Shared Solar Programs: Opportunities and Challenges (Text Version)

This is a text version of the video Shared Solar Programs: Opportunities and Challenges.

It is part of the 2013 webinar series by the Solar Technical Assistance Team. It provides an overview of issues related to shared solar, the critical elements of a program to make it successful, and examples of locations that have implemented a shared solar or community-based solar program.

>>Courtney Kendall: Good afternoon. My name is Courtney Kendall from the U.S. Department of Energy SunShot Initiative, and I'd like to welcome you to today's webinar. We're excited to have you with us today. So let's get started.

I would like to introduce Erica Schroeder. Erica is an attorney with Keyes, Fox, and Wiedman, an Oakland, California based law firm whose clients include the Interstate Renewable Energy Council, also known as IREC. Erica is deeply involved in IREC's efforts to explore shared solar program models nationally and to inform and educate entities interested in establishing programs. In addition, Erica represents IREC in state level rulemaking on many other topic areas essential to building sustainable markets for renewable energy including net metering rules and interconnection standards. She is involved in IREC's work to investigate and improve permitting processes for renewable energy systems. I'm going to go ahead and turn it over to Erica. Erica …

>>Erica Schroeder: Thank you, Courtney.

Interstate Renewable Energy Council, or IREC

I want to begin by introducing the Interstate Renewable Energy Council, or IREC, to those of you not familiar with the organization. IREC's primary goal is to enable the greater use of clean energy in a sustainable way. To do that, IREC works in the regulatory, technical, and policy tiers as this slide described. Among IREC's projects is our work on shared renewable energy policies and programs, which I'll be talking about today. As mentioned, I work for the law firm Keyes, Fox, and Wiedman, which represents IREC in various regulatory and policy matters. Finally, there's IREC website for further information. So let's start by defining shared solar a bit.

What Is Shared Solar?

The overarching goal of shared solar programs is to expand different access to solar energy. Then what I have listed here are characteristics of shared solar programs.

First, participants own or lease panels in a particular system, or purchase kilowatt hour blocks of generation. In other words, they share in a system or group of systems in some way. In addition, participants directly receive a tangible economic benefit on their electricity bill. The issues of how to value this benefit and how it compares to cost— that is, whether participants receive net benefits or face net costs as a result of their participation—are tricky ones that I will get into later in this presentation.

And, finally, as a result of shared solar programs, new solar generation is built. Sometimes people say that these programs are built as steel in the ground. IREC understands shared solar programs separately from the various models project investment models and encourage solar project investment. Even though many of these also expand consumer access to solar energy by allowing consumers to invest in it. In contrast to shared solar programs, however, participants generally receive any economic benefits on their investments via payment, just like any return on any investment. An example of a solar project investment model that's been in the news a lot lately is Mosaic, which relies on crowd funding.

Mosaic and the various other models are interesting and exciting but not what I'm focused on today.

Why Shared Solar?

Now that we have a sense of what shared solar is, let's talk a bit about why it's important. Many energy consumers cannot directly benefit from renewable energy generation. For example, by selling it on site, for various reasons—because they're renters, because they live in a multi-tenant building, for example in a condo, because they have insufficient roof space, or other aspects of their roof make it inappropriate for solar, for example, it may be too shady or because they're just not interested for whatever reason in onsite generation.

In fact, according to a 2008 NREL study, only 25% of residential rooftops permit onsite generation. That number doesn't even take into account all the other reasons rooftop solar may not be able to be installed. Shared solar can allow all of these other energy consumers to participate in renewable energy.

Serving More Energy Consumers

This slide gets at how shared solar can serve more energy consumers in a more visual way. You can see here the typical onsite solar generation set up through net metering, where rooftop solar offsets energy load during the day and feeds excess back to the grid and then draws on the grid when the panels are not producing energy. The excess generation can offset the grid supply of energy on the consumer's bill. This is probably a pretty familiar concept to many of you.

Shared solar can allow a whole community of people to participate in a single shared generation system or group of systems and distribute the benefits of that generation on their bills as well. And you can see an example of how that sort of set up might work in this graphic to the right. In fact, doing just a quick back of the envelope calculation using 2011 U.S. Census data, if just 5% of U.S. households invested in a 5-kilowatt interest of a shared solar system, and that's a pretty typical size for a rooftop installation, we'd see over 28 gigawatts of additional solar capacity.

When we talk about the opportunity for shared solar here at IREC, we're often asked to clarify the relationship between shared solar and net metering in its variations. In short, all of these are different bill credit mechanisms, which vary depending on the number of customers and meters involved and how bill credits are valued.

Other Bill Credit Mechanisms

This slide explains how IREC explains these terms. I'll acknowledge up front that others sometimes use some a bit differently and then in practice the lines can be fuzzy. As I mentioned on the previous slide, in its most basic form, net metering allows a single customer with a single meter to offset her consumption using onsite solar generation through electricity bill credit. Usually these are valued at or close to the customer's retail rate. Meter aggregation, or aggregate net metering, abbreviated sometimes to ANM, expands net metering to allow a single customer with multiple meters to offset her consumption with onsite generation through bill credit.

This might be an agricultural customer with multiple buildings on their property, or perhaps a larger customer like a municipality. Finally, virtual net metering, or VNM, expands net metering even further to allow multiple customers with multiple meters to share in the benefits of a single system. This sounds a lot like shared solar, but we distinguish it because shared solar is not necessarily embedded in the existing net metering framework. While shared solar, like net metering, relies on a bill credit mechanism, other aspects of the program may differ substantially from net metering. In particular, shared solar bill credit, the way the tangible economic benefits and any costs are expressed on a customer's bill, don't have to be valued like net metering credits, although they may.

The takeaway is that like net metering shared solar relies on a credit mechanism to distribute the benefits of participation, but it's not the same thing.

Other Programs Expanding Access to Solar

It's also helpful to distinguish shared solar programs from other programs that also share the goal of expanding access to renewable energy. First, group purchasing—these programs, such as the Solarize program, allow individuals to get together and purchase solar PV in order to get a volume discount and reduce some of that upfront cost, similar to economies of scale that can be realized by shared solar facilities.

Group purchasing programs can also help to overcome some customer inertia and uncertainty about the complexity that sometimes exists with respect to participating in solar. In the end, consumers engaging in group purchasing do not share in the ultimate system. Unlike with shared solar, group purchasing customers typically install their individual panels on their individual properties. Second, green pricing or green tariff programs. These programs allow utility customers to voluntarily pay a premium on their electricity bill for up to 100% renewable generation. To date, according to the DOE, more than 860 utilities, including investor owned and municipal utilities and cooperatives, offer a green pricing option.

Admittedly, the line between green tariff and shared solar can be quite fuzzy. Many of the green tariffs however rely on short-term renewable energy credit or REC purchases to satisfy participants' demand for new energy. On the other end of the spectrum, there are programs such as TEP's Bright Tucson Program in Arizona, or the program's proposed program by PG&E and SDG&E in California, which encourage new long-term renewable energy construction and could rightfully be called shared solar programs, even if they are sometimes not set up as green tariff programs.

Guiding Principles for Shared Solar

While the lines between these various programs can be fuzzy, IREC has developed a list of four guiding principles which are on this slide to draw some lines around what constitutes shared solar. I'll get into more nitty-gritty shared solar program details in a minute, but I think these overarching principles give a good outline for what we're talking about when we talk about shared solar.

First, shared solar programs should expand solar access to a broader group of energy consumer. You've already heard me say that a few times today. Second, participants in a shared solar program should receive tangible economic benefits via their electricity bill. We'll get to how these benefits show up on the bills in a minute. Third, shared solar programs should be additive to and supportive of existing renewable energy programs, and not undermine them. The idea here is that shared solar programs can complement other programs, including onsite net metering, group purchasing, renewable portfolio standards, and more. We should be aware of the other programs in place in a given state or utility service territory when we start designing a new shared solar program.

We want all of these programs to work together to grow the renewable energy market. Fourth, shared solar programs should be flexible enough to take into account consumer preferences. In particular, many consumers participate in shared solar with the expectation that the generation will be sited somewhere nearby them, often somewhere they can go to and look at and say, “There's my panel,” within some larger installation. This isn't always the case, but it's important to take into account preferences when setting up a program.

Pretty much always participants expect that shared solar programs to result in new solar capacity or new steel in the ground. I already touched on this in contrasting shared solar with some green terrace programs which rely on short-term REC sales. Even if the definition of shared solar felt a little fuzzy for you, that's okay. It is for us, too, a lot of the time. It's an emerging concept. IREC's overarching attitude in all of this is to encourage any programs that expand consumer access to renewable energy whilst at the same time offering guidance on designing shared solar programs that are as effective as they can be based on stakeholders' goals for the program and what we're seeing working on the ground around the United States.

Shared Solar Activity in the U.S.

On that note, this map gives you a sense of what we're seeing as far as shared solar activity in the U.S. It's based on data that IREC has collected. This version is current through this past May, so if you know of a program that's missing, please don't hesitate to be in touch. The yellow stars represent utility level programs—programs operating within a utility service territory. The red states are states that have enacted statewide shared renewable energy programs, so you can see Colorado's Community Farms Program, Delaware's Community Solar Program, Massachusetts Neighborhood Net Metering and Virtual Net Metering programs, and Vermont's Group Billing Program, and also Minnesota's very recent Community Solar Gardens Program. I'm sure many of you are aware that California is currently considering statewide shared solar legislation in addition to its existing but more limited Virtual Net Metering Program.

There's lots of stuff going on here across the country, and we're always updating our map. One last thing I should mention about this map is that it doesn't capture that there are some voluntary programs operating in states with statewide legislation. For example, at municipal or cooperative utilities that had those programs in place before the state enacted its legislation. So, for example, I know the Right Hennepin Cooperative in Minnesota has a voluntary program, and Colorado Springs' municipal utility also has one. Again, lots of activity all around the country.

Type of Energy Service Provider

IREC also gathers data about what sort of utility is involved in each shared solar program. As you can see here, about half of the programs we are aware of are in the service territories of cooperatives, and the other half is split about 50-50 between municipal utilities and investor-owned utilities.

Average Program Size by Type of Energy Service Provider

This next slide shows the average program size by type of utility. I'll note that this size may reflect just one installation or multiple installations but all under a single program. You can see that co-ops are the smallest, on average, with an average program size of 250 kilowatts, and investor-owned utilities, or IOUs, are the largest, at 3.3 megawatts. Municipal utilities, on average, are somewhere in the middle at around 430 kilowatts. For munis, this number does not include a large Salt River project community solar program which is 20 megawatts and throughout the average we excluded it.

Shared Solar: Lots of Issues to Consider

Now that you have a sense of what's happening on the ground, let's take a look at how these programs are structured. There are a lot of issues to address in setting up a shared solar program. We can see many of them popping up on this slide.

Critical Program Elements

In our model program rules, which we just updated in June, IREC calls out five critical program elements to consider when setting up a shared renewable energy program, which are listed here and I'll walk through. In the end, however, we recommend that a community or group of stakeholders think about what they want to achieve and what their priorities are, and then we can help them find a model that works for them.

There are several ways to design an effective shared solar program, and no one size fits all approach.

Allocating Benefits of Participation

First, allocating the benefits of participation. By this I mean once participants have bought or leased a panel or bought their kilowatt hour block of energy, how do they receive the benefit of that generation? I think for a lot of people it seems initially appealing to just do this by a payment, but this route can raise security and tax considerations that can really complicate things. I don't have the time or expertise to get into these in detail, but in short, in these situations, your share of a system starts to look like a security subject to securities laws, and your payment starts to look like an income stream subject to tax law.

In our model program rules, IREC recommends structuring programs so that participants receive the benefits of participation by a bill credit. This is familiar to utilities as well as many participants—for example, from net metering programs. It's relatively easy for utilities to administer, and, depending on how the interaction is structured, it can avoid the security and tax concerns I just mentioned. IREC also generally recommends distributing the benefits by a dollar credit instead of a kilowatt hour credit. On a participant's bill, this shows up as a dollar value, subtracted from their payment due to their utility, instead of as a kilowatt hour deduction from their kilowatt hours consumed that month.

Kilowatt hour credits can work well for some onsite net metering programs, where it's more likely that there's a one-to-one kilowatt hour offset at the retail rate. However, in shared solar programs, where the generation is not all on participants' property and may, in some cases, be relatively far away, the valuation of the credit can get more complicated and can't be neatly reflected in a one-to-one kilowatt hour offset. It becomes easier to calculate the dollar value as prescribed by the program and allow the bill just to reflect that value as it would any other credit or charge a utility might give a customer. But in setting up this dollar credit, the obvious question comes up—what about valuation?

Valuation of Generation

What about valuation? The valuation of generation is probably the toughest question for most programs, whether at the utility level or state level. It's also where we're seeing a lot of activity and creative thinking. I'm going to walk through some of the common approaches we're seeing to transfer the value of generation into a bill credit to go on that customer's bill. Note that I don't reference other incentives that a customer may be receiving through state or utility programs, and I don't mention what the participant may be paying. If anything, to participate, such as their payment to lease panels or buy kilowatt hour blocks—however these are obviously other pieces that are important to understanding the overall financial picture.

Embedded Cost-Based Approach

Okay, so back to the valuation of generation and bill credit. First, let's look at the embedded cost-based approach, by which I mean a valuation approach based on participants' retail rates and their components—the generation, transmission, and distribution rate components. Essentially, programs using this approach choose whether to credit participants for each rate component. Most people agree that participants should receive a credit for the generation rate component. This usually makes intuitive sense. Many people make a strong argument, at least if participants are located near the generation, that participants should also be credited for the transmission component, because they're not using the utility's transmission system.

The really sticky point is the distribution component. If participants are using the distribution system to receive the electricity from an offsite shared system, should they then pay their full distribution component? Should they receive a partial credit to reflect a balance between their use of the system and the value the system may be providing to the grid? Should they receive a full credit, at least if they're very nearby the system, or hosting it? There aren't easy answers to these questions and they can be quite dependent on program design—in particular, where systems are located on the grid with respect to participants.

The conversation can also get more complicated when participants on time-of-use rates or rates with non-kilowatt hour components, such as demand charges. An example of a program that took the embedded cost-based approach is Xcel Solar Rewards Community Program, which operates under Colorado's Community Solar Gardens' rules. This program set up what they called a ‘total aggregate retail rate,' which includes energy charges and demand charges and all riders. For the residential customer at the time, Xcel filed a plan in 2012. This would be about 10 cents per kilowatt hour. To get the credit for a customer, Xcel subtracted the cost of delivery, which is reflected in that company's T&D and what it calls its TCA charges. Xcel also subtracted its RES, its Renewable Energy Standard adjustment.

Customers are not credited for these things. They still have to pay them. In the end, a residential customer ends up with about a 7.5-cent credit per kilowatt hour.

The embedded cost-based approach can be useful, as it's relatively easy to work from existing rate components, even if it can be sometimes a little controversial. However, that can also be only a rough approximation of the costs and benefits of a shared solar system.

Value-Based Approach

The value-based approach tries to actually evaluate these costs and benefits to generate an appropriate per kilowatt hour bill credit. It's based on the value of the generation to the utility.

This approach is similar in concept to the value of solar tariffs that Austin Energy has implemented for onsite residential solar in place of net metering, which a lot of people have heard of. On the shared solar side, an example is Holy Cross Energy's Community Solar Program, where the program evaluated the cost and benefits of a system and came up with 11 cents per kilowatt hour as a fair credit for participants.

While potentially more accurate, this process can be more labor intensive and it's usually utility or program specific, as you're looking at the value of generation to that utility within its particular system and within a particular program structure.

On the cost side, you generally are looking at the utility's loss revenue, any administrative costs of the program, and potentially any additional incentives that they may be offering to encourage participation. On the benefits side, they're looking at avoided generation costs as well as any avoided T&D costs. Programs also often consider avoided line losses resulting from generation that is on the distribution system and closer to load as well as any capacity benefits of the system. Sometimes programs consider a variety of other benefits, including, for example, avoided environmental compliance costs. To get the value of the credit, they balance these against each other and wind up with a dollar figure, like Holy Cross' 11 cents per kilowatt hour, which I just mentioned.

Other Valuation Approaches

In shared solar programs to date, the embedded cost-based and valuation approaches are the two we've most commonly seen. But we've seen some others emerge, too, especially in the realm of shared solar programs that border on being tariffs. In these programs, participants are generally paying a premium on their electricity bill that reflects the cost to the utility of procuring additional solar generation. This is often approximated using existing costs and charges with which the utility is familiar. Sometimes this premium will reflect some sort of deduction to the value of solar to the utility.

In addition to facilitating new solar generation, the participant typically benefits by locking in that price of the longer term 5 years, 15 years, depends on the program terms, thereby hedging against possible fuel volatility and rate increases. TEP in Arizona, a community solar program that's structured in this way, in both SDG&E and now PG&E are developing programs in California that are similar. They are participating in the development of these California programs and view them as another version of shared solar that could potentially allow more consumers to have access to renewable energy.

Like I said, valuation of generation is really the toughest nut to crack here, and the different approaches will work for different programs. IREC doesn't recommend a particular approach at this time. The following three critical program elements are also dependent on the vision for the program and the existing structures in place at the utility or the state. For program administration, we're generally talking about who deals with various administrative needs for the program. Bill credits is the one we focused on, but there's also program design and marketing, signing up participants, and dealing with changes in participation, operations, and maintenance and more.

More often than not, the utility shoulders all or most of this burden. They have experience with program administration and an infrastructure in place and they're likely going to need to administer the bill credits at least anyway. We also see some third-party administration. The Clean Energy Collective is a company that people are often familiar with, which offers a sort of turnkey shared solar solution to utilities and interested stakeholders. Then there are programs where participants shoulder a larger share of the administrative responsibility. We see a number of these in Vermont, for example under Vermont's Group Billing Program, which puts much of the participant wrangling and other responsibilities on participants themselves. Again, while utility administration makes sense in a lot of cases, the decision ultimately depends on the vision for the program.

In the end, though, there is general agreement that the program administrator should be allowed to recover its costs for administering the program.

Solar Facility Ownership

Determining who is going to own the shared solar facility or facilities is also critical to setting up the program. In particular, this can have big implications for financing as owners of these systems often want to leverage local state and federal funding and incentives, which only certain entities can sometimes take advantage of, and I'm thinking in particular of tax incentives here. Ultimately, IREC advises programs to provide as much flexibility as possible to allow participants and developers to figure out what works best here. This can mean allowing for direct ownership—that is a participant or group of participants owns the system in some way—or a third-party ownership, where a third party owns the system, and then, for example, leases panels to participants, or even utility ownership.

Third-party ownership in particular can be critical in allowing for developers to tap into available tax credits. However, some utilities are more comfortable with just utility ownership. Florida Keys Electric Cooperative is an example of this, where the utility owns the system and leases panels to participants. Other programs rely on third-party owned systems such as Colorado Spring's utilities, where participants are involved in certain developer owned arrays and the developer has a lot of flexibility in how it sets up its agreements with participants. Still other programs allow for any of these scenarios within certain program parameters, such as number of participants, size of participation, and so on. Again, this depends on where the priorities for the program are, and what the various utilities are comfortable with.

Solar Facility Size and Location

Finally, the last big decision we call out is how to treat shared solar facility size and location within the program. Again, this really depends on the community's goals and priorities for the program. Is the vision for small neighborhood systems? Then it may make sense to limit facility size to one or two megawatts. This may also allow the system to take advantage of faster interconnection processes. Is the vision for a larger system that can leverage economies of scale and have a lot of participants or a few larger participants such as grocery stores or something? This is also okay, but may mean a larger facility size limit. You can go both ways and carve out a few smaller systems and allow the rest to be as large as 20 megawatts.

Another piece of the puzzle to consider is whether to incentivize or mandate locations of shared solar facilities in areas of the grid that maximize the facility's benefits to utility or their environmental benefit, such as on parking structures, or other rooftops, or on brownfields. Like size, these locational parameters depend on stakeholders' priorities for the program. One thing I'll note, however, is that in IREC's experience talking to lots of different people setting up programs, participants tend to want the facility to be in or near their community. This makes it more tangible for a lot of people. They may be residential customers that are viewing it like they might view a community garden, or they may be commercial customers that see this value too, or see some PR value to having the facility on or near their stores.

Again, we come back to the stakeholders' goals and priorities to determining the program structure.

Additional Considerations

So this discussion was not exhaustive and there are a number of other considerations. I've listed a few more here. IREC's model rules, which I've got a link to at the end of this presentation, cover a lot more than I can cover today, and my colleagues and I are happy to talk individually about program development as well. At the risk of sounding like a broken record, I'll say again that there isn't necessarily a one-size-fits-all approach here. Program development can really benefit from some forethought regarding priorities and what stakeholders want to get out of the program. Then the program can be structured to achieve these goals, which may vary from group to group.

The next three slides cover the basics of three different programs. I don't have time now to delve into the details of each, and anyway the summaries here are more or less self-explanatory. You can also get more information from IREC's case study handout on our website, and the link is at the bottom of the slide here, where we cover a little bit more detail. I included them here just to give a glimpse into how different shared solar programs can be, while still serving interested participants. All three of these programs have seen very strong interest, by the way.

The first one here in Florida is a small co-op program where all the generation is utility owned and participants lease panels and receive bill credits at their retail rate. I mentioned it earlier in my presentation. [Website: www.fkec.com/Green/simplesolar.cfm]

The program in Colorado Springs, which I also mentioned earlier, is run by that city's municipal utility, but the generation is all owned by third-party developers. The bill credit is valued at 9 cents per kilowatt hour across the board. So it's not based on participants' retail rates. This is the valuation approach. [Website: www.csu.org/residential/customer/Pages/Community-Solar-Gardens.aspx]

Then still another flavor of shared solar, this is TEP's Bright Tucson Program, which as I mentioned earlier shares characteristics with green terrace programs. Now we're looking at a pretty large investor-owned utility program where there is generation owned by both third parties and the utility. This is an instance where participants buy kilowatt hour blocks at a fixed rate, which is locked in over their participation terms. Again, if you want more detail on any of these programs, I encourage you to take a look at IREC's case study document, which is posted online. [Website: www.tep.com/Renewable/Home/Bright]

Moving Forward: What Can I Do?

So starting to wrap up, I thought I would offer some suggestions for action at both the state and local levels to facilitate shared solar. Even if a shared solar program is a more distant goal for you, many of these suggestions should also serve to encourage solar development more generally. At the state level, an obvious one is to enact a shared solar program, either statewide legislatively or perhaps through the regulatory commission— for example, working with an investor-owned utility to file a proposal for a program. You could also work with a muni or a co-op to institute a program at the utility level, though that's more of a local level approach.

Next, as we discussed, flexible ownership structures can have big implications for financing shared solar facilities. Enabling third-party ownership in your state, making sure it's crystal clear, can be an important step. Usually, legislation is the most powerful way to do this, although in some cases you can make an impact at the regulatory level. This is a positive step for solar more generally, not just shared solar. Likewise, instituting good interconnection procedures is critical to facilitating solar, including shared solar, and something IREC spends a lot of time working on. I'm happy to talk about that more offline.

In addition, developing solar-friendly property tax policy as well as offering other tax and financial incentives for solar can help.

At the local level, as I mentioned, the big thing you can do is work with your utility, whatever it is, to develop a shared solar program. You may be able to do this at the utility or through the regulatory commission. In addition, just like at the state level, local tax policies and incentives can be important tools to facilitating shared solar and solar more generally. Especially important at the local level is the local permitting process for solar. It's important to take a look at the permitting processes in your region, consider how they work, and think about ways they might be improved. A more efficient process can usually benefit the municipality as well as solar installers and their customers and for that matter other contractors seeking other kinds of permits, too.

Finally, take a look at other local policies that may discourage solar development—in particular, at the scale of shared solar, which is larger than a typical rooftop system and maybe ground-mounted. These may include restrictive siting and zoning or HOA rules based on aesthetics. At times these can be modified at the local level and sometimes it takes state legislation to make it happen. In the end, there are a lot of ways to pave the way for solar, whether or not immediately setting up a shared solar program is going to happen for your community.

If you want further resources, here are two places to look—sharedrenewables.org is a product of the Go Solar initiative and it's a comprehensive resource for shared solar. IREC also offers a catalog of shared solar programs around the U.S., which lays out their key attributes in a table. You can see links to both of those things here. All of the IREC information is available on our website along with our model program rules, which I said before we just updated in June to reflect everything we've learned from working on shared solar for the past few years. The model rules are really a great resources. [Website: www.irecusa.org/regulatory-reform/shared-renewables/]

Finally, NREL's guide to community solar is another handy resource for learning more about shared solar programs and their barriers and opportunities.

And that's it from me. Thank you for your time, and please free to contact me with any follow up questions or thoughts.