TODAY’S STUDY: New Numbers Show Community Solar Boom
Community Solar Program Design Models
May 1, 2018 (Smart Electric Power Alliance)
In 2015, SEPA developed the Community Solar Program Design Models report which provided an overview of the community solar market, findings from a survey of program administrators, and our initial program design decision tree. Now, in 2018, we have updated this report with new data on the community solar market, and lessons learned over the past two years.
“COMMUNITY SOLAR” DEFINITION
In this report, SEPA defines a community solar program, also known as shared solar, as a voluntary business model where multiple subscribers pay for a share of a specified offsite solar project and receive credit on their electricity bill for their portion of power produced.
“PROGRAM ADMINISTRATOR” DEFINITION
Many programs are developed by multiple organizations who share development responsibilities. For simplicity, SEPA defines the program administrator as the primary organization responsible for managing customer subscriptions. Some portions of this report split the community solar market into programs administered by the utility and those administered by third-party providers.
CULTIVATING NEW MARKETS
Community solar programs are proliferating across the entire U.S. In our 2015 report, SEPA announced there were 68 utilities in 23 states that had programs in their service territories. At the time of publishing this report, 228 utilities in 36 states had an active program. Many other utilities across the country have announced plans to develop new programs. There is even a planned program in Alaska; Chugach Electric Association located in Anchorage approved a community solar project in October 2017.
Community solar programs are developed in states with and without shared solar policies, though many of the most active states have some form of state policy. The specific language in each of these policies varies dramatically, particularly concerning scale, bill credit rate, and ability of third-party ownership. But the foundation for each is the enablement of bill crediting for customers participating in community solar programs. Currently, 17 states plus the District of Columbia have enacted shared solar policies. According to the Coalition for Community Solar Access (CCSA), proposed legislation has been introduced in at least nine states across the country to open or expand existing community solar programs in the last year.
STEADY GROWTH OF INSTALLED CAPACITY
The total installed capacity of community solar programs has expanded to 734 megawatts (MW), with approximately 387 MW of that being installed in 2017. This corresponds with a year-over-year growth in capacity last year of 112%. For a comparison, the total solar market in the U.S. has grown at an average annual rate of 68% over the last 10 years.1
In the short term, SEPA expects this growth to continue. Declining solar costs, increasing customer awareness of the business model, and the opening of new state markets by policy, will all contribute. Whether this growth continues in the long term after state renewable portfolio standards are met and the standard utility supply has a greater share of renewable generation, or after the most environmentally conscientious customers have already subscribed, is undetermined.
A majority of the total installed capacity is being administered by a third-party community solar provider. These organizations are responsible for 495 MW, or approximately 67% of the total installed capacity. Utilities administer the remaining 239 MW of installed capacity (see page 1 of this report for how we define the program administrator). Interestingly, the administrator split has flipped from 2015, when approximately 60% of capacity was administered by a utility and 40% by a third party.
STILL AN EMERGING MARKET
Despite its continued growth, community solar is still a relatively small part of the solar marketplace. The National Renewable Energy Laboratory (NREL) reported that there were 47.5 gigawatts (GW) of total installed solar in the U.S. in all markets through the third quarter of 2017. 2 Utility-scale solar and rooftop solar made up the lion’s share of this capacity. Community solar was responsible for just over 1% of this installed solar capacity.
While community solar capacity is significantly less than rooftop and utility-scale solar, much of the potential market has yet to be addressed. As noted, community solar programs are currently available in 228 utilities’ service territories. As there are a total of approximately 3,100 utilities across the U.S., customers in nearly 90% of utility service territories do not have the opportunity to subscribe to a program. Additionally, 33 states have not yet enacted a shared solar policy — and of the 17 states with an existing policy, many are considering ways to broaden their existing programs.
In 2016, the Shelton Group and SEPA released a study that suggested the total potential community solar market was 6.5 million households.3 At this point, less than 300,000 have subscriptions. For the potential to be realized, much greater availability of programs is needed. Note: Each square represents ~150 MW-dc of solar capacity Source: SEPA Community Solar Database. Data up to date as of December 31, 2017; Total installed capacity estimated based on Q3 data from NREL report 2 National Renewable Energy Laboratory, Q3/Q4 2017 Solar Industry Update 3 Smart Electric Power Alliance, The Shelton Group, “What the Community Solar Customer Wants”, 2016. link: https://sepapower.org/resource/what-the-community-solar-customer-wants/
PROGRAMS COME IN A WIDE RANGE OF SIZES
In terms of the number of community solar programs, cooperative utilities have been trailblazers. At present, 160 cooperative utilities have a program in their territory. This far exceeds the total in investor-owned utilities (31 programs) and public power utilities (37 programs) combined. Most programs are small. Only 30% of programs have a total generating capacity greater than 1 MW. In fact, the largest community solar program, that in Xcel Energy’s Minnesota territory (246 MW), is larger than the combined total of more than 100 of the smallest programs. But the average program size is steadily growing. In 2015, only 20% of programs had an operating capacity of 1 MW or greater. Additionally, the median program size has increased from 120 kilowatts (kW) in 2015 to 200 kW now.
STATE POLICY OFTEN (BUT NOT ALWAYS) IMPELS GROWTH
The two maps below show the capacity of community solar broken down by administrator. As depicted, many states with enabling policy have seen large third-party developments. Though there are several that have drawn limited to no third-party interest, either because the policy is recent (IL & NC) or the policy specifics are a deterrent (CA & NH). Third-party administered programs are found in 14 states, including five states that do not have enabling policy. But a vast majority of third-party administered program capacity is located in only three states — Colorado, Minnesota, and Massachusetts. The reasoning for this concentration is fairly straightforward: There are significant financial incentives available to subscribers in these states. Utility-administered programs are found in more states overall (33), including states with and without enabling policy. The program capacity of utility-administered programs by state is more uniformly spread.
INNOVATIVE PROGRAMS LEVERAGING DER
Many would suggest the primary benefit of community solar is that it provides access to solar ownership to customers who otherwise couldn’t, or wouldn’t want to put panels on their property. But this is certainly not its only benefit. Community solar reduces dependence on foreign fuels, helps the environment, as well as provides local economic development, job training opportunities, and access to solar for low-to-moderate income customers. Additionally, some utilities are starting to explore how community solar can aid grid reliability and other ancillary services. A few examples of these “next generation” community solar programs are below.
COMMUNITY SOLAR + STORAGE
Austin Energy, a public power utility in Texas, is siting a 1.5-MW/3-MWhour LG Chem battery at the substation next to their 2.5-MW community solar facility. The storage will be utility owned, thus it does not add any cost to the community solar subscription.
COMMUNITY SOLAR + TOU RATES
Oklahoma Gas & Electric’s community solar program requires subscribers to be concurrently subscribed to a time-of-use tariff. Subscribers earn a solar credit for the solar energy that is aligned with the applicable time-differentiated energy charge of the subscriber’s metered energy.
COMMUNITY SOLAR TIME-VARYING CREDIT
The Hawaii Public Utilities Commission directed Hawaii Electric Company and Kauai Island Utility Cooperative to develop community-based renewable energy program tariffs that include a time-varying bill credit value. This is designed to incentivize power production during peak grid demand. Subscribers will earn at least 20% more for power dispatched during peak periods as compared to off-peak periods.
COMMUNITY SOLAR + DEMAND MANAGEMENT
Meeker Cooperative Light and Power Association's member solar program provides an option for subscribers to get a $400 discount on their community solar purchase if they also join the Peak Shave Water program which comes with a free 50-gallon water heater to provide beneficial demand management for the Litchfield, MNbased utility…
THERE ARE NO GUARANTEES OF FULL SUBSCRIPTION
The average program had 83% of its capacity subscribed. But a simple average can be misleading. Individual programs are different – they are different in scale, are launched in different years, exist in different electricity markets, contain different economic propositions – and these differences may affect subscription rates.
We analyzed subscription rates in five different sets of programs. The greatest difference was found when comparing programs with different financial benefits for the subscribers. It is not surprising that programs promising immediate bill savings almost universally garner a full subscription. Programs that provide either a hedge against potential rate hikes or payback the upfront payment after a set period experienced lower subscription rates. The marketing budget also seemingly had an effect on the subscription rate, with programs spending above 5 cents per Watt (cents/W) of capacity experiencing higher subscription rates than those spending less. The program's capacity, administrator, and launch year may have a less telling effect on subscription rates. A caveat is that the sample sizes for many of the comparison sets are quite small. Thus, these findings should be considered illustrative instead of absolute. More data collection will be needed to confirm any correlations between program design and subscription rates.
WHO IS PARTICIPATING IN COMMUNITY SOLAR?
In most community solar programs, a mix of residential and small commercial customers participate. There are a few programs, such as Austin Energy’s, where only residential customers can participate. And only one, Xcel’s Solar*Connect program in Wisconsin, where only commercial customers can participate.
SEPA discovered that the size of the program is correlated to the split of residential and commercial subscribers. In programs with under 1 MW of total capacity, a vast majority of subscribers, 91%, were residential customers. However, in larger programs with more than 1 MW of total capacity, only 34% of subscribers were residential customers, with the majority, 66%, being commercial customers. The reason for this significant discrepancy isn’t perfectly clear, but many small programs are located in service territories of rural cooperatives, who have a greater percentage of residential meters than the rest of the industry.
Who the program administrator is for the program can also provide a hint as to the makeup of residential and commercial customer participation. In the survey, it was found that third-party administrators subscribed a majority of capacity (68%) to commercial customers while utility administrators subscribed a majority of capacity (52%) to residential customers.
CUSTOMER INTEREST IS HIGH
Through the support of the Solar Market Pathways grant, SEPA conducted multiple technical assistance projects across the country. Of interest to this report, SEPA created end-consumer online surveys for six separate utilities: three public power utilities, two investor-owned utilities, and one cooperative utility. Consistent across each customer base was the desire to learn more about community solar offerings, with four of the utilities experiencing 90% or more of respondents signaling interest in a program. Importantly, solar as a product was not unfamiliar to many of these consumers, with over 20% and up to 50% having considered rooftop solar options already at five of the six utilities. And, broadly speaking, customers do not appear interested in trivial participation; rather, 50-100% of the annual bill being covered by community solar was a popular response across each survey. These utility-specific surveys bolster the results found in the national survey conducted by SEPA and The Shelton Group, which estimated a national market potential of 6.5 million or more U.S. households
WHAT ARE THE ADDITIONAL COSTS?
SEPA includes considering both the cost of customer acquisition and customer billing and crediting as administrative costs. These are effectively the additional costs to make a standard solar project a community solar one. In general, community solar administrative costs experience economies of scale. The median program with a capacity above 1 MW had just 9 cents/W in administrative costs as compared to 12 cents/W for the median program with a capacity below 1 MW.
The program administrator also seemed to affect the costs. While third-party administered programs spend more on customer acquisition, utility-administered programs spend more on billing. Billing costs for utility-administered community solar programs were 4 cents/W more on average than those administered by third parties. Marketing, or customer acquisition, costs for third-party administered community solar programs were on average higher than those administered by utilities. Of those surveyed, third-party administered programs spent 2 cents/W more on average on marketing costs than utility-administered programs…
BIG CHALLENGES REMAIN
Administrators can encounter all sorts of road blocks when attempting to implement a program. For utility administrators, the biggest challenge is signing up the initial customers. Though surveys have shown that most individuals are interested in the idea of community solar, translating that interest into paying customers can take significant effort. When asked to list their biggest challenge, over half of utilities suggested it was related to customer acquisition. Third-party administrators overwhelmingly indicated that working to meet complex and diverse policy requirements is their major challenge. Even beyond these primary hurdles lie many additional challenges. Utilities also cited challenges finding full-service vendors, selecting and securing a site, avoiding passing costs to other ratepayers, and utilizing the federal tax credit. Thirdparty administrators also cited working with complexity in policy, adjusting to uncertainty in program regulations and caps, acquiring financing, educating customers, marketing, and ongoing administration of the programs once live.
WHAT ADMINISTRATORS SAY ARE THEIR BIGGEST CHALLENGES
• “Converting interested signups to paying and committed participants” • “Subscribing all of Phase I before construction” • “Determining a subscription model that would meet potential participants’ wants and needs” • “Finding subscribers willing to actually put money into purchasing shares” • “Finding members to participate” • “Selecting and securing a site” • “Making the price attractive and utilizing the 30% federal tax credit” • “Cost recovery for utility • “Finding cost-effective marketing tactics to promote the program” • “Finding a full-service vendor for our customers” • “Modifying the program to compete with the quickly changing solar market” • “Expanding the program quickly enough to accommodate all interested customers” • “Explaining that solar energy bill credits vary from month-to-month depending on weather conditions” • Reducing the number of cancellations due to customers’ unwillingness to wait for long-term savings potential”
UTILITIES TO UTILITIES
For utilities considering developing a program, your peers have some words of wisdom. Most encouraged others to push forward, but advised that carefully listening to your customers is the key to success. Keeping in communication, being fair, and being flexible with your customers are things all utilities should want to do. Bringing these best practices to the core of your business will also help bring success to your community program. Using customer participation as an indication of success, the difference between interested customers and committed customers tends to be the financial cost. Keeping the customer engaged and the share prices at a reasonable cost are the two most shared strategies for success.
UTILITIES’ SUGGESTIONS (CUSTOMER ENGAGEMENT)
• “Pre-sell shares” • “Talk to your customers about what they want” • “Have all of your community solar phase purchased before you start construction” • “Be fair to your customers. Funding, equipment, and installation are secondary” • “Make sure your program is flexible for your customers” • “Just do it. It's what your customers say they want and this is your core business”
UTILITIES’ SUGGESTIONS (FINANCE)
• “Payback is key to success” • “Only do it if it makes financial sense for customers” • “Keep share prices reasonable enough for the average customer” • “Build pricing based on sustainable model rather than as a subsidized pricing project” • “People will say they will pay a premium for green power, but when the opportunity is available, they will not pay”
UTILITIES’ SUGGESTIONS (STRATEGY)
• “Have a thorough understanding of why you want to start the program” • “Look to other utilities - what works and what doesn't” • “Community solar adds to the overall portfolio of options available to customers” • “When developing a community solar program, get your billing and IT departments involved early”…
THE DECISION TREE
The Community Solar Decision Tree seeks to streamline the major community solar program attribute design process down to a series of discrete choices, which have been built off of SEPA’s years of research into and work on community solar program design. At its core, the Decision Tree seeks to add specificity to the following key questions:
1) Who runs the program?
2) What is the subscriber’s economic proposition?
3) What are the participation restrictions?
4) What are the other terms and conditions?
Each major attribute of a community solar program has been broken down into these four categories, and the options most commonly seen in programs today are identified for each. The following pages of this report dive into further detail behind each option, and provide examples from programs across the country that use these program attributes.
By following the questions identified and options presented, it is possible to create a draft community solar program design in short order…