Solar Energy Toolkit: Community Solar
While many members of a community may be interested in sourcing their energy from solar power, they may not be able to install a residential system on their homes. Limitations might include renting a unit in a multi-unit tenant building, or a home could have a roof unsuitable for solar due to wear and tear or extreme shading. Community solar is a tool used by local jurisdictions to expand access for homeowners and renters who could not otherwise enjoy the benefits of solar energy.
This section of Solar Energy: SolSmart’s Toolkit for Local Governments provides an overview of community solar and explores three community solar ownership models. It goes on to discuss some of the challenges that may arise when developing a community solar project, and finally presents case studies of jurisdictions across the country that have developed successful community solar projects.
In some states, subscribers can receive a return on their investments through Renewable Energy Certificates (RECs) or Solar Renewable Energy Certificates (SRECs). These certificates are tradable commodities that provide monetary value to a solar consumer. (For more information, see the Federal and State Context: Policies Affecting Solar Energy Development section of this toolkit.)
Virtual Net Metering Explained
Because community solar usually is not generated on-site by the household or business (the subscriber), it would be difficult and inefficient to send the electricity directly back to the property. Virtual net metering allows subscribers to receive utility bill credits equal to the amount of electricity produced by their shares of the project. The project sponsor provides its subscriber information to the partnering utility, so the utility can distribute the bill credits to the subscribers once the solar array starts producing electricity. (In some cases, the utility itself is the project sponsor.)
For example, a renter or homeowner might subscribe to a community solar project in which their share produces 600 kWh of energy in one month. On the next utility bill, they would receive a credit for the 600 kWh of electricity produced by their panels. If their total consumption was 800 kWh, they would only need to pay for the remaining 200 kWh of electricity.
Models for Community Solar
There are several ways to structure a community solar program. A community solar program can be structured as utility-owned, special-purpose entity, or developer-owned. Each of these models is structured to achieve a specific goal, but common to all of these models are three key actors: the host, the sponsor, and the subscribers.
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- The host is the owner of the site where the community solar project will be located.
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- The sponsor manages the project subscribers and their relationship with the utility. (The sponsor may be the utility itself. Alternatively, the sponsor can be a nonprofit or a developer.) The sponsor and the host can be the same.
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- The subscribers are the individual entities, such as residents, businesses, nonprofits, or local governments, who purchase a share of the electricity generated by the community solar project.
UTILITY-OWNED MODEL
Under the utility ownership model, the local utility owns the solar array, then sells or leases panels to subscribers. The subscribers can buy a share of a community solar project. Every month, the subscribers receive bill credits equal to the amount of electricity produced by their share of the panels. Effectively, the subscribers “own” a portion of the solar panels used in the project. The utility ownership model is similar to purchasing or leasing individual solar systems, but without having to install the panels on one’s own property. Figure 1 presents the steps to setting up a community solar system through the utility ownership model.
Figure 2: Utility-Owned Community Solar Model[2]
(1) A utility or third-party organization (sponsor) first selects a site to build a community solar project. The sponsor begins pre-selling units to the customers within a utility’s service region. The cost of the panels covers all necessary building, equipment, maintenance, operations, and soft costs of the solar array.
(2) Once enough units are pre-sold, the lender provides financing, and project development begins on the land owned by the host. If the land is leased from the host, they are paid a monthly fee while the sponsor maintains and operates the project.
(3) Once electricity begins feeding into the grid, the sponsor distributes virtual net metering credits to the subscribers.
SPECIAL PURPOSE ENTITY (SPE) MODEL
Community solar can also be structured through a Special Purpose Entity (SPE) model. Instead of working with a third-party sponsor to build the solar array, individuals collaborate to set up a limited liability company (LLC). The LLC is the sponsor and its members are subscribers, receiving the bill credits from the partnered utility. The LLC is responsible for making lease payments to the site host, maintaining the relationship with the utility, and operating the solar array. LLCs formed for community solar projects must carefully review their investment structures to avoid triggering Security and Exchance Commission (SEC) regulations, which may result in costly and time-intensive operations.
Figure 2: The SPE Model: Setting up a Community Solar Project[3]
DEVELOPER-OWNED MODEL
In the developer-owned model, the solar developer builds, owns, and maintains the project. The developer locates the host site and leases it over the agreement term. Subscribers can participate through a lease or power purchase agreement (PPA). For the lease, subscribers make a monthly lease payment to the sponsor for the electricity. For the PPA, the sponsor sells the electricity to the subscribers at a set rate each month. In both cases, the subscribers provide the electricity to the grid, receiving a credit on their utility bills for doing so.
Figure 3: The Developer-Owned Community Solar Model[4]
Implementation Tips
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- Survey the sectors of the community that would have the most interest in participating in a project to gauge interest, willingness to pay, and expectation of benefits.
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- Make sure that the utility is engaged from the start, because it’s a primary participant in the project. Municipal utilities often have greater flexibility to pursue unique projects. Determine whether the utility or a third party will own and maintain the system.
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- Determine what financial incentives are available (or could be made available) to participants in the program.
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- Decide whether the project will simply be located where physical conditions are optimal (including solar resources and grid connections) or if visibility and public awareness are also a factor in siting the system.
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- Conduct a legal review. Some community solar projects may be subject to federal securities laws if subscriptions are classified as a security by the SEC.
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- Ensure consumer protection. Provide information to make consumers aware of scams and unfair contract structures.
Challenges to Consider for Community Solar Projects
There are several challenges that communities should anticipate in designing and implementing a successful community solar project, as outlined below.
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- Know state laws. State law may or may not allow virtual net metering and other policies that enable community solar.
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- Manage expectations about who benefits from incentives such as SRECs and any applicable tax credits.
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- Consider the legal implications of the project’s ownership structure. Depending on how the project is structured, it may be difficult to assess who is eligible for tax credits.
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- Address subscriber financing. Some sponsors may have contracted financers for their subscribers, but others may require potential subscribers to find financing on their own. If subscribers aren’t successful, they may be unwilling or unable to pay cash.
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- There may be difficulties coordinating virtual net metering between the project sponsors and the utility. The sponsors should work closely with the utility to resolve any possible issues.
Case Studies
The following are four examples of municipalities that have launched successful community solar programs.
SACRAMENTO, CALIFORNIA
Municipality-owned utility launches a developer-owned community solar project
Launched in 2008, the SolarShares program in Sacramento, California (SolSmart Gold) allows customers of the Sacramento Municipal Utility District (SMUD) to purchase renewable energy generated by a 1 MW PV installation in Sacramento County. SMUD does not own this installation, but leases the host site to the sponsor, enXco. SMUD then purchases the electricity from enXco under 20-year PPAs and sells it to SolarShare customers at a fixed monthly fee based on customer usage and subscription size. The price of the electricity for program subscribers is offered at a lower cost than the PPA price due to the California Solar Initiative, which is a state mandate requiring all California utilities to offer a 10-year program of declining incentives for customer-sited PV.[5] The electricity generated by the SolarShares array is provided as a credit on the monthly SMUD subscriber electricity bill. The entire 1 MW PV installation was fully subscribed within the first six months of operation.
COLBY, KANSAS
Investor-owned utility launches a utility-owned community solar project
In February 2015, Midwest Energy and the Clean Energy Collective (CEC) completed the first community solar array offered by a utility in Kansas. The total project capacity of 1.2 MW and 3,960 panels were available for purchase. Midwest Energy and CEC provided rebates that resulted in a final price of $891 per panel, approximately $2.92/Watt of capacity. This upfront cost covers all maintenance and insurance needed over the project lifetime. The bill credits are transferrable if a subscriber moves within the Midwest Energy service regions. Solar panel ownership may also be sold to another party. As of March 2016, all panels in the array had been sold, and CEC is managing a waitlist for resold panels.[6]
GRAND JUNCTION, COLORADO
A community solar project for low-income subscribers
In 2015, the Colorado Energy Office awarded $1.2 million in grant funding to the nonprofit GRID Alternatives. The grant helps fund 12 new community solar systems through the state to serve at least 300 low-income families. To date, seven utility partners have been confirmed and six community solar projects have been built.[7] Each community solar project is utility-owned and will offer solar credits to low-income subscribers. Subscribers are connected to each system for a set period of time and must reapply at the end of the term. The projects are estimated to offset at least 50% of each subscribing household’s electricity costs over a four-year term.[8]
One of these projects is the Grand Valley Power Solar Garden, a partnership between GRID Alternatives and Grand Valley Power to serve eight households in Grand Junction, Colorado. Grand Valley Power provided the site and utility infrastructure, while GRID Alternatives provided the installation model and leveraged their partnerships and sponsors to attract equipment donations and volunteer work. In addition, each of the participating low-income households contributed at least 16 hours in sweat equity during development to eliminate upfront and monthly costs for the subscription, though there is a small $0.02/kWh fee assessed to cover maintenance fees.[9]
