Community-Shared Solar Requires Better Software and Contracts

Solar panel installationCommunity-shared solar is a growing industry in the United States that offers homeowners a solar alternative to rooftop solar. Experts from financial institutions, development companies, and electric cooperatives converged at Solar Power International (SPI) in Las Vegas on Sept. 10-13 to discuss the recent growth and future prospects of community-shared solar.

What Is Community-Shared Solar and Why Is It Attractive?

Many households that are interested in purchasing solar power lack the means to do so via rooftop solar. A few reasons include roofs that are inadequate or old, lack of capital or scale, and location of the homes.

Community-shared solar provides all the benefits of photovoltaic panels without requiring customers to own and maintain them. They can simply subscribe to a portion of the output from a large array located elsewhere in their service territory.

An average United States household with 500-600 kWh of consumption per month can cover the majority of its energy needs with a 5-kW subscription, which is about 15 panels. A 1-MW array could service 200 households.

Different providers have experimented with different financial structures, especially when it comes to the timing and terms of payments. What community-shared-solar models all have in common is that a retail customer can leverage a portion of output from a larger array that generally cannot exceed the customer’s expected consumption.

Some proponents of community-shared solar have suggested that the model stands to benefit low-to-moderate-income (LMI) customers the most. To this end, the Interstate Renewable Energy Council has issued a policy guide which is intended to help utilities, policymakers and regulators embed LMI considerations into their program design.

What Do the Numbers Show?

Compared to rooftop solar and utility-scale solar, community-shared solar is a relatively nascent product offering. According to a consumer survey sponsored by Solar Electric Power Association (SEPA), 14 states and the District of Columbia have passed laws that address shared renewable energy and enable community-shared solar. 28 states have operating community-shared solar projects.

One of the first community-shared solar arrays was launched in 2012 by Xcel Energy in Colorado. Subscriptions for the 13.5-MW array sold out in under half an hour. Since then, the growth of the community-solar market demonstrates interest has only accelerated.

GTM Research predicts that the number of installs will increase over the next five years as utilities move beyond pilots towards larger projects.

At an SPI panel on community-shared solar titled “The Hows & Whys for Utilities,” a representative of the Coalition for Community Solar Access (CCSA) estimated the state community-shared-solar capacities of Massachusetts and New York will each reach over 250 MW by the end of 2018. They currently feature 60 MW and minimal installed capacity respectively. In New York, community-shared-solar subscribers are able to sell credits from the environmental attributes.

What Are the Challenges?

Customer Acquisition Is Not Easy

It’s not as easy as it sounds to merely earmark a portion of solar production for each subscriber.

Multiple community-solar-program managers cite customer acquisition and management as the most challenging obstacle facing the community-solar industry.

Nexamp, a solar developer based in Boston, estimates that customer acquisition costs the solar company between $800 and $1,200 per 10 kW of installed capacity.

“We own about 50 MW and our pipeline for 2018 is 150 MW,” said Nexamp’s CEO, Zaid Ashai.

Why is the customer acquisition process so costly? Customers reap the benefits of community solar through utility-bill credits applied to their monthly electricity bills. But the system of transferring production information from developer to utility is often an archaic process involving Excel-based exports and customer-by-customer bill-credit calculations.

There is a significant opportunity to improve the process by which data is transferred from the commercial solar developer and local utility company.

Investors Are Still Getting Their Feet Wet

A second challenge is that lenders feel skittish about risks they aren’t familiar with. In this case, investors are accustomed to solar projects where there is proof of an off-taker. In community-solar structures, there are many off-takers. To make matters worse, they might be unidentified at the time that the project is developed.

One workaround has been to identify an anchor tenant who will agree to purchase 51 percent of the power produced from the project – more than half of it. In Nexamp’s case, this anchor tenant may be a private or municipal entity, but will be creditworthy and have a sufficiently large demand to justify the commitment.

As projects grow larger, the anchor tenant may matter less from the investor’s perspective. This model seems to work for 1-2 MW projects, but what about when the project is 10 MW?

Ashai said he is optimistic. “You can easily replace customers [and] you can update that list continuously […] The challenge is getting lenders comfortable with [the community solar structure].”

The implication here is that the liquidity of community-solar subscriptions makes solar projects destined for community solar attractive projects for lenders.

What Are State Leaders Doing?

Major drivers include state-level policies that encourage utilities to develop their own community-solar programs and scale them up to meet renewable energy targets.

During a panel discussion at SPI titled “Community Solar: Finance, Market & Tax Issues,” Jaime Carlson, executive vice president at Cypress Creek Renewables, said that the market is ripe for new software products that will trim customer acquisition costs by streamlining data transfer between the developer, utility and consumer on a monthly basis. State leaders could incentivize vendors to offer products that address current inefficiencies.

Industry professionals should watch the evolution of standardized contract clauses that reduce legal fees and help lenders feel more comfortable with using anchor tenants to close deals on projects larger than a few MW. In Minnesota, contract standardization has led the state to become the largest market for community solar.

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