MANKATO — A trio of solar developers, each planning large arrays of solar panels in the Mankato area, are attempting to persuade the city of Mankato to buy into their project.
The option being recommended by city staff would save the city an estimated $60,000 to $67,000 a year for 25 years, a total savings of $1.58 million. If the City Council opts for the maximum subscription, the city would be receiving a roughly 10 percent discount on 77 percent of the 8.7 million kilowatt-hours consumed each year by its top electrical consumers.
Those top consumers include the street light system, the Verizon Wireless Civic Center, the drinking water pumps, the water and sewage treatment plants, the Orness Plaza subsidized housing complex and the Intergovernmental Center.
Staff recommended the safest proposal, a virtually no-risk option offered by Geronimo that provides a penny per kilowatt-hour discount for energy purchased from Xcel for the next 25 years. The discount is available for the amount of power produced by the city's share of the solar energy produced by Geronimo's solar array.
The city now pays between 9 and 10 cents per kilowatt-hour.
The alternatives offered by SunShare Community Solar and Ameresco presented potentially larger savings but required investment of city funds to help construct a solar garden or a willingness to gamble that electrical rates charged by Xcel will rise by an average of 2 percent or more each year. Geronimo's proposal is essentially a guaranteed discount, said Tom Fournier, the facilities project coordinator in the city's Public Works Department.
"It doesn't matter if their rates go up or they go down, we still receive that," Fournier said of the discount.
Geronimo is planning a pair of 3 megawatt community solar gardens and a 5 megawatt array in Blue Earth County, so Mankato would take a whopping 40 percent of the power production from those arrays — 4 megawatts. By comparison, the largest solar project now operating in the state — arrays atop parking ramps at Minneapolis-St. Paul International Airport that went on-line in December — totals 3 megawatts.
There's a solar boom under way in Minnesota, with projects expected to total 400 megawatts or more in the works, including a 100-megawatt project near North Branch. A total of 10 community solar gardens are proposed in Blue Earth County or counties bordering it, any of which the city could subscribe to.
Last month, Blue Earth County signed up with SunEdison, which is planning arrays near Eagle Lake, Nicollet and Lake Crystal. The County Board chose a more speculative option that locks in rates at current levels, ramping up the savings if electricity rates rise steadily over the next 25 years.
The Blue Earth County deal, despite lower electrical usage than the Mankato, will provide $1.2 million in savings over 25 years if Xcel electrical rates rise an average of 2 percent a year over that period. The savings could be much higher if Xcel rate hikes average more than 2 percent annually.
Even the savings being offered by Geronimo to the city of Mankato left Council President Christopher Frederick at something of a loss when he was told the agreement would cost the city nothing.
"Why us? Why not CHS? Why not Blue Earth County?" Frederick asked. "... I'm still not understanding something in this equation."
There's no catch, said Rick Masloski, a solar garden representative for Geronimo. Masloski is pitching subscriptions to other institutions, including Minnesota State University, the hospital, Vetter Stone and Bethany Lutheran College.
"It's a great deal," Masloski said. "I fully expect it to be sold out."
Council members asked multiple questions about the proposal during a recent work session, but a final decision and formal vote will come later. The length of the contract caused some pause.
"Twenty-five years is a long time to make a commitment to something," said Councilwoman Karen Foreman. But she said city staff should continue to investigate the idea.
Masloski said after the meeting there are very simple reasons why companies such as Geronimo are sharing the expected financial benefits of developing community solar gardens — it's required by the state of Minnesota.
Mandates passed by the Legislature require Xcel to get 25 percent of its power from renewable sources by 2020, including 1.5 percent from solar, and requires the utility to purchase the power from community solar gardens — giving Geronimo and other solar developers a captive customer. But the law doesn't allow the developers to pocket all of the profits, requiring they sell subscriptions to at least five retail customers of Xcel, none of which can account for more than 40 percent of the total production.
So Masloski, in looking to sell subscriptions for Geronimo's planned arrays near Mapleton and Waterville and on Mankato's north side, is aiming to sell 40 percent of the arrays to the city of Mankato, leaving him just four more subscribers and 60 percent of the arrays' capacity left to sell.
The developers are also able to be more generous with subscribers due to substantial tax credits being offered by the federal government.
Even after covering the cost of installing and operating the solar panels and sharing the revenue with subscribers, the financial group backing the Geronimo projects — Warren Buffett's Berkshire Hathoway Energy — expects to receive a significant rate of return over the 25-year life of the arrays, according to Masloski.
"They tell me it's a 6-7 percent rate of return," he said.