|Thinking about Community Solar? Three key questions to ask|
This article is from the April 2016 issue of Strategies, AESP’s exclusive magazine for members. To receive Strategies, please consider joining AESP.
A community solar project -- the Duck River Electric Membership Corporation in Shelbyville, TN.
By Dan Chwastyk
Utilities across the country are embracing the concept of community solar for its numerous potential benefits, ranging from improved customer relations to control over siting decisions to maximize grid efficiency. It also opens up solar ownership to a vast underserved market of customers with roof or financial conditions not conducive to rooftop solar.
A grant from the Department of Energy’s SunShot Initiative has allowed the Smart Electric Power Alliance (SEPA) -- formerly the Solar Electric Power Association – to spend the past one and a half years tracking and evaluating community solar programs across the United States. At present, we are following 200 active and planned programs in 30 states. Our original goal was to define a few core program designs that would be easy to replicate, allowing utilities to implement and deploy successful community solar projects. But we quickly learned that, when it comes to community solar, no one solution can fit all the different utility market conditions and customers out there.
What is Community Solar?
The first question we had to answer was -- what is community solar? Also called “shared solar” or “solar gardens” or “roofless solar,” the term can have different definitions depending on who is asked and who is answering. SEPA defines community solar on a transactional basis, using the following key components:
1. A group of customers purchase the electric output from a solar array.
2. The program administrator sells the electricity to the utility.
3. The utility credits participating customers for their share of the output.
If the utility is the program administrator -- the case in two-thirds of current programs -- the second point is moot.
Taking this transactional view also acknowledges that the most important design elements of any community solar program are what the customers pay and what benefits they receive. Of the 86 active community solar programs SEPA is tracking, many are unique when defined solely by their transactions, and most are unique when defined by other design elements, such as where they are sited, their contract length, or how they handle renewable energy credits.
Such diversity in designs may not be ideal for easy replicability. But it makes perfect sense when you consider that each program exists in its own unique, localized market, with different prevailing rate structures, different solar policies and different customer demographics, among other aspects.
Instead, SEPA has formulated a series of design questions, which utilities and others pursuing a community solar program should consider early in their design process – as outlined in our recent report, “Community Solar Program Designs.” How utilities or third-party community solar developers answer these questions may have significant implications for determining the optimal program design in any given market.
What are your customers’ motivations?
In a recent survey of more than 2,000 potential community solar customers across the country, the Shelton Group found that for many, 47 percent of the sample, saving money was the primary motivating factor for participating in a community solar program. On the other hand, another 30 percent of the customers surveyed said the positive environmental benefits of participation was their primary motivator.
Understanding your customers and their motivations can affect program design elements such as size, pricing, and ownership of renewable energy certificates (RECs). For example, programs targeting customers who primarily are interested in financial benefits may be able to build larger projects, but will likely need to set pricing at a locked-in, per kilowatt-hour (kWh) rate so as to not preclude customers who cannot afford a large upfront payment. Initially, this rate may be at a premium -- that is, a few cents above retail. These programs might also be able to justify selling the RECs – as opposed to transferring them to the project participants -- in order to bring down project cost per kilowatt hour.
Programs with customers who are primarily interested in the environment benefits may need to be smaller, but could potentially be structured with a single upfront cost and would certainly need to allow customers to receive the RECs.
Photo from GRID Alternatives’ "solarthon" to build a community solar project for low-income customers of Grand Valley Power, a co-op in Grand Junction, Colorado. The co-op members who volunteered at the event got to sign the panels that they would be getting their power from.
SMUD’s SolarShares, a one-megawatt (MW) program launched in 2008, is an example of a successful community solar program designed for customers concerned with environmental impacts. The original price for participation was a rate set at premium of around 4 to 5 cents per kWh over retail. The price was locked in for the life of the program, so if retail rates rose, the premium would decline and potentially disappear. In other words, the program was never expected to save customers money, nor was it marketed to customers as such.
Yet SolarShares is a success story. The program has been heavily subscribed since it started, and SMUD surveys have shown a program satisfaction rate well above 80 percent. Still, SMUD is currently exploring options for expanding its community solar program by 70 MW and has plans to ensure this new phase of the program provides customers a financial benefit.
What are your organization’s motivations?
Organizations may decide to pursue a community solar program for many reasons. SEPA often hears our utility members speak in terms of both reactive and proactive motivations. On the reactive side, a prime motivation might be “responding to ratepayers’ interest in more solar ownership opportunities,” while proactive reasons might include “implementing community solar as part of a broader distributed generation strategy” or “improving customer relationships.”
Reactive-based programs may go with smaller projects, particularly if customers are willing to commit to longer-term contracts. Proactive programs might be conceived on a larger scale; but participation costs would need to set at a very accessible rate, and customers allowed greater flexibility in contract length and terms.
Consumers Energy in Michigan has a new, three-MW community solar program – about to go online -- which has received strong support from the Michigan Public Service Commission and environmental groups. Partly because of the larger size and the desire to ensure that all in the utility’s service territory can participate, Consumers Energy designed the program with incredible flexibility. Participants can purchase a subscription with a single upfront payment, or they can finance the payment over three, seven or even 25 years.
Participants can also decide whether they want the RECs associated with their subscription to be retired on their behalf – in which case they receive no extra financial benefit -- or they can allow Consumers Energy to sell the certificates and provide them with a bill credit equal to their value. This high level of personalization has allowed Consumers Energy to offer the program to a broad range of customers. With the project set to go online in early April, it already has a 54-percent subscription rate.
What is your current level of understanding of solar electricity?
Utilities have differing experiences and levels of expertise with solar generation. Those already experienced with utility-scale solar or high levels of distributed rooftop solar might be able to manage large community solar programs.
At the other end of the spectrum, many utilities still have no experience with solar generation, and its intermittency and uncontrollability can be significant challenges for them. For these organizations, small community solar programs can provide a low-cost, low-risk path to education on solar generation. These utilities can also gain a lot of value from partnering with a third-party organization to help with program management. Some third parties may even provide such services through a short-term contract, during which they will educate utility personnel on how to administer a program.
United Power, an electric cooperative in Colorado, has been a pioneer in community solar. When the co-op launched its Sol Partners program in 2009, only a handful of other community solar programs existed, and solar installations cost upwards of $10 per Watt. A major reason United Power initiated its program was so that its employees could learn firsthand about solar generation and help educate the co-op’s members.
The program started small with a 10-kilowatt installation, but the experience gained has allowed United Power to expand its renewable portfolio to include utility-scale solar. On the member education side, field trips to the Sol Partners array have now become a common part of local schools’ science curricula.
The success of programs such as Sol Partners has helped build momentum and growing support for community solar among utilities, customers and solar organizations. Today, the development pipeline of planned projects is extensive. Business models for these programs will continue to evolve over the next few years, but by starting out with the right basic questions, organizations are more likely to ensure that their projects and community solar growth will unfold in smart ways.
Dan Chwastyk is a utility strategy manager at SEPA. On April 11, the organization will change its name to Smart Electric Power Alliance.
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