Research & Commentary: Rooftop-Solar Subsidies in Minnesota Should Be Repealed

Published February 17, 2017

A proposal to reform the Renewable Development Fund (RDF) and end the Made in Minnesota Solar Incentive Program passed in the Minnesota House of Representatives and now awaits a vote in the Senate.

The Renewable Development Fund, which was last budgeted at $42 million, aims to promote non-nuclear renewable energy. Under the proposal, RDF would be turned into a general energy fund instead. Made in Minnesota, established in 2013 and administered by Xcel Energy, currently provides homeowners a subsidy worth roughly 40 percent of the cost of installation of solar panels, as well as an annual rebate for the power those panels produce – so long as those panels are manufactured in Minnesota. The program has an annual budget cap of $15 million, with $250,000 set aside per year for solar-thermal rebates.

The solar energy forced on consumers by state legislatures through subsidies like these and renewable power mandates, also known as renewable portfolio standards, is extremely expensive. A 2014 study by the Brookings Institution found solar power is three times as expensive as conventional power. These higher costs impose real burdens on electricity consumers. H. Sterling Burnett, an environment and climate research fellow at The Heartland Institute, says retail electricity prices in states with renewable power mandates are rising twice as fast as the national average. (Minnesota’s mandate requires utilities to provide 25 percent of their generated electricity from renewable sources by 2025.)

An analysis published in May 2016 by the Daily Caller News Foundation (DCNF) found a “statistically significant correlation … between high electricity bills and states with numerous policies supporting green energy.” The study, which provided an analysis of data from the Energy Information Administration (EIA) and the Database of State Incentives for Renewables and Efficiency, found “states which offered rebates, buy-back programs, tax exemptions and direct cash subsidies to green energy were 64 percent more likely to have higher than average electric bills. For every additional pro-green energy policy in a state, the average price of electricity rose by about .01 cents per kilowatt-hour.”

For example, DCNF points out the two very different experiences of California and West Virginia. The electricity prices in the Golden State, which has 183 different policies “supporting” green energy, currently sit at about 14.3 cents per kilowatt-hour. The electricity prices in West Virginia, which has only 11 green-energy-friendly policies, average at just 7.91 cents per kilowatt-hour. Minnesota’s 141 green-friendly policies were second in total only to California, and the state’s average price of electricity in November 2016 was 10.11 cents per kilowatt-hour, putting Minnesota above the national average and giving it the highest electricity prices in its region, according to EIA.

The solar power industry receives disproportionate federal, state, and local taxpayer subsidies. Those subsidies require higher taxation that imposes still-higher costs than those reflected in retail electricity prices. According to the EPA once again, solar power by itself receives more federal subsidies than all fossil fuel sources combined, even though it produces only 0.4 percent of the nation’s electricity. On a dollar-per-unit-of-electricity-produced basis, EIA reports wind and solar power receive 25 times more subsidies than fossil fuels.

Solar subsidy programs such as Made in Minnesota act as little more than welfare programs for the upper-middle class. For example, a California Public Utilities Commission study found customers who have installed net-metering solar panel systems, going back to 1999, have an average median household income of $91,210, significantly higher than the state’s median income of $54,283. (The average price of an average-sized residential solar panel installation cost just over $20,000 in the third quarter of 2016, according to the Solar Energy Industries Association.)

Because low-income households spend a larger share of their income on essential services such as electricity, solar subsidies essentially act like a regressive tax. The repeal of renewable power mandates and the elimination of energy subsidies would lower electricity prices substantially.

The following documents provide more information about solar power and renewable-energy subsidies.

Ten Principles of Energy Policy

In this Legislative Principles booklet, Heartland Institute President Joseph Bast identifies the ten most important energy issues facing the nation and outlines the energy policy actions that will lead to the highest, most efficient production at the lowest cost to consumers. 

The 50 States of Solar (Q4 2016 Quarterly Report & Annual Review)
The purpose of this report by the NC Clean Energy Technology Center is to catalog the proposed and enacted legislative changes to regulatory policy and rate design affecting the value proposition of distributed solar photovoltaics during 2016, with an emphasis on the residential sector. Forty-seven states and the District of Columbia enacted, modified, reviewed or studied solar energy policies in  2016, Of the 212 actions catalogued, the most common related to net metering reform (73), followed by implementing, raising or lowering residential fixed charges and bill increases (71), and instigating studies related to the value of solar power installations or net metering studies (20). 

Rethinking Energy: Supplying Competitive Electricity Rates
This study from Bill Glahn, senior fellow at the Center for the American Experiment, says Minnesota electricity prices increased considerably and rapidly after state energy policy began to focus on subsidizing and mandating green energy. Previously, Minnesota’s electric power guiding doctrine was to provide “adequate and reliable services at reasonable rates,” with the result that Minnesota benefited from low and competitive electricity prices. Minnesota’s power regulators, Glahn writes, should go back to the old way of thinking as a way to lure companies to the state, increase entrepreneurial efforts, increase jobs and give rate relief to Minnesotans.

The High Cost of Rooftop Solar Subsidies
This report from Arduin, Laffer, & Moore Econometric argues state net-metering programs, implemented to encourage solar power use, threaten the reliability of electrical grid systems by imposing additional operating stresses on grids that were built to supply a one-way power flow from centralized generators to users; distributed solar power requires a decentralized, two-way power flow. Current electrical grids were not built to handle this type of power delivery. In addition, the retail price paid under states’ net-metering schemes is much higher than the price grid operators would reasonably pay to obtain electric power in the wholesale power market, wasting scarce resources.

Residential Solar: Myth vs. Fact
This study by the Institute for Energy Research explores several myths surrounding solar power, including the false beliefs roof-top solar is cost-effective, better allows utilities to manage their peak loads, and the view residential solar has achieved “grid parity” in many parts of the United States. The study also shows that without large subsidies, solar energy fails to make economic sense and creates problems for utilities trying to manage the electric grid.

Study of the Effects on Employment of Public Aid to Renewable Energy Sources

Researchers at King Juan Carlos University in Spain found each “green job” created in Spain cost about $750,000. Electricity rates would have to be increased by 31 percent to account for the additional cost of renewables. 

Study: Consumers Unwilling to Pay More for Renewable Energy
Relatively few consumers are willing to pay extra for renewable energy offered under voluntary “green” pricing programs, according to a report from the Institute for Energy Research. 

Why is Renewable Energy So Expensive?
This brief but useful essay in a January 2014 blog post for The Economist states countries with the most renewable power generation also have the highest electricity prices, and government efforts to alleviate this problem have been unsuccessful. 

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group.

The Reliability of Renewable Energy: Solar
This study from the Institute of Political Economy at Utah State University shows solar power is inefficient and unreliable because the Sun is not always available and because it cannot consistently meet electricity demand, which means it must rely on backup power sources. The study notes solar power is the most expensive source of power in the United States and requires significant tax dollars to maintain production. The study’s authors say these high costs come with limited environmental benefits.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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