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Minnesota Legislature passes energy bill with $2,500 EV rebates, ‘pre-weatherization’

The spending follows two other consequential energy bills adopted earlier in the legislative session: a law requiring a carbon-free electric grid by 2040 and a $115 million fund to match federal dollars for climate and energy projects in Minnesota.

An electric vehicle is plugged into a charging station
Lawmakers settled on a wide range of credits, grants and rebates for climate-friendly technology in their budget bill. That includes money for electric vehicles, electric school buses, air-source heat pumps, solar on K-12 schools and more.
REUTERS/Vincent West

The most consequential energy policy passed this year by the Minnesota Legislature came months ago, in February, when DFL lawmakers approved a law requiring a carbon-free electric grid by 2040. Lawmakers also passed a $115 million fund to match federal dollars for climate and energy projects in Minnesota.

But this week, DFL legislators greenlit $216 million in additional spending for energy initiatives, including roughly $140 million in new spending from Minnesota’s general fund and more than $76.8 million from fees charged to Xcel Energy for nuclear waste storage. The spending from both sources will pay for a host of rebates, credits and grants for things like electric vehicles and air-source heat pumps.

Republicans have criticized the energy legislation, which was paired in an “omnibus” bill with other spending on the environment and natural resources passed the Legislature on Thursday and is expected to be signed by Gov. Tim Walz in the coming days.  GOP lawmakers had sought to relax the carbon-free energy mandate in an effort to help smaller municipal and cooperative utilities. They also tried to include a study of emerging nuclear technology as a potential carbon-free power source. DFLers ultimately left both of those efforts out of the final bill. 

Republicans also asked for income limits on the electric vehicle rebate, which is worth $2,500 on a new EV. “Let’s help the people that need it, and let’s not have this available as handouts for the rich and the wealthy,” said Sen. Andrew Mathews, R-Princeton.

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In the House, Rep. Patty Acomb, DFL-Minnetonka, said the legislation “recognizes the importance of climate change” by making Minnesota competitive for federal climate funds, and prioritizes social equity through programs like one that helps low-income people become eligible for home energy efficiency upgrades.

“It’s taking a proactive approach to address the climate crisis that we’re in and try and prevent the worst impacts of climate from happening to Minnesota,” she said.

Here’s a look at some of what’s in the energy legislation:

Rebates, credits, grants

Lawmakers settled on a wide range of credits, grants and rebates for climate-friendly technology in their budget bill. That includes money for electric vehicles, electric school buses, air-source heat pumps, solar on K-12 schools and more.

For individual consumers, the most money will be reserved for “pre-weatherization” work (see below). But other than that, the bill also has $15.7 million in rebates for buying or leasing EVs. 

There are no income caps on the rebate, which will be $2,500 for a new car and $600 for a used one. That was a major concern for Republicans who argued the rebates would simply help people already rich enough to buy an EV.

State Sen. Andrew Mathews
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State Sen. Andrew Mathews: “Let’s help the people that need it, and let’s not have this available as handouts for the rich and the wealthy.”
People are, however, only eligible to get a credit if the manufacturer’s suggested base retail price for a new car is $55,000 or less, or if the used car costs $25,000 or less before taxes and fees. The rebate is also open to businesses, nonprofits and governments. But people who have already received a rebate or tax credit from the state government for buying an EV won’t be eligible.

The Legislature earmarked $13 million for the heat pump rebates. That program will be open to people who have received or applied for a similar rebate from the federal government under the Inflation Reduction Act. The maximum grant under the program will be $4,000.

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No study of ‘advanced’ nuclear technology

New nuclear plants are banned in Minnesota, but a growing segment of the DFL is interested in at least exploring whether emerging technology on smaller “modular” reactors could be a viable option in the state for steady carbon-free power during a transition to a clean electric grid.

That’s why Senate Democrats wanted $300,000 for a study on what they define as “advanced nuclear,” which is research endorsed by Republican legislators and Gov. Tim Walz.

But House Democrats are wary of the potential for nuclear waste and the costs of building plants — especially the big traditional plants like the two owned by Xcel Energy — and have pushed back on whether spending money on a study is really necessary. Those House DFLers won the debate, slamming the door on a study, and by extension, any progress for pro-nuclear advocates.

Prairie Island nuclear payments

Lawmakers ratified a deal for Xcel Energy to pay the Prairie Island Indian Community more money every year as the utility seeks to extend the life of its nearby nuclear power plant. The utility and the tribe announced the agreement in March, but it had to be codified by the Legislature.

Currently, Xcel pays Prairie Island $2.5 million a year, which the tribe and the utility say is far less than what cities and counties in the area get in property taxes from the plant. The tribal payments also haven’t increased in 20 years, while the tax revenue for others has more than doubled.

State Rep. Patty Acomb
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State Rep. Patty Acomb: “It’s taking a proactive approach to address the climate crisis that we’re in and try and prevent the worst impacts of climate from happening to Minnesota.”
Under the legislation, Xcel will pay Prairie Island an extra $7.5 million a year as long as its nuclear plant continues to operate. Xcel will also pay $50,000 every year for every cask of spent nuclear waste located at the facility, regardless of whether the plant is running.

Xcel’s plant began operating in the 1970s, and the two units at the plant are licensed to operate until 2033 and 2034. But Xcel plans to ask regulators for an additional 20 years, because the plants will help the utility meet its climate goals and the state’s requirement for a carbon-free electric grid by 2040.

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No energy storage mandate

There will be no requirement for electric utilities to build a specific amount of energy storage capacity, which was a priority of House Democrats but drew opposition from the Senate DFL and a wide range of those electric companies.

Supporters said the mandate would jump start the battery industry in Minnesota and nudge utilities hesitant to adopt new technology that could play a critical role in the energy transition away from fossil fuels. Batteries and other storage methods can reserve renewable energy to power the grid when the sun isn’t shining and the wind isn’t blowing.

But critics were skeptical of making utilities build what they believed was an arbitrary amount of energy storage when those companies are already required to be carbon-free by 2040. Democrats had touted the flexibility of that clean energy law when it passed, and so utilities wanted to keep it that way.

The Legislature is planning to approve $500,000 to research iron-based battery technology — a potential use for the taconite mined in northeastern Minnesota — and $250,000 to study the amount of energy storage needed to hit the carbon-free goals. There will be at least $7 million in grants for building energy storage. And legislators agreed to some other regulatory requirements for utilities related to planning for power storage.

Transmission upgrades for Minnesota Power

The Legislature plans to adopt $15 million for the Duluth-based utility Minnesota Power, money that will help the company upgrade a 465-mile transmission line that runs from North Dakota. 

Minnesota Power says the upgrades will allow it to transfer more energy and increase grid reliability at a time when transmission capacity has been a barrier to more carbon-free energy. Senate DFLers included money for this in their budget plans, but House Democrats did not. The utility says the total cost is $700 million, and the project will be done in 2027. 

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Minnesota lawmakers plan to approve more than $38 million for work known as “pre-weatherization.” That’s industry and government lingo for home upgrades necessary to make people eligible for energy efficiency subsidies.

The state and federal “weatherization” program helps eligible homeowners and renters with upgrades like attic insulation, or the repair or replacement of a furnace. And it’s targeted toward low-income people, the elderly, families with children, people with disabilities and those whose energy costs make up a greater share of their income.

But some people’s homes are in need of fixes simply to become eligible for that weatherization help, such as removing mold, asbestos, or lead paint. That’s where “pre-weatherization” comes in. The legislation would also provide for workforce training in the weatherization field.

The money for “pre-weatherization” is the most expensive new item approved in the energy legislation. Weatherization, in general, has had some bipartisan support.

Charging infrastructure

One new requirement for public utilities imposed by lawmakers will make them file an electric vehicle plan, covering things like promoting the purchase of EVs, building charging infrastructure and partnering with gas stations to boost charging stations. The legislation says that plan may include incentives for vehicle electrification. 

Minnesota’s Public Utilities Commission would have oversight over the plans and can allow a power company to recoup costs from customers.

Community solar gardens

Lawmakers approved changes to Minnesota’s “community solar garden” program, which allows Xcel Energy customers to subscribe to a shared plot of solar — originally pitched as an alternative for those who can’t build a home array — and get a credit on their energy bill. 

The law will allow existing solar gardens to continue as is. But it will set up a new, separate system starting in 2024, run by the Department of Commerce instead of Xcel. Those gardens will have a complicated new scheme for determining the power rates at which Xcel must buy the energy. And there will be limits on the aggregate size of new community solar gardens every year, ramping down over time. The current program doesn’t have those caps for new gardens, but the limits are significantly more permissive than what Xcel and GOP legislators have pushed for in the existing program in the past.

And it also has other guidelines, like a preference for projects with a greater share of low- and middle-income customers when there’s a capacity crunch under the regulations.

Supporters of the community solar program say it has helped grow a large solar industry in Minnesota. But it has also generated controversy over the years because it can result in benefits for commercial customers but higher costs for the larger Xcel customer base. To that end, lawmakers approved a study of the program to compare it to similar ones in other states, and to analyze costs to ratepayers compared to other options for encouraging the adoption of solar.

Legislators also approved a new program requiring Xcel, Otter Tail Power Company and Minnesota Power to have certain amounts of solar that relies on a competitive bidding process rather than the set rates in the solar garden program.