Why community solar is becoming big business

community solar goes corporate
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Is community solar going corporate?

What is community solar?

At the most basic level, the term refers to a renewably powered energy system that benefits multiple members of a community — a middle ground between individual rooftop installations and utility-scale solar arrays.

But who owns the panels, who can claim the financial or environmental benefits of the project, and how big and how far away from the end user can a solar installation be to retain status as a "community" asset?

"It means a lot of different things to different people," said Amit Ronen, a professor of public policy at George Washington University and director of the GW Solar Institute. "It boils down a lot of times to this fight between utility-scale solar and distributed solar."

Solar installations at any scale hold promise to reduce reliance on fossil fuels, cut carbon emissions, lower long-term electricity costs and add resilience to power systems by diversifying generation sources. Still, how far community solar developments deviate from the centralized grid model that has dominated the U.S. market for the last century is extremely important to energy developers, utilities and ratepayers.

While the definition of "community" is far from set in stone when it comes to the solar, eye-popping indicators of the potential for growth in the market are piling up.

The National Renewable Energy Laboratory projects that households and businesses that are unable to host a solar installation could represent an $8 billion to $16 billion market by 2020. The Obama administration already has marshaled $520 million to expand access to renewable energy, including community solar installations.

Policy imperatives such as the Clean Power Plan and extension of the solar Investment Tax Credit (ITC), plus extreme volatility in the price of fossil fuels, are also pushing state policymakers and energy companies to get more specific about how they plan to keep the lights on with climate change looming larger than ever. 

For environmental justice advocates, community-owned renewable energy is often framed as a prime opportunity for low-income and minority residents to build resilience to climate change — with the added benefit of flipping the script on energy monopolies that long have contributed to disproportionate public health and financial burdens.

"Where are the opportunities to really strongly marry economic equity and clean energy?" said Michelle Moore, a former White House environmental adviser and chief executive officer of clean energy nonprofit Groundswell. "You can’t just wait for energy to trickle down."

If you ask an energy executive, though, community solar also might be a way for incumbent players — in particular utilities facing the decline of coal — to update their business models, offering consumers who can't put solar on their own roofs for financial or logistical reasons a chance to buy into mid-sized regional projects owned by their current power provider or an outside investment group.

"What we think is going to happen here in the coming years is, whether through utility initiatives or whether through regulatory initiatives, these solar programs will grow," Eran Mahrer, senior director utilities for renewable energy developer First Solar, told GreenBiz. "We’re capable of bringing some great efficiency to these programs."

A matter of scale

February already has ushered in two new examples of increased interest in community solar — albeit interest from very different corners of the energy world.

When it comes to efforts with an explicit social bent, Groundswell has partnered with the clean energy financiers at Sustainable Capital Advisors to reevaluate community solar financing models that often hinge on the high credit scores of individual applicants. Placing the emphasis on on other economic indicators, such as utility bill payment history, or experimenting with pooled solar purchases are two potential alternatives.

"You can really expand the universe of participants," said Sustainable Capital Advisors Managing Director Trenton Allen.

Also this month: Community solar got its first lobbying group, in the form of "a business-led trade organization" called the Coalition for Community Solar Access, or CCSA. Founding members range in size and market function, including First Solar, Canadian Solar subsidiary Recurrent Energy, retail renewable energy supplier Ethical Electric and solar developer Ecoplexus.

"As a burgeoning sector of the clean energy industry, there are more and more players getting involved," said CCSA Executive Director Jeff Cramer. "There was a need for a unique voice for the community solar industry."

Community solar also isn't new, though specific models do range in scope and target service markets.

A 2010 Department of Energy report (PDF) outlines three broad categories: a utility-sponsored model, where a utility owns or operates a project open to ratepayers; a Special Purpose Entity (SPE) model, when individual investors create a business to develop a community solar project; or a nonprofit "Buy a Brick" model, where donors contribute to a community installation.

A Department of Energy breakdown of various community solar ownership models.

Billing also differs depending on community solar project ownership and management structure.

States such as Vermont have tested group billing, where a utility subtracts combined solar output from participants' cumulative energy bill. Massachusetts, California and Maine, meanwhile, have gravitated toward virtual net metering, where renewable energy credits offset the load of retail electric accounts within a utility’s service territory.

"What actually is the relationship with the customer?" said Ronen of the GW Solar Institute. "Is a person actually buying five panels, or is it all about demand response? What is the goal?"

For utilities, he sees a potential opening to integrate more renewable power into the mix, helping them work toward state renewable energy portfolio standards. The issue is also timely and controversial, given the fights over solar rate hikes happening in places like Nevada.

"They see it maybe as a more comfortable space to be engaged in solar at the distribution level. They can own these assets themselves, still supply their customers and leverage the relationship that they have with them," he said. "When you start getting to models where it’s behind the meter, that’s where it gets a lot messier."

Meanwhile, as a nonprofit, Groundswell is intrigued by the potential for 1-2 megawatt projects deployed at centralized community locations, such as a church or another faith-based institution, Moore said. She also sees promise in vacant lots, underused industrial space and in rural markets dominated by power co-ops, such as the Southeastern U.S.

“We envision this being an investable model," she said. "Groundswell is working in the interest in the community to go out and create these projects, but these are market opportunities as well."

First Solar, meanwhile, through an investment and supplier deal with residential solar fixer Clean Energy Collective, so far has gravitated toward ways to work with utilities to give more customers access to bigger solar projects. Mahrer said the company is watching research on consumer sentiment closely to determine appropriate scale for community solar projects.

Although "not necessarily by going to the desert or wherever that mega-scale project might be," he said, "we can achieve a little bit better economies of scale" with projects closer to 10-20 MW.

Grid economics

As with almost all things energy, participating in community solar isn't as simple as plugging in and powering up.

In the commercial solar market, corporations such as Apple, Google, Facebook and Walmart are quickly pioneering convoluted arrangements such as Virtual Power Purchase Agreements (VPPAs), where clean power isn't consumed on-site but still added to the grid elsewhere (a concept referred to as "additionality").

As community solar models continue to evolve, the question is how direct or indirect power arrangements might be. Will consumers prefer 1 MW installations one mile away or 20 MW that are 20 miles away?

“The larger problem with distributed solar generally and community solar in particular is that we have 100 years of laws and regulations that are geared toward a very different business model — a centralized grid model where power is wheeled over long distances and people buy it as they use it," Ronen said. "Pretty much every place needs to have some enabling legislation in order for the community solar model to go forward."

In addition to broader clean energy policy fights around virtual net metering and retail power, questions specific to community solar remain to be answered around who can take advantage of tax incentives, how accelerated depreciation would count toward net metering and how such offerings might veer into the Securities and Exchange Commission's regulatory purview.

There's also the matter of how to pay for community solar. Aside from large up-front investments by utilities, energy developers or new local funding schemes, a slew of big banks and philanthropists have made 10-figure clean energy investment commitments in recent months.

"I know banks," said Allen, himself a veteran of Citi Group. "The commitments are lofty, but they need nitty-gritty details. They want to provide those on-the-ground opportunities."

While Allen works to hone new financial models, Mahrer added that the overall opening for community solar is big enough for experimentation.

"All of us are still kind of learning what works," Mahrer said. "At the end of the day, community solar nationwide is still measured in the very low triple digit megawatts."