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Incentives/Policies for Renewables & Efficiency

Printable Version
Energy Efficiency Resource Standard   

Last DSIRE Review: 12/19/2014
Program Overview:
State: Minnesota
Incentive Type: Energy Efficiency Resource Standard
Eligible Efficiency Technologies: Heat recovery, Custom/Others pending approval, Unspecified Technologies
Eligible Renewable/Other Technologies: CHP/Cogeneration, Biomethane
Applicable Sectors: Investor-Owned Utility, Retail Supplier
Electric Sales Reduction1.5% reduction of average retail sales beginning in 2010
Natural Gas Sales Reduction1.5% reduction of average retail sales beginning in 2010
Web Site:
Authority 1:
Date Enacted:
Date Effective:
Minn. Stat. ยง 216B.241


In 2007, the Minnesota legislature passed the Next Generation Energy Act (NGEA), which requires both electric and natural gas investor-owned utilities to reduce energy sales, and spend a minimum percentage of their annual operating revenues on activities to advance energy efficiency, demand-side management and certain types of renewable energy starting in 2010.

Electric Energy Reduction Standard

Energy Savings Requirements

Minnesota’s electric and gas utilities are required to pursue energy efficiency programs that result in overall reductions of 1.5% of average sales, beginning in 2010. Average sales are calculated based on the most recent three-year weather-normalized average.

Spending Requirements for Electric and Gas Utilities

The NGEA requires investor-owned utilities to invest the following amounts of their gross operating revenues in Minnesota on energy conservation improvements (including waste heat recovery but not utility infrastructure projects):

Utilities Percentage of Total Gross Minnesota Revenue

Xcel Energy (Northern States Power Company)


All Other Electric Utilities

All Natural Gas Utilities 0.5%

Within the minimum spending requirements specified above, utilities must also allocate their spending to satisfy the following requirements:
  • All electric utilities must include programs that encourage customer use of efficient lighting;
  • At least 0.2% of all must go toward programs for low-income customers;
  • No more than 10% of the minimum spending requirement may be spent on research and development projects;
  • No more than 10% of the minimum spending requirement may be spent on solar energy projects;
  • No more than 5% of the minimum spending requirement may be spent on non-solar renewable and distributed generation projects.

Each utility must develop a Conservation Improvement Plan (CIP) every three years and file it with the Energy Division of the Department of Commerce. Actual spending and energy savings must be reported on an annual basis. Waste heat recovery (converted into electricity) and utility infrastructure projects may count toward the energy savings goal.

Program Administrator Type

Minnesota’s utilities administer the programs necessary to meet the annual reduction standard and minimum spending requirements

Cost-Effectiveness and Program Evaluation

Minnesota regulators do not use a specific primary cost-effectiveness test in evaluating and approving utility Conservation Improvement Plans. However, it does require utilities to evaluate the cost-effectiveness of their proposed programs using four of the five cost-effectiveness tests found in the California Standard Practice Manual. Specifically, Rule 7690.0550 requires utilities to file an evaluation from the “utility, participant, ratepayer, and societal perspectives.” This means that each utility is required to submit Utility Cost Test (UCT), Participant Cost Test (PCT), Ratepayer Impact Measure (RIM) and Societal Cost Test (SCT) scores for the utility’s full portfolio, each overall program, and at each individual “project” (or, as is often referred to informally as “measure”) level within each program.

Utility Cost Recovery Provisions

Minnesota authorizes its utilities to receive what are known as “shared savings” financial performance incentives in order to “recognize making progress” towards the energy savings required by law. The incentive for Minnesota Power is capped at 30 percent of the net benefits associated with its programs, while the incentive for all other utilities is capped at 20 percent of net benefits. According to the Minnesota Public Utilities Commission, the reason for Minnesota Power’s variance is that Minnesota Power was more able to cost-effectively reach their minimum energy reduction standard at that net benefit level of shared saving incentive than the other utilities.

Special Provisions (Various)

Energy savings achieved in excess of 1.5% may be carried forward for up to 3 years, except in the case of savings from infrastructure projects, which may carry over for 5 years. The Next Generation Energy Act also allows for electric utilities and natural gas utilities to apply to the Commissioner of Commerce for a lower spending requirement. In addition, certain large facilities may petition to have their revenues excluded from calculations determining investment and expenditure requirements, and may "self-direct" their own funds into energy conservation projects of their own.

Current law also allows for natural gas utilities' purchases of biomethane to count toward the energy savings goal.

  Information - Conservation Improvement Program
Minnesota Department of Commerce
Energy Division
85 Seventh Place East, Suite 600
St. Paul, MN 55101
Phone: (651) 296-4026
Fax: (651) 297-7891
Web Site:
NCSU - home
Disclaimer: The information presented on the DSIRE web site provides an unofficial overview of financial incentives and other policies. It does not constitute professional tax advice or other professional financial guidance, and it should not be used as the only source of information when making purchasing decisions, investment decisions or tax decisions, or when executing other binding agreements. Please refer to the individual contact provided below each summary to verify that a specific financial incentive or other policy applies to your project.

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