Net metering and compensation
Generally, if a customer produces more electricity than they use, the utility will pay them for the extra power. This is called net metering. This payment is determined by the contract the customer signed with the utility. Utilities keep the rates updated in a rate book.
A distributed energy resource (DER), also called distributed generation (DG), which includes rooftop solar systems, are usually the way that a customer produces more electricity than they use.
The amount that a customer is paid for the extra electricity is known as the compensation rate. Utilities provide their compensation rates in their tariffs based on:
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The size of the customer’s system.
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The specific costs and retail rates of their utility (updated annually).
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Whether the customer is served by a cooperative, municipal, or public utility.
Customers with systems under 1 MW (or 100 kW for cooperative/municipal utility members) will choose their compensation rate based on their system's qualifications:
How can I calculate my compensation rate?
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Average utility energy Rate for systems under 40 kW AC.
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Simultaneous purchase and sale rate for systems under 1 MW AC (or 40 kW AC for cooperative/municipal utility members).
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Time-of-day rate for systems under 1 MW AC (or over 40 kW but less than 100 kW AC for cooperative and municipal utility members). in which the customer is compensated a set rate based on the time of day their energy is produced and delivered to the electric grid.
What are my payment options?
The uniform statewide contract lets customers decide if they want to be paid by check, bill credit, or to bank credits for future use, depending on their type of solar array.
Under 40 kW: Check or bill credit
40kW – 1MW: Check, bill credit, or banking
1 MW – 20 MW: Customers can choose to be paid by check, receive a bill credit, or bank kWh credits on their bill for future use. Compensation is negotiable based on the utility’s avoided cost.
The uniform statewide contract lets customers decide if they want payment by check or bill credit. For customers with systems between 40 kW AC and 1 MW connected to a public utility, they decide if they want excess bill credits to be banked for later use.
Minnesota utilities provide different compensation rates for customers with qualifying facility (QF) distributed generation.
Average retail utility energy rate
If you have a rooftop solar system (also called a distributed energy resource or DER) that is less than 40 kW AC, you can choose to get paid at the average retail utility energy rate for the extra energy you sell back to the utility. Keep in mind that your monthly billing cycle might not match up exactly with the calendar month because utility billing systems have various cycles. To make it work, the utility might use a bidirectional meter or install two meters and then calculate the difference on your bill. Either way, you get to balance out the electricity you use and the electricity you generate each month.
Every year, utilities update this rate. They figure it out for each customer group by taking the total yearly revenue, subtracting the total yearly fixed charges, and dividing the result by the total yearly kWh sales.
This calculation can be found in a utility’s annual tariff update or rate book, as described above.
(Public Utilities: Minn. Rules 7835.4013 )
A utility may offer an incentive program for the installation and production of solar energy. Participation in this program may be limited to systems of a certain size or have other restrictions, such as that the amount of the expected production from the solar facility does not exceed 120 percent of the annual on-site energy consumption combined with the size of any subscription the customer might have to a community solar garden.
Simultaneous purchase and sale billing rates
If your solar power system is under 40 kW AC for cooperative or municipal utility customers, and 1 MW AC for public utility customers, and you don't qualify for or choose the Average Retail Utility Energy Rate, you might be able to pick the Simultaneous Purchase and Sale Billing Rate. This can be based on either a flat rate or on a Time-of-Day rate. There are some rules, though, like your solar facility shouldn't produce more than 120% of the energy you use on-site, combined with any subscription to a Community Solar Garden.
The rates you get can be figured out in different ways, depending on the utility:
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Your compensation is based on the extra electricity you generate after subtracting what you used that month. This is called net metering.
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Your compensation is based on all the electricity you send to the utility after using some for yourself instantly. This is sometimes called net billing.
The following diagrams may be helpful in illustrating the differences between net metering and net billing.
The simultaneous purchase and sale billing rates let customers get paid if their rooftop solar power system, also known as a distributed energy resource (DER), provides a certain kind of reliable energy called firm power. To be firm power, the DER must deliver energy to the utility with at least a 65 percent capacity during peak times in the billing period. The capacity is based on the DER's maximum power delivered to the utility during the billing period. Customers still buy electricity from the utility at their usual rate.
The utility sets the simultaneous purchase and sale billing rate (both flat rate and time-of-day rate) based on the average energy costs shown in the utility's yearly tariff filing. The capacity rate is the utility's net yearly avoided capacity cost per unit of energy averaged over all hours. More details are in Minn. Rules 7835.4014.
Time-of-day rates (also known as “time of use” rates) recognize that electricity is valued at different amounts at different times throughout the day. Most customers have a fixed rate regardless of the time, but time-of-day rates have higher rates during the day and lower rates at night. This rate needs a special meter to track when the energy is used. It is divided into on-peak and off-peak costs based on the utility's Schedule A filed in the utility’s yearly tariff update. The capacity is based on avoided capacity cost averaged over on-peak hours. More details are in Minn. Rules 7835.4015.
The simultaneous purchase and sale billing rates for solar power are usually less than the average retail utility energy rate. But even if a customer qualifies for the average rate, they can still choose the lower simultaneous purchase and sale billing rate, especially if they use more electricity than they generate and own an electric car which can be recharged at a lower rate at night under a time-of-day rate..
Additional considerations
Banking kilowatt hour production
Public utilities may allow a solar system of at least 40 kW AC, but less than 1 MW AC, to "bank" production credits. For cooperative and municipal utilities, the DER must be less than 40 kW AC. The DER must abide by applicable utility tariff restrictions and not be on the Value of Solar tariff rate. Banking credits are like net metering under the Simultaneous Purchase and Sale Billing Rate, but on a yearly basis. Customers can choose to bank bill credits under the Time-of-Day rate as well. The utility's tariff will have more details for either option. At the end of the year, excess credits are treated differently for public utility customers (paid at the avoided cost rate) and cooperative and municipal utility customers (canceled with no extra pay). (Minn. Stat. 216B.164; Subd. 3a for public utilities and Subd.3(f) for cooperative and municipal utilities.)
Correctly sizing the DER system
For customers looking to set up a distributed energy resource (DER) system larger than 40 kW or earn compensation from their utility for the electricity they make, there's a limit on the eligible size. This limit is set at 120% of the energy used on the property or meter. If you have multiple properties or meters, you can explore options like meter aggregation (explained in Minn. Stat. 216B.164, Subd.4c).
If a customer planning a DER system also participates in a community solar garden (CSG) subscription, that subscription is included in the limit of no more than 120% of the average yearly consumption (refer to Minn. Stat. 216B.1641 Subd. 1(b)).
Meter aggregation
In Minnesota, customers can combine the energy usage of several meters and use the electricity generated by their DER system for those meters in the sequence they prefer. However, there's a condition: the meters must be on adjacent properties owned by the same customer. Some utilities may also mandate that the meters all have Time-of-Day rates or none of them have Time-of-Day rates (explained in Minn. Stat. 216B.164; Subd. 4a
Renewable energy credits and solar renewable energy credits
Renewable energy credits (RECs) and solar renewable energy credits (SRECs) show the "value" of the environmental benefits linked to eligible renewable energy production. Each REC equals one MW-hour (1,000 kW hours) of energy, and owners can sell or trade them. To measure the RECs or SRECs produced by a DER system, a production meter is needed.
Utilities use RECs and SRECs to meet renewable energy or solar energy standards, such as Minnesota's Renewable Energy Standard and Solar Energy Standard. Some individuals and companies buy RECs to support renewable energy or reduce greenhouse gas emissions.
In Minnesota, customers own the RECs or SRECs from their DER system unless they've agreed to sell or transfer them. Some utility programs may include a condition where the ownership of RECs or SRECs is transferred to the utility. Customers might have the option to sell RECs or SRECs to the utility or, for systems under 40 kW, install, at their expense, a production meter to measure the RECs/SRECs produced.
Distributed generation customer charges or fees
Cooperative and municipal utilities may impose a fee on distributed generation customers to recover fixed costs not covered by the customer's regular retail billing arrangement. Customers with this fee in place can reach out to their utility to understand how these fees are calculated (see Minn. Stat. 216B.164 Subd. 3(a)).
Public utilities, on the other hand, are not allowed to charge fixed recovery fees to distributed generation customers, apart from the fixed fees imposed on their regular retail customers. However, customers installing distributed generation may still notice a new charge on their bill to cover additional costs associated with serving their distributed generation facility. These costs include metering fees, which account for reprogramming the customer's existing meter to measure exported energy to the grid, or the added cost of a production meter if necessary. The Commission reviews and approves the utilities' cost calculations for these charges. The charges are outlined in the rate schedule chosen by the customer during their DER system installation, but they are subject to change with Commission approval (refer to Minn. Stat. 216B.164, Subd. 3).