TODAY’S STUDY: All About Community Solar
The Ecology of Community Solar Gardening: A ‘Companion Planting’ Guide
Tom Stanton and Kathryn Kline, August 2016 (National Regulatory Research Institute)
This NRRI research paper provides an overview of community solar (CS) activities around the country. It reports on the rapid expansion of community solar projects under two different rubrics:
1. States that are implementing laws and rules that govern CS, currently underway in 15 states and the District of Columbia;* and,
2. In other states as well those above, individual utility companies are obtaining approvals from their state regulatory authorities, or for non-state-regulated utilities from their governing boards or commissions, for CS programs.
Part I introduces the concept of community solar.
Part II presents a working definition for CS, explains how certain CS program designs can lower costs by avoiding state and federal securities regulations and IRS treatment of customer benefits as taxable income. The definition used for this report is solar electricity generating projects with multiple, unrelated, utility customers who either own or lease a portion of the project and who receive economic benefits based on the amount of electricity generated, most often in the form of volumetric utility bill credits. Part II also briefly compares CS to other utility- and non-utility program options that are at least tangentially related, where interested customers might also act on their preferences for receiving additional percentages or all of their power from solar or other selected energy resources or invest in solar energy.
Part III reviews many important reasons why CS is important, from the standpoint of customers, utilities, the solar industry, and the regulatory community. It includes a brief discussion about why the idea of companion planting can be an apt analogy for community solar. In gardening or agriculture, companion planting means growing two or more different kinds of crops in close proximity to one another to produce mutual benefits such as pest control and suppression, increased productivity, and hedging against various kinds of disruptions. Similarly, this paper begins to explore ideas about how community solar can play an important role in the larger contexts facing the electric utility industry, including the ongoing efforts in many states to either enhance or replace net metering tariffs, ideas about future business models for utilities, and possible beneficial roles for all kinds of market-based solutions and distributed energy resources.
Part IV summarizes state laws and rules about CS programs, presents examples of the major similarities and differences in CS regulations, and compares how the programs address more than a dozen major program design aspects. Part IV reviews legislative and regulatory actions in the 15 states and the District of Columbia, that have already taken action to authorize community solar. A timeline is presented, showing those actions from 2006 to the present, and indicating a couple of states that have already put in place mechanisms to review and make decisions about the status of community solar in the future. State laws and rules are reviewed to identify over a dozen substantive features of the state programs, and provide a sampling of some of the many similarities and differences among the programs.
Categories included in that review include:
• program and project capacity limits; • customer eligibility requirements, along with minimum and maximum limits for customer participation and special provisions for including low- and moderateincome participation; • location requirements for both project siting and for participating customers; • customer disclosures, education, and protection; • participant bill credits; • participant rates and terms; • portability and transfer of participation; • project ownership; • program evaluations; • renewable energy certificate (REC) treatment; • treatment of unsubscribed energy; • utility cost recovery; and. • other provisions.
Part V explores some regulatory considerations and preliminary ideas about approaches that policy makers might consider for CS programs, and presents some brief ideas about future research related to CS.
The regulatory considerations include:
• efforts to regulate CS as a means of simulating the performance of fully competitive markets; • deciding about CS cost allocation and utility cost recovery; • expanding the value of CS; • CS as a gateway to all cost-effective distributed energy resources (DER); and, • Evaluating CS.
The preliminary recommendations for future research include: • Exploring non-utility-regulatory barriers to community solar, to better understand them and identify possible actions that might reduce or remove them; • Reviewing possibilities for standardizing community solar offerings; • Gaining a deeper understanding of how customers might be fully engaged to act as partners in the development of all kinds of distributed energy resources; and, • Identifying strategies for all interested parties to best manage a transition to a utility sector that will deploy many more distributed energy resources.
Lastly, Part VI provides a brief summary of this paper…
The title of this paper includes “companion planting.” That idea represents a particular kind of mutual support, based on a priori knowledge of mechanisms that add value: In gardening, companion planting means growing two or more different kinds of crops in close proximity, to produce mutual benefits. Similarly, CS might contribute towards solutions to several of the pressing challenges facing utilities and regulators today, such as the design of enhancements to or replacements for NEM, future utility business models, and possible roles for market-based solutions and DER. CS provides an important opportunity for early learning about beneficial utility involvement in a way that can produce and deliver important system and societal benefits while both satisfying some of the explicit desires of participating customers and holding harmless non-participating customers. On the other hand, inadequate regulatory oversight could lead to unintended consequences, including the possibilities of monopoly rents, reduced benefits for all concerned, and higher costs for participating customers.
CS programs are spreading rapidly through many states and utility service territories. Already 15 states have passed laws or issued regulatory commission rules or both, which open CS participation to customers of regulated utilities and sometimes set up the option for voluntary programs to be offered by utilities that are not state-regulated. In addition, many utilities in other states have sought regulatory approvals for CS projects, either from state regulatory commissions or for municipal or cooperative utilities from their boards of directors. Although these programs are in the early developmental stages, many of the state laws do appear to be opening up markets that are attracting CS developers: As much as 90% of all CS applications in the near future are predicted for the states with enabling legislation, and nearly 3/4 of the growth is projected for the few states that have the most attractive rules and regulations for developers, including California, Colorado, Massachusetts, and Minnesota. (Honeyman 2015; Trabish 2015b). With all of that growth, this paper is intended to assist state commissions with thinking about the many issues involved with designing and implementing CS programs so that mutual benefits can be achieved.
This paper defined CS as facilities that serve multiple, unrelated customers, who receive benefits that represent their fractional shares of the energy output generated by a particular CS generator, most often in the form of volumetric utility bill credits, and that the CS generator is located remotely, off-site, from all, or at least most, of the participating customers. Definitions from other organizations explicitly stress having benefits distributed to participating customers as credits on utility bills (IREC 2012, pp. 3, 5) and emphasize that participating customers will be those who favor solar energy but otherwise cannot take advantage of on-site solar or net metering (US-DOE 2016). CS programs can be designed in many different ways, but careful attention to design details can enable CS projects to avoid: (a) having offerings treated as securities by federal, state, or local securities regulators, and (b) having the benefits treated as income by the federal internal revenue service. It appears that CS programs can avoid unfavorable treatment as long as customer benefits are provided by utility bill credit and are at least fairly closely aligned with the customer’s expected annual utility charges. (Coughlin, Grove, et al. 2010, Sections 4-5; Feldman, Brockway, et al. 2015, pp. 13-20; US-DOE 2016).
CS can be thought of as similar to other utility- and non-utility program types, such as green pricing, large customer direct PPA contracts, and donation-based support or direct investment in renewable energy. All these are ways for customers to act on their preference for supporting renewable energy. CS is especially important because it can help customers to achieve their personal renewable energy goals while minimizing or eliminating any cost-shifting from participating to non-participating customers. And, depending how programs are designed, utilities might earn returns on at least some investments in CS. These benefits are helping CS to grow rapidly: Already identified projects will represent at least 500MW of installed solar capacity (Honeyman 2015; IREC 2016b), and US DOE forecasts that by 2020 community solar capacity could equal anywhere from a third to nearly half of all installed distributed solar (Feldman, Brockway et al. 2015; National Community Solar Partnership 2016).
A range of benefits have been identified for CS, including perspectives of customers, utilities, the solar industry, and the regulatory community. Those benefits were reviewed in Part III. For example, Feldman, Brockway, et al. (2015, p 4) list:
• Access for customers without suitable land or a rooftop where an individual solar system could be located; • Lower financial and technical barriers to entry for participating customers; • Professional operations and maintenance provided by a qualified system manager, rather than by individual customers; • Portability or transferability of shares for customers who might relocate, either within or outside of the utility service territory, or for those that might experience a major change in financial circumstances; • Lower hard- and soft-costs for PV systems, due to important economies of scale; • More flexibility in siting, with the possibility of more beneficial or even optimal grid integration; and, • Increased community support, based on CS facility location or sometimes affinity relationships for participating customers. As discussed in Part IV, actions by states were reviewed, focusing on the 15 states plus the District of Columbia that have already adopted CS legislation or rules. A timeline, in Figure 1, shows the state actions that have taken place from 2006 to the present. The timeline also includes deadlines by which a couple of states, Connecticut and Maryland, are completing evaluation reports to help guide action on future programs.
The basic information about the programs for those states with legislation was presented in Table 1, including details about:
• maximum total CS program capacity limits; • maximum capacity limits for each participating CS project; • minimum number of participants in each CS project; • maximum amount of energy to be generated per participant, usually expressed in terms of a percentage of the participant’s annual average energy use; and, • location requirements, both for the siting of each CS project and for the participating customers of the respective project.
In addition, Part IV presented a high-level review of similarities and differences in the state programs, including provisions for: A. Consumer disclosures, education, and protection; B. Eligible participants; C. Participant bill credits; D. Participant rates and terms; E. Portability of and transfer of participation; F. Project ownership; G. Project siting; H. Program evaluations; I. REC treatment; J. Treatment of unsubscribed energy; K. Utility cost recovery; and, L. Other provisions.
Some basic regulatory considerations were briefly explored in Part V, including:
1. Regulating CS to simulate competitive markets; 2. Deciding about cost allocation and recovery for CS; 3. Expanding the value of CS; 4. Enabling CS as a gateway to all cost-effective DER; and 5. Evaluating CS programs and projects, and making progressive changes based on those evaluations.
And lastly, some preliminary recommendations for future research related to CS were included at the end of Part V. Those include:
1. Understanding and then reducing or removing non-regulatory barriers to CS; 2. Standardizing CS offerings; 3. Exploring how customers might be fully engaged to act as partners in utility infrastructure development; and, 4. Identifying strategies for all interested parties to best manage a transition to a utility sector that will employ many more DER.