The following is a contributed article by Mike Gordon, founder and chief strategy officer at Joule Assets.
The federal government has proven adept at creating lofty energy goals, well-intentioned to move toward a greener future, but the initial vision does not provide the blueprint to make those targets a reality. This is particularly true when federal ambition rests on state action.
One recent example is the U.S. Department of Energy's (DOE) announcement of a new National Community Solar Partnership target that would enable community solar programs to power five million households by 2025 and create $1 billion in energy bill savings.
That's a great idea, but community solar programs, which provide guaranteed savings to all residents, would need to surge by more than 700% over the next four years to hit these goals. Community solar doesn't currently have the supporting structure to pull off those scaling efforts, but state-level governments can help with that more than the federal government.
What's in the federal government's purview is to help catalyze programs like community distributed generation (CDG), which allows for the benefits of municipal projects to be shared by subscribers, and community choice aggregation (CCA), which allows the collective buying ability of a municipality to procure power — executed at the local level. According to the National Renewable Energy Laboratory, CCAs are the most participatory mechanism of green power purchase in the United States.
Individual states will ultimately drive success with respect to higher adoption of community solar. Here are three ways state and local governments can help the DOE and other engaged federal agencies hit these targets.
Implement opt-out programs
There are two approaches to community solar: opt-in, which means that residents have to take action to join a program and are often subject to credit checks in order to do so, and opt-out, where residents are automatically enrolled through their municipality, regardless of creditworthiness.
Adoption for opt-out programs is approximately 90% in New York, the only state that has allowed opt-out community solar to be facilitated through CCA programs. In contrast, traditional opt-in programs only realize 2-3% adoption. New York pioneered this construct with a ruling in 2020 and launched the first opt-out community choice solar program in the U.S. in September. This approach reduces developers' sales costs and eliminates the need for credit checks on residents.
Opt-out programs enable solar developers to fully subscribe their community solar projects overnight with customers of all income levels. This further sets the stage for climate action at scale by making climate inaction more difficult for consumers than choosing clean energy. Because municipal leaders can prioritize low- to moderate-income (LMI) households to receive solar credits, developers can easily qualify for low-income incentives.
Expanding CCA beyond the 10 states it is currently authorized in, and applying its capabilities to community solar, is the best way to achieve the DOE's goals and there's an enriched way to attack this: municipal authority.
Current federal leadership has articulated ambitious goals to effectively support LMI communities and clearly values municipal authority as a key approach to ensure success. This fits into a bigger picture of meeting Justice40 goals, another governmental effort that directs at least 40% of the benefits from federal investments in climate and clean energy to disadvantaged communities.
Having municipalities lead the charge for their own communities is the only way these efforts can scale to the point where seven-fold growth is attainable over four years.
By authorizing CCA and applying its authority to community solar in the remaining 40 states, municipalities can take on more ownership of how their energy is procured and how they can save on those costs. Utilizing CCA and CDG in tandem, as New York has, is the most sensible way to scale. New York Gov. Kathy Hochul recently expanded the state's NY-Sun program goals, which have already supported 114,000 projects, with nearly 6,000 more in the pipeline. This is a blueprint for the national approach to this challenge.
Beyond unlocking community solar, CCA can be used to deliver other aspects of the energy transition in a socially equitable manner, from energy storage to electrification of our transportation and facility infrastructure to efficiency.
It appears that funding will be available from the federal government for community solar and other distributed clean energy resources in the infrastructure package and the Build Back Better reconciliation bill, if passed. Wisely structuring the rules to access the ensuing grants and tax credit is critical to achieving community solar goals. Smart structures would reward states for making the regulatory change required to empower LMI consumers while supporting the construction of a smarter, greener, and more robust grid.
Federally funded low-income adders for community solar and storage that dedicate at least 51% of their credit supply to low-income consumers and further reward projects that dedicate significantly more than that would help scale the programs and divert the majority of solar benefits to those who need it most. These programs will be most powerful if they reach beyond those consumers who currently get federal subsidies.
Additionally, federal financing that provides transmission and distribution owners with the capital for necessary enhanced solar and storage installations to improve the grid will ensure the goals are met in a timely manner. Qualification for one set of incentives, such as grants, should streamline the process for qualification for another set of incentives, like tax benefits, if the requirements for both are similar.
Without putting forth the resources and rewarding effective blueprints to pull off a monumental scaling effort of community solar, the DOE's new targets will not be met. Current market structure doesn't allow for the growth necessary to power five million households in the next four years, but with the right blueprint, these ambitious targets can be realized.