“From a business standpoint, it makes sense for us to be involved, and from an environmental standpoint, it makes sense,” Sticha says.
Considerations for cities
Smith, of LMC, says cities that are asked to allow solar garden construction within their boundaries should consider land use, zoning, and resident concerns. Cities may want to designate certain areas of the city for solar garden projects.
While cities are often concerned about the length of the subscription agreements, solar garden developers need the long-term commitment to justify the cost of projects, he says. Most agreements include a performance guarantee by the owner, such as a city getting at least 90 percent of its expected credits.
“Under most contracts, I don’t see much risk to the city based on an owner’s bankruptcy or financial problems,” Smith says.
Cities that subscribe to a community solar garden won’t get any of their savings until the projects are up and running. Pawlisch, of CERTs, says many more solar projects have been proposed than officials anticipated, and how many will actually be built has yet to be seen.
Cities make the perfect partner
But, Pawlisch says, local government will continue to be a target for community solar garden developers.
Developers are required to have at least five subscribers for each garden they build, and getting a big partner like a city uses up a lot of the energy that will be produced.
“Local governments are your perfect subscriber,” Pawlisch says. “Like Macy’s in a shopping mall, they play the anchor role.”
Mankato’s Johnson says the city won’t market the solar garden to residents, letting them make their own decisions. But he thinks the city’s investment in alternative energy is a wise one.
“Given our current environment and our dependence on various fossil fuels, I think this is a good thing,” Johnson says. “You need power in Minnesota when it is hot and humid and there is no wind. Solar panels can play a huge role in our state, and diversifying is something we all need to do.”
Mary Jane Smetanka is a Minneapolis-based freelance writer.
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