What is it?
Recent years have seen an increase in community solar and shared renewable policies. So far, 14 states and the District of Columbia have enacted such policies with additional utilities pursuing them on their own. At their core, community solar programs seek to expand access to solar by allowing multiple customers to share in one plant and enjoy its financial benefits.
At its best, the model allows companies or individuals who might not otherwise have been able to access the technology either because they lack capital, do not own their property, or have an unsuitable roof to have access.
Although state legislation has begun to encourage adoption of this model over the past decade, through 2016, only around 102MW of community solar had been developed nationwide. In other words, the megawatt deployment to date has not lived up to the hype. Effective program design is key.
Looking at the Policies
When looking at community solar programs, it is key to consider who owns/operates the program, caps on project sizes, whether commercial subscribers are allowed or if residential subscribers are mandated, overarching state caps on aggregate capacity or net metering eligibility, bill crediting and unsubscribed electricity rates, and the low-income subscriber requirement. Each of these factors affects how much community solar is deployed and what the profile of the subscriber is.
To help navigate these programs, the Interstate Renewable Energy Council (IREC) issues a report card based on their shared renewables guiding principles. Let’s take a deep dive into 4 states featured in the report: Massachusetts, California, Minnesota, and Colorado.
Minnesota is home to one of the most successful programs in the nation with 74MW already installed under Minnesota’s Community Solar Garden program and another 325MW expected by year-end. A large contributor to the program’s success has been support from the state’s largest utility, Xcel Energy.
Furthermore, much of Minnesota’s boom in construction can be traced to a “QF in disguise” fundamental. “One of the most salient features of Minnesota’s program has always been its very strong rate for uncontracted output,” notes Colin Murchie, Sol Systems’ Senior Director of Customer Energy Services. “This uniquely high ‘backup rate’ is often adequate to support project financing on its own, with or without subscription.”
Early pioneers in the Minnesota community solar market were also able to take advantage of co-location and widespread corporate participation. Now, however, projects are capped at 1MW and 5 subscribers are required. This means no subscriber may subscribe to more than 40 percent of the garden’s output, meaning an interested corporate entity could not subscribe to more than 400kW at a time. It will be interesting to see if development slows because of this change over the coming years.
IREC gave the state a “B” on its report card.
Massachusetts’ 2009 virtual net metering program is one of the older community programs in the U.S. The program allows for virtual net metering; however, it is subject to the states’ overall net metering cap. This can be problematic, as the net metering cap is constantly hit, creating a disruption in the market. There are no minimum or maximum limits set on number of subscribers, which has historically allowed for larger commercial entities to maximize subscription. Massachusetts also has a separate neighborhood net metering program to cater to residential customers.
Additionally, subscribers in Massachusetts can receive the added benefit of the solar renewable energy credits associated with the production of the facility, which has helped to incentivize the program further. Overall, there are 64MW currently installed with another projected 400MW for the next two years. The new Massachusetts SMART Program – which will lead to the deployment of another 1600MW – also provides additional incentives to community solar projects.
Massachusetts also received a “B” on IREC’s most recent report card.
Also graded a “B,” Colorado’s 2011 bill, like Minnesota’s, exclusively deals with community solar and no other renewables. It boasts a higher volume of active programs, with 28, but its overall installed capacity of 16MW is much less than other stake markets. There are currently another 31MW in the queue to be built.
Colorado’s program is more oriented toward residential subscribers rather than the large commercial offtake. A minimum requirement of 10 subscribers is needed per facility with no subscriber having more than a 40 percent share, and larger projects require even more subscribers. According to HB 15-1284, systems larger than 500kW must have at least 25 subscribers. Colorado’s program has also aimed to focus more on low-income subscribers, with an annual 4MW allocation to low-income solar. Colorado’s growth, like Minnesota’s, has been a beneficiary of program structured instituted from Xcel Energy.
For a refresher on how a tax equity investor may view the Minnesota and Colorado community solar programs, here’s a refresher from a previous issue of SOURCE.
Ranked number one for overall installed solar capacity nationwide, one would expect California to be leading in community solar. However, the Golden State has yet to master the community solar model. California has several community solar programs, including virtual net metering and enhanced community renewables programs aimed at low-income subscribers. Despite the variety, California fell behind the class in IREC’s most recent report card, earning a “C” and “D-“ for its virtual net metering program and enhanced community renewables program respectively. And while California has committed to 600MW of community solar in the coming years, few developers are showing up to the table.
In practice, California’s community solar program only exists from a utility perspective. Solar developers only see an RFP to the utility for bulk supply. While likely yielding ultra-low-cost energy, this mechanism will tend to limit experimentation and development in other ways – for instance, in developers’ exploring different ownership arrangements, direct customer relationships, or differentiators that might reduce the margin compression associated with typical “race to the bottom” utility RFPs. This, coupled with unstable crediting, low rates for unsubscribed generation, and residential carve-outs, has stifled reaching full potential growth.
Newer Programs on the Rise
Clearly, there are large amounts of untapped potential with community solar development, and 2016 saw the largest number to date of community solar bills passed. According to a March 2016 report by Navigant, community solar programs across the country could total 1.5GW by 2020. But, will these programs actually yield results? We sat down with Sol’s Director of Policy & New Markets Sara Rafalson to discuss.
At Sol Systems, we are most optimistic about Illinois, whose community solar program will go into effect in the summer of 2018. The program sets a 2MW cap on projects and doesn’t allow for a greater than 40 percent share of the project, which, if not further carved up, could lead to corporate participation and massive megawatt deployment. If the program rules are implemented correctly, Illinois will be well on its way to procure the 400MW by 2030 as required in the Future Energy Jobs Act, which was signed by Governor Rauner in 2016.
While Illinois is poised to take off, other markets have been slower to mature. For example, given a shortage of real estate in the District and early mishaps in bill credit rates, despite its “A” grade, D.C.’s community solar program has yielded limited results. The implementation of the Maryland community solar legislation (which IREC marked with an “A-“), which is now finally open, took far longer than anticipated. However, despite widespread fragmentation by utility territory and project size, this program may yield limited results outside of the 2MW “open” category.
Passed in 2015, New York has also implemented a program for community distributed generation. However, despite a great deal of fanfare and a “B+” from IREC, there are currently only six community solar facilities in the state, as these projects have fallen victim to the same interconnection queue processing and poor incentive level calculation that have held up general development in that state.
Oregon passed community solar in 2016 and is still working through implementation. Bill credit rates, low-income requirements, and rules requiring subscribers to be located in the same utility territory of the project (which would limit participation of Portland General Electric customers) have been controversial. Projects can be up to 3MW, and program rules are required by statute to be released on July 1st.
Virginia also passed “community solar” legislation – but not in the traditional sense. This legislation will allow solar developers to engage in PPAs or asset purchase agreements with the Dominion and Appalachian Power Company up to 2MW at a time. The utilities will handle the subscriber relationship.
Overall, community solar is on the rise. However, the devil is in the details, and the actuality of deployment remains limited to a handful of “classic” states to date. With adequate program design and proper implementation – as well as accounting for best practices for deployment in other states – community solar will live up to the buzz.
This is an excerpt from the June 2017 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar financing space. To view the full Journal, please subscribe or e-mail firstname.lastname@example.org.
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