Minnesota regulator approves Xcel’s controversial utility-owned virtual power plant

In October 2025, the utility proposed the initial 200MW Capacity*Connect programme. Xcel stated the distributed energy resources (DERs) would address rising electricity demand, ensure reliable service for customers, optimise existing infrastructure, and support local employment.

At the time, the company also said it would be aligned with its Upper Midwest Energy Plan, approved by the Minnesota Public Utilities Commission (MPUC) in February. The plan included a 600MW target for energy storage deployments by 2030, which the utility said the VPP capacity would count towards.

At the time of the announcement, John Farrell, Co-Director of The Institute for Local Self-Reliance (ILSR), noted in a post on social media networking site LinkedIn, that, “Xcel’s programme would monopolise ownership of a battery storage program that seems to approach distributed batteries as a ‘small chunks of a utility-scale battery’ strategy, focused solely on transmission system benefits.”

Farrell further noted that the programme’s pace lags behind industry peers. He contrasted Xcel’s timeline with California’s Sunrun-PG&E pilot, which successfully deployed a 30MW solar-plus-storage VPP in only six months. By opting for a battery-only model and a more protracted schedule, as well as maintaining ownership of the resources, Xcel faces scrutiny over whether it is truly committed to maximising distributed energy value for its customers.

VPP programme based on ‘flawed model,’ according to clean energy trade groups

In a statement on 2 April, three local and national solar PV and energy storage industry groups described the VPP programme as based on a “flawed model,” ignoring replicable lessons learned from other utility programmes in the US and condemned its limiting of third-party involvement.

Minnesota Solar Energy Industries Association (MnSEIA), the Solar Energy Industries Association (SEIA), and the Coalition for Community Solar Access (CCSA) each released statements taking issue with the programme and approval in its current form.

“Although we appreciate Xcel’s creative step toward investing in the distribution system, this is a flawed model. Giving control to just one partner leaves out Minnesota’s experienced solar and storage developers,” Sarah Webbe, MnSEIA director of policy & regulatory affairs, said.

“A truly fair and equitable clean energy future requires open market competition, not a closed system that sidelines local businesses. This approach will add costs and limit the options of Minnesotans who want more clean energy choices.”

National group SEIA said that the approval process lacked transparency, with Xcel set to earn guaranteed profit from its utility-owned capital expenditure, making it the only VPP of its type in the country that would have a cost-benefit ratio below one.

Xcel’s financial calculations, introduced in the final MPUC hearing, were unvetted and not shown to intervening parties, preventing a comprehensive evaluation or knowledge of the utility’s methodology.

“Xcel’s distributed storage programme, approved by the Minnesota Public Utilities Commission, unfortunately bears little resemblance to other states’ storage programmes that are proven to lower energy costs and increase grid reliability,” SEIA’s Midwest director of state affairs, Andrew Linhares, said.

“Competitive markets for energy storage deployment ensure that ratepayers get the best, most affordable deal possible,” Linhares said, describing Capacity*Connect as taking “the exact opposite approach” in which ratepayers would bear the financial risk of the projects, irrespective of financial performance.

CCSA senior manager of market research Nick Bowman said the programme ignored the “proven track record” of developers that have delivered “affordable, resilient power to the grid while saving ratepayers money.”

“By severely limiting the opportunities for third-party developers to provide these exact same grid services for less, Capacity*Connect misses the mark. We need a modern, collaborative grid where customer-owned and third-party resources can compete fairly to deliver the absolute best value to Minnesotans,” Bowman said.

The MPUC also asked Xcel, in its latest approval, to report on whether lessons from its behind‑the‑meter (BTM) VPP pilot project in Colorado could be applicable in Minnesota.

In 2023, Xcel launched its Renewable Battery Connect scheme in Colorado, to residential and business customers in the state, providing US$500 per kW of storage for up to 50% of the equipment cost of a solar-charged BESS.

Last year, the utility faced pushback in Colorado when the PUC voted to require Xcel to provide higher-quality data on the electricity transmission infrastructure it uses in the state and introduce a flexible tariff for developers looking to connect energy storage and other clean and renewable energy projects to the grid, with the goal of reducing grid connection costs.

The decision was part of a broader proceeding in which Colorado regulators labelled Xcel’s grid transparency data “totally useless,” a critique aimed at the utility’s restrictive hosting capacity maps in its VPP and distribution plans.

Within Minnesota, Xcel filed a proposal last year with the MPUC to build the Midwest’s largest BESS, the 600MW Sherco Energy Hub in central Minnesota. In March, the utility said it would install 30GWh of US startup Form Energy’s iron-air batteries for a data centre in Pine Island belonging to tech giant Google. Xcel claimed the project’s electric service agreement (ESA) will provide a significant economic boost to the state. The utility contends that the expansion will drive the development of new clean energy assets and support state environmental goals while ensuring existing customers share in the benefits.

Additional reporting by Andy Colthorpe.