Minnesota Solar – Everything You Need to Know

minnesota-solar

Everything you need to know for a smooth ride when Going Solar in Minnesota

You might think of Minnesota as a cold and cloudy place full of snow, but it couldn’t be further from the truth if you’re thinking about going solar! By taking advantage of all the rebates and tax incentives available, you can save upwards of $19,000. On top of that, the state has built a solid collection of solar policies to encourage and protect Minnesota solar installations.

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Below we have information on solar financing in Minnesota, relevant policies, and financial incentives, rebates, and tax credits. If you’re thinking about installing solar in Minnesota, read on for all you need to know!

#1 Overall Solar Grade

C
Overall Grade
13 years Avg. Payback Time (For Cash Purchase)
6.8 % Estimated IRR (Return on your investment on cash purchase over 25 years)
$16,189 Your Net Profit Over 25 Years (Cash Purchase)

* Note that these are estimated values for informational purposes only, and do not take into account the full complexity of all financial projections. They also only apply to cash purchases, which means your numbers will be different if you lease your system or pay for it with a loan (factoring in interest). Also note that we are not financial advisors, so this information should not be construed as financial advice.

Minnesota’s great solar policies and a plethora of financial incentives make going solar an easy way to save big. Also considering their aggressive RPS goals to ensure continued growth of the solar industry in the state gives Minnesota a realistic C rating.

#2 Options for Buying Solar Panels in Minnesota

Minnesota homeowners can purchase their solar installations in cash or with loans.

Cash Upfront

Cash will always save you the most money over the life of your installation. It’s simple – you pay your solar company and they install the system. Done. You get to enjoy the perks of ownership, including tax credits, rebates, and your property value increases.

Of course, you also have to foot the entire bill up front, which in Minnesota comes out to about $17,650 before incentives for an average-sized 5kW installation. Applying the 30% federal tax credit, that total cost drops to $12,355. That’s a lot of money, but it’s not the most important question.

The real question is: How much can you save going solar? To answer that, we need to compare your total cost to go solar against how much it would cost to continue purchasing all your electricity from the utility over the life of the solar installation.

With Minnesota’s average utility rate of $0.12 per kWh, and taking into account Minnesota utilities’ rate increase of 3.5% a year, you’d save $16,189 after 25 years (the estimated lifespan of a solar installation). And that’s net savings, meaning we’ve already taken into account that initial investment. Suddenly that $12k doesn’t seem too high, does it? 

Bottom Line: With a payback of 13 years, you’d have 12 years of completely free, renewable energy! But what if you don’t have that much money in your pocket waiting to be invested? Then take a look at solar loans!

Loans

Solar loans allow you to reap the benefits of solar – lower electricity prices, tax credits, added home value, etc – without that high upfront cost. Solar companies, banks, credit unions, and even local governments will provide financing for your solar installation – so be sure to do some research and call a few organizations to see what they offer!

Your savings will obviously be less than with a cash purchase, but let’s see how much: Let’s pretend you’re installing the same installation as the cash purchase above (5kW) at the same price. However, this time you take out a 15-year loan with 5% interest. This interest tacks on another $7,474 to your total bill, dropping your savings to a still-respectable $8,715 with an ROI of 2.7%.

Bottom Line: Payback time is longer at 18 years, but almost $12k in savings without putting up any of your own money up front? Not too bad!

If you want to read more about loans, check out our article: Solar Loans

Leases

Before 2013, when Minnesota passed a slew of solar policies, solar leases and power purchase agreements (collectively known as third-party ownership) were illegal. Laws were passed and the solar industry grew, but today the legality of third-party ownership in Minnesota remains murky.This idea is backed up by the fact that the country’s three biggest solar installers (SolarCity, Sunrun, and Vivint), who typically race to new states but whose bread and butter is third-party ownership, have no presence in the state.

Bottom Line: Until the legality of third-party ownership is clarified, we probably won’t be seeing an explosion of leases or PPAs anytime soon.

More: Solar Leases

#3 Minnesota Solar Policy Information

Minnesota’s aggressive RPS goals coupled with their net metering and solar access laws make going solar look pretty sunny in the state.

going-solar-in-minnesota

Renewable Portfolio Standard

If a state is serious about reducing emissions and encouraging the growth of renewable energy, they typically create a Renewable Portfolio Standard (RPS), which simply states that a certain percentage of electricity sold in the state must come from renewable sources. 29 states now have RPS goals, with Hawaii’s 100% renewable by 2045 being by far the most aggressive.

In 2007, Minnesota created a mandatory Renewable Portfolio Standard to replace the existing voluntary program. Requirements vary by utility:

  • Xcel Energy: 30% of all electricity must come from renewable sources by 2020, with an additional 1.5% of all sales from solar energy.
  • All other investor-owned utilities (like Minnesota Power and Otter Tail Power): 25% renewable by 2025 with an additional 1.5% from solar.
  • All other utilities (municipal utilities and coops): 25% renewable by 2025.

Of that 1.5% of sales coming from solar energy, 10% must come from installations that are 20kW or less. In other words, 10% must come from small, residential solar installations – meaning residential solar isn’t winding down anytime soon in Minnesota. More: Renewable Portfolio Standard (RPS)

Electricity Prices

At $0.12 per kWh, Minnesota is right in line with the national average of $0.12/kWh but higher than neighbors Missouri ($0.09) and North Dakota ($0.09). Inexpensive electricity is always good, but lower electricity prices mean you can’t save as much money by ditching the utility and going solar. That’s not the full story, though.

Since 2001, Minnesota’s electricity prices have risen by an average of 3.5% each year, a full percentage higher than the 2.5% national average. Purchasing your own solar installation allows you to avoid that annual rate hike. Once your installation is up and running, you don’t have to worry about your electricity prices ever going up, since sunlight (ie your fuel) is never going to get more expensive.

Minnesota Net Metering

Minnesota state law requires all utilities operating in the state (including large investor-owned utilities, municipal utilities, and cooperatives) to offer net metering. Over the course of a year, your utility must reimburse you for any excess electricity your solar installation produces that goes into the utility grid at the “average retail utility energy rate” – typically what you would pay for electricity (in $ per kWh).

These reimbursements will either be an actual payment to you or a credit on your bill. If you have any credits left over at the end of the calendar year, you’ll get paid for these credits at the utility’s avoided cost (typically around $0.03 per kWh) if you’re a customer of an investor-owned utility. If you’re part of a municipal utility or coop, all your credits expire at the end of the year. More: Net Metering

Interconnection Rules

In 2004, the Minnesota Public Utilities Commission created general standards for interconnection, the process in which your solar installation is approved for connection to your utility’s electricity grid. These standards ensure all solar customers experience a uniform, streamlined interconnection process. You’ll need to contact your utility to see exactly how their interconnection process works.

Many utilities post documents detailing the process on their website. Xcel Energy, for instance, publishes their interconnection requirements online, but it’s pretty dry and gets confusing very quickly. When you’re installing solar, your installer will likely handle the interconnection paperwork, so you don’t need to worry about understanding every tiny detail and requirement.

If you have any questions, be sure to sit down and talk to them, as they’ll have experience working with your specific utility and their interconnection process.

Homeowners Associations

While not as robust as California solar access laws (and what states are?), Minnesota does protect solar installations and their owners. The state government allows local zoning boards to restrict development to ensure access to sunlight. If your local government takes advantage of this, it means your right to sunlight can be secured and you don’t have to worry about a developer coming in and building high rises right in front of your solar panels.

#4 Financial Incentives, Rebates, and Tax Credits

Many utilities in Minnesota offer rebates for going solar. Couple that with the federal tax credit and your cost to go solar has just dropped considerably!

minnesota-solar-installations

Federal Tax Credit

Just like any US homeowner who purchases their solar installation in cash or with a loan, Minnesota homeowners who go solar are eligible for the 30% federal tax credit. As a tax credit –not a deduction – it’s worth a dollar-for-dollar discount on your total installation costs.

So if your installation cost you $12,000, you’d get $3,600 after taxes! This incredible credit was originally meant to expire in 2016, but lawmakers extended the full 30% credit until 2019, when it drops to 26% until 2021, then 22% until 2022. After 2022, the credit finally goes away permanently. More: Solar Federal Tax Credit

Upfront Utility Rebates

Several utilities in the state offer upfront rebates to customers who install solar.

Minnesota Power offers rebates for solar installations through its SolarSense program. The utility will rebate $0.94 per kilowatt-hour your installation produces in its first year. So, for example, if you install an average-sized 5kW installation that produces 6,413 kWh its first year (according to the National Renewable Energy Lab’s online calculator PVWatts), your rebate will equal $6,028!

Rochester Public Utilities offers rebates of $0.50 per watt for solar installations up to 10kW. With this program, a 5kW installation would give you a rebate of $2,500! Brainerd Public Utilities offers very high rebates for solar installations: $2 per watt up to $4,000! At this rate, even a very small 2kW installation would cap out at $4,000!

In the same vein, Owatonna Public Utilities, Austin Utilities, and New Ulm Public Utilities all offer upfront rebates for solar installations.

Xcel Energy Solar*Rewards Program

Xcel Energy in Minnesota, through its Solar*Rewards program, offers its solar customers what’s called a performance-based incentive. Unlike upfront rebates, Xcel Energy will give you $0.08 per kWh your installation produces in the first 10 years, paid annually. So, a 5kW installation that produces 6,413kWh annually would provide a rebate of $5,130 in total.

Installations must be between 0.5kW and 20kW and you must sign a 10-year contract to join. If you join the Solar*Rewards program, you forfeit eligibility for the Made in Minnesota incentives (see below), though you can still enjoy the benefits of net metering!

Made in Minnesota Solar PV Incentive Program

You can probably figure out what the requirements for this program are. To be eligible, your solar panels must be from one of 5 approved Minnesota-based solar panel manufacturers: Heliene, Itek Energy, Saga, Silicon Energy, and Ten K Solar.

For residential installations, there are three different incentive amounts, from $0.16/kWh to $0.21/kWh based on what panel manufacturer you choose. Obviously, these are quite a bit higher than Xcel’s Solar*Rewards program!

Just like Xcel’s Solar*Rewards program, incentives are based on the kilowatt-hours your installation produces and lasts 10 years. To participate, you must be a customer of one of the state’s three main investor-owned utilities: Xcel Energy, Minnesota Power, or Otter Tail Power.

Solar Energy Sales Tax Exemption

Since 2005, solar equipment has been 100% exempt from state sales tax in Minnesota. The exemption applies to all your system’s equipment, including panels, inverter, wires, conduit, and everything else. With equipment accounting for about $1.25/watt of the total installation cost (p.5 of linked report), and state sales tax at 6.875%, this could save you $430 for an average-sized 5kW installation!

Solar Property Tax Exemption

Solar installations are also 100% exempt from property taxes. This means that if you install a $20,000 solar installation on your $150,000 home, you only pay property taxes for $150,000 – not the total value of $170,000. Minnesota property taxes are averaging around 1.05% right now, so this doesn’t amount to a huge saving, but every penny saved is a penny earned, right?

General Increase in Home Value

Whether or not solar adds value to your home is dependent on what type of financing you choose. If you pay cash or take out a loan, you are adding a tangible asset to your property that you can claim ownership of. According to the Lawrence Berkeley National Lab, homeowner-owned solar installations can add up to $5.90 per watt of value to a home when the solar installation is new.

As the installation ages, the value drops, though even older installations can bring in $4.51/watt! At this rate, a well-loved 5 kW installation could bring over $22,000 of value to your home!

Leases, on the other hand, don’t bring the same benefits as ownership. They can certainly save you some money year-over-year, but they don’t add value to your home. Leases don’t require you to invest any of your own money, so there’s no tangible value. Another study by Lawrence Berkeley National Lab agrees, stating that while leases don’t add value to your property, they don’t detract from the home value, time on the market, or buyers’ emotions either.

If you want to learn more about home value and solar, read our article: Buyers Will Pay More for Solar Homes

If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.

What to Do Next?

Should you install solar in Minnesota? You betcha! Great incentives and supportive policy allow you to save money long-term. If you’re ready to move forward, reach out to a few installers and see what type of financing they offer. Talk to your bank or credit union and see if they have any loans for solar installations. Once you’re ready, get a few quotes to see how much money you can actually save! After that, it’s smooth sailing to energy independence!

Image Credit under CC License via Pixabay - 1, 2, 3

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