There is a reason everybody loves community solar but not many are building it.
While 15 states and the District of Columbia have policies to support community solar, each policy is structured differently and many, when put into practice, have not driven growth. As a result, only five states have active markets. To rectify this, experienced developers in the Coalition for Community Solar Access (CCSA) put together a report that aims to help policymakers design community solar programs.
Despite the shortcomings of existing policies, the sector has grown from a few projects before 2010 to more than 111 projects representing an estimated 314 MW across at least 26 states according to the CCSA. By 2020, GTM reports the sector could have an installed capacity of over 1.8 GW.
The policy matrix offers a “a guide to policymakers and stakeholders to navigate the details and produce a successful community solar program,” said Jeff Cramer, executive director of CCSA. The matrix divides community solar policy into five basic categories: program structure, compensation, consumer participation, project characteristics, and low-to-moderate income (LMI) considerations.
As a rule, state policymakers, utility planners, and local stakeholders have shown great enthusiasm for community solar, said Tom Hunt, policy director for the Clean Energy Collective (CEC), which is also the sector’s leading developer. Community solar’s appeal lies in the ability to market clean energy to a group of customers who otherwise couldn’t afford it or access it.
Delivering solar to those who want it but can’t access it promises an enormous potential market, Hunt said. While not as easy as it appears, there is now “an established route to getting community solar programs up and running.”
“We have done enough of these that we know what needs to be done and what kind of obstacles come up as the projects are being planned and built,” Hunt said. “There is no longer any need to reinvent the wheel.”
There will always be “a local flavor,” Cramer added. “By inputting policy goals and local conditions to each of these questions, policymakers can appropriately tailor their community solar programs to meet state-specific customer, utility, and third-party provider community-specific needs.”
Community solar will “democratize" solar, said Lon Huber, a consultant for Strategen Consulting. Huber has testified in community solar and rooftop solar proceedings in Maryland, Arizona and other states.
“We haven’t seen a lot of community solar because these programs aren’t simple, there are a lot of details, and it takes time to work them out,” Huber added. “The matrix is an interesting way to present the choices.”
How community solar works
Community solar goes by many names including “community shared solar” by the U.S. Department of Energy and “solar gardens.” In many states, any electric utility customer could purchase a share in a large central station solar array. The utility credits the customer’s bill for the excess electricity exported to the grid.
The array can be developed by the utility or by a third party. In either case, the electricity and the bill credit are handled by the utility.
“To be a community solar project, there has to be a direct relationship with at least two customers,” Cramer said. “If the utility simply builds a central station array, adds it to the generation mix, and defers some wholesale procurement, that’s not community solar. That’s utility-scale solar because there’s no relationship with the customer.”
Community solar is a relatively painless solution for houses and businesses unable to host a PV system. A study from the National Renewable Energy Laboratory estimates 49% of households and 48% of businesses are currently unable to host a PV system. “By opening the market to these customers, shared solar could represent 32% to 49% of the distributed PV market in 2020, thereby leading to cumulative PV deployment growth in 2015 to 2020 of 5.5 GW to 11.0 GW, and representing $8.2–$16.3 billion of cumulative investment,” the report read.
According to CCSA data, roughly 85% of residential customers and 50% of commercial customers in some markets do not have access to solar, Cramer said. Despite those numbers, community solar markets are only thriving in five states: Minnesota, Colorado, New York, Massachusetts and Maryland.
Other states house emerging markets, such as Hawaii, Oregon, California, Washington and Connecticut, where stakeholders are working to improve policies. Other programs are not legislatively enabled, while interest is expanding in Illinois, New Jersey, Maine, Nevada and in the Southeast and Midwest. The most recent election cycle signaled a growing desire among customers for direct access to clean energy, Cramer said.
“That sentiment is strong and if 85% of them don’t have access to solar, there is going to be opportunity to keep building community solar.”
The five active markets total 2-3 GW of new potential capacity through 2020, Cramer asserted. However, a lack of design will hurt the robust growth of community solar in more nascent markets.
“The only real risk to scaling community solar are programs that are not well designed or well implemented,” Cramer said. Even if they are designed by well-intentioned policymakers and local stakeholders, they may not work for providers, and ultimately customers. Number one on the list of unworkable policies is failing to provide a direct economic benefit to customers."
The economic competitiveness of solar is key, he added. Especially in the aftermath of the November election, he said, “we are moving toward a world where the only leg solar has to stand on is its value proposition.”
Strengths and weaknesses in the matrix
The CCSA matrix lays out clear recommendations and analysis for stakeholders looking to design community solar programs, Hunt said. While such programs must navigate state politics depending on the intentions of the stakeholders and policymakers, “anyone who answers the questions in these five categories for their particular circumstances will end up with a well-designed program.”
The recommendations in the matrix are what policymakers and stakeholders should consider, whether the program they are designing is to be led by private developers or by utilities, he added. “If you ignore these things, they will pop up later when the programs gets going.”
The first issue the matrix addresses is who should be able to offer the program, Hunt pointed out. The CCSA recommends competition and competitive markets but also recognizes there are roles for utilities and other stakeholders.
“We could have just drafted a big bill and said, ‘here pass this bill,’” Cramer said. But the matrix shows the range of workable possibilities, and what has proven unworkable, and gives each state a useful starting place. It empowers them to develop their own program.
In practice, each state has its own dynamic, he added. Take New York: regulators broadened the program and wound up with 3 GW in their queue, which is forcing them to create an interim program as well as a long-term, one. In Massachusetts, policymakers decreased the retail net energy metering (NEM) credit and initiated planning for a next generation incentive program.
“The most critical pieces of a community solar program design are the credit rate, the project size, and the program size,” Cramer said.
The matrix shows the strengths and weaknesses of a credit rate built on a reverse auction, a retail net metering rate and a resource valuation. Making the right choice between those options is critical, he said. The weakness of a reverse auction, for instance, is that competitive bidding can create uncertainty in the credit rate, leading to uncertainty in the project development cycle.
On the other hand, using net metering could create uncertainty in today’s regulatory atmosphere, he acknowledged. And with resource valuation, there will likely be lack of agreement between parties on how to value it.
When community solar is valued at the wholesale electricity price or through an avoided cost calculation, he added, it’s a clear example of policymakers failing to understand how different it is from utility-scale solar.
But Strategen’s Huber thinks the matrix discounts the reverse auction approach. “In Arizona, we were able to procure over 225 MW of small commercial and industrial projects with it. I think developers can handle it.”
The matrix also fails to include the very successful California Solar Initiative approach of using step-downs in compensation by capacity, Huber added.
“The only other thing that I would push back on is consumer protection," he said. "Consumer protection laws may be inadequate for these complex long-term agreements. We need up-front standardized disclosures like they are planning to use in Maryland.”
In thinking about program structure, Cramer said, policymakers should understand that in a vertically integrated state, the utility is going to play an important role. When it comes to program size and how to open access for clean energy for low-income and moderate-income customers, stakeholders should work together to identify their states' “sweet spots,” he added.
“Every major category is a lever,” Cramer added. “When something changes in one section, it affects others. Raising the credit rate makes project sizes go down. But limiting the size of projects will bring the credit rate down.”
But what is not fully reflected in the matrix is how to handle the rising number of interconnection applications, Hunt said.
Cramer agreed. “There is more work to be done on the ‘project characteristics’ category and on best practices for queue management and interconnection,” he said. “It is the greatest area of stickiness for programs that are already launched, like those in Minnesota and New York. Many of the 15 existing programs have challenges and a lack of certainty in that category.”
A lack of clarity on interconnection costs and procedures increases the developer's cost of capital because it becomes harder for financiers to understand the risks and opportunities in community solar, Cramer said. “That ultimately increases the cost to consumers.”
Identifying weakness makes for a stronger program
An example of a not-so-successful program is Washington state. Its program received lackluster response because it limits project size and locations, Hunt said. “If they had been able to study the ‘project characteristics’ category of the matrix, they might have understood how those characteristics drive the economics that make development possible and designed the program differently.”
Another example is in the turmoil created by Colorado’s controversial bill credits, Hunt said. With the policy matrix, stakeholders might have understood how the credits were structured in a way that unintentionally favored large commercial customers over small business and residential customers.
“If we had understood the things in the ‘compensation’ and ‘consumer participation’ categories of the matrix, we might have avoided the delay in growth while the bill credits were restructured," he said.
Cramer sees the matrix as a resource for regulators as well. “I would tell a regulator that successful community solar legislation should address all the hard questions asked in the five categories,” he said. “And I would add that the legislation should also address concerns of all local stakeholders.”
An example is the New York program. Regulators decided to open the program up and leave net metering in place. The result was a 3 GW queue, Cramer said. “So they turned their attention to the key question of the credit rate and moved from NEM to Resource Valuation. They also limited the program’s size. If the guide had existed, they would have been clear about what they were facing.”
Maryland is a good example of a different approach, he said. “They decided to design a three-year pilot program and limit its size. That allowed them to use the proven tool of NEM, knowing they could not use it forever but that it would get projects off the ground.”
Huber believes cutting down compensation for community solar will hurt the resource in the long run, as seen in California’s program, which favors higher compensation rates for rooftop solar.
“The tariffs make it too expensive. Retail rate NEM is available to rooftop solar customers but they cut community solar compensation to the bone,” he said. “The balance should be tipped more to community solar because it’s available to everybody, not just a small part of the population.”
Cramer agreed. “If the policy goal is to expand access and provide equity in solar offerings, community solar must have an attractive value proposition.”
Next year, up to seven legislative campaigns for new community solar should be in the works, with interest brewing in about other states, Huber and Cramer said. If successful, that illustrates the expanding interest in the market. And as robust community solar programs move forward, the momentum has already started.
“Colorado is moving forward, Massachusetts is growing, there is good progress on the regulatory side in New York and Maryland, and new programs are being designed in other states,” CEC’s Hunt said.
That success has bled over into CEC’s pipeline Hunt said. The developer will build more projects in 2016 than it built from 2010 to 2015, with more installed capacity in 2017 than this year, he said. “There is also new legislation being written and there are new utility programs being developed.”
CEC’s 40 MW active pipeline is now at a scale that will attract lower cost financing for procuring equipment and construction services. “As we add what we are doing in Massachusetts with Colorado and New York, we will get interest from equity investors.”
If successful on the state level, Huber believes it will garner interest from the incoming President Donald Trump’s administration, which is heavily allied with fossil fuel interests.
“If you get the economics right, they will probably see it more favorably than residential,” he said. “It’s really hard to deny the economic proposition of larger scale projects.”