STRATEGIC CONSULTING Energy Introduction to Community Solar MAY 2014 White Paper
EXECUTIVE SUMMARY Community solar has emerged as a compelling alternative to rooftop solar and uniquely enables utilities to participate in the solar photovoltaic (PV) space. Community solar systems allow customers to benefit from solar output remotely through billing mechanisms; a customer can purchase or subscribe to a portion of the solar PV system and then receive bill credits based on production levels. From the customer perspective, community solar is easy to use, does not change the home s appearance, and should be less expensive than rooftop. Like rooftop solar, community solar can also offer predictable electricity prices to customers. From the utility perspective, community solar can enable profitable participation, maximized solar production, improved grid integration, and broad customer participation. Houlihan Lokey views community solar as a way for utilities to profitably participate in the solar PV market. Looking forward, we expect to see more utilities enter this space, given its competitive position relative to traditional rooftop solar PV solutions as well as its larger market size. As the electric industry evolves over the next decade, utilities with well-developed community solar programs will be advantaged in transitioning into a world characterized by widespread distributed generation. WHAT IS COMMUNITY SOLAR? Community solar is defined as an offsite solar PV system that provides electricity and/or financial benefit to multiple customers. EXHIBIT 2 Community Solar Overview There are three types of community solar models: 1 Utility Utility owns and operates or partners with a third-party organization to create a program that is open to voluntary customer participation Special Purpose Entity Individuals join in a business enterprise, typically via crowdfunding, to develop a community solar project Nonprofit Organization administers a project on behalf of donors or members Community solar program designs can vary significantly based on utility type, legislative environment, economic incentives, and program goals. Customers typically participate by paying an upfront payment (per panel or per kw) or ongoing fee (fixed monthly fee or $/kwh rate). In exchange, customers receive a credit on their electric bills [Sidebar: Virtual Net Metering] that is proportional to 1) their share and 2) how much electricity the solar project produces. In addition, renewable energy certificate (REC) ownership varies by program RECs can be owned by the utility, the participant, or both. Source: Bridge Strategy Group Analysis 1 U.S. Department of Energy, A Guide to Community Shared Solar, 2012 Introduction to Community Solar 1
SIDEBAR: VIRTUAL NET METERING Virtual net metering (VNM) allows multiple customers, located on contiguous or non-contiguous properties, with multiple meters and associated utility accounts, to receive the benefits of a single solar system. As seen in Exhibit 1, for standard net metering, each customer has an onsite solar PV system, which is located on the customer s side of the meter. Whereas for VNM, solar electricity benefits can be distributed to customers from a single PV source, either onsite or offsite. VNM reduces the costs and billing complexity that can be associated with standard net metering. However, VNM may have some limitations based on geographic proximity of the solar system to the customers. It is important to note that VNM is different from meter aggregation (single customer, multiple meters), tenant aggregation (multiple customers, one site), and multi-site aggregation. In order to enable community solar, many states have passed VNM legislation (CA, CO, CT, DC, IL, MA, MD, ME, MN, NH, RI, VT). EXHIBIT 1 Standard Net Metering vs. Virtual Net Metering Standard Net Metering Virtual Net Metering Community solar provides a way to create voluntary programs for customer participation that are situated within the load center, unlike most utility scale projects. Community solar offers compelling advantages, such as ease of use and zero impact to home aesthetics. For rooftop systems, customers typically have to engage with third parties (e.g., SolarCity, Sungevity), complicating the overall access to solar process and creating billing and system inefficiencies. For community solar, utilities need to reconfigure their billing systems in order to track solar production and to apply bill credits. Because these billing system updates are made internally by the utility, customers who participate in community solar still receive one consolidated electricity bill. As seen in Exhibit 3, the consolidated bill includes normal electricity charges plus the credits from any solar production. EXHIBIT 3 Example: Utility-Owned Community Solar Bill Arrangement Source: Bridge Strategy Group Analysis There are approximately 50 community solar projects in the U.S. with growth expected to continue. Approximately 15 utilities have utility-sponsored community solar programs with an additional 12 utilities expected to implement programs by the end of the year. 2 Some projects are even emerging in states without legislation, although such projects tend to be small-scale projects run by local municipals, cooperatives, or special interest groups. 3 2 SEPA, How Changing Ownership of Distributed PV Impacts Customers, the Solar Industry and Utilities, 2012 3 State Legislative Documents; OpenStates.org; Solar Gardens Institute; DSIRE Introduction to Community Solar 2
EXHIBIT 4 Community Solar Legislation and Projects by State Source: State Legislative Documents; Open- States.org; Solar Gardens Institute; DSIRE; Shared Renewables HQ; Bridge Strategy Group Analysis Over the last three years, many states have passed legislation that encourages community solar. These actions authorize the development of community solar projects and set standards for program design (e.g., capacity size, number of participants, net metering). Minnesota (May 2013): Passed legislation that allows customers to own and fund solar panels not located on their properties and to receive credit on their bills for the electricity they contribute to the electric grid. California (September 2013): Established the Green Tariff Shared Renewables Program, a 600 MW statewide program allowing customers of investor-owned utilities (IOU) to purchase up to 100% of their electricity from a renewable energy facility. Colorado (June 2010): Passed legislation stating that each qualifying utility must purchase the output from community solar systems at prices that are comparable to the prices for on-site solar generation. WHY SHOULD UTILITIES BE INTERESTED IN COMMUNITY SOLAR? There are many reasons for utilities to develop a community solar program: CAPTURES RATE OF RETURN REDUCES COST OF SOLAR MAXIMIZES SOLAR PRODUCTION Community solar represents a potential way to create additional assets for inclusion in the rate base, allowing utilities to recover service costs in rates. Additionally, community solar allows utilities to retain revenue from customers who might otherwise install rooftop solar, as well as reduces the non-participant costs associated with rooftop solar. This reduces the revenue erosion caused by the increasing number of rooftop solar installations. Community solar benefits from lower installation costs due to its large scale. Utilities can leverage their scale to provide a more cost-effective solar solution. Utilities can utilize existing grid and business infrastructure (e.g., customer service, billing operations) to deliver solar electricity at a lower cost point. With experience in larger scale procurement, utilities can use negotiating strength to purchase solar systems. Community solar offers significant production advantages compared to rooftop solar. Community solar systems can be placed in the best locations with absolutely no shading. They can also be installed at the optimal tilt angle and azimuth orientation to maximize production. Introduction to Community Solar 3
ENABLES BROAD CUSTOMER PARTICIPATION EASES GRID INTEGRATION Community solar enables broad customer participation by addressing customer segments that may have limitations to installing solar on their own property. Rooftop solar installations can be limited by roofing material, shading, neighborhood restrictions, and housing type, while community solar is available to all electric customers, creating a substantially larger market space. Furthermore, customers can participate at a smaller scale to match their needs and budget, without loss of benefit, if desired. Community solar systems can be located in more optimal grid locations in order to reduce the impact on local circuits and infrastructure. Unlike rooftop solar which can have hundreds or even thousands of installations, community solar is easier to integrate with the grid system. UTILITIES HAVE ALREADY ENTERED THE SPACE EXHIBIT 6 Large Community Solar Projects UTILITY TYPE SIZE IOU 4.1 MW PARTICIPANT ELIGIBILITY All customers except those with net metering PARTICIPATION MECHANISM $3/150 kwh/month PARTICIPATION BENEFIT CANCEL POLICY Anytime Source: Company websites; SEPA, Utility Community Solar Handbook, 2013; Bridge Strategy Group Analysis Public Power IOU IOU 20 MW All residential customers 1.7 MW 1.5 MW All customers on residential, small/large general service tariffs All Flagstaff customers on single feeders (Pilot) $24.15/kW block/month $0.099/kWh* $3/150 kwh/month Exempt from surcharges Based on system size Anytime Anytime Unknown Muni 1 MW All customers $10.75/0.5 kw 1 Year Muni 2 MW All residential customers and educational facilities Upfront payment $624 panel $0.09/kWh N/A Co-Op 1.1 MW Members of San Miguel Power Association Upfront payment $747/panel N/A Innovative, forward-thinking utilities will develop multiple, utility-owned community solar projects to embrace the emergence of distributed generation. By owning the asset and developing the business around it, utilities create alternatives to individual or third-partyowned rooftop solar assets. This position enables utilities to capture regulated rates of return and perhaps even meet Renewable Portfolio Standards (RPS) in certain states. EXHIBIT 7 Utility Community Solar Ownership Matrix (Not Exhaustive) Source: Clean Energy Collective; SEPA, Utility Community Solar Handbook, 2013; Bridge Strategy Group Analysis CONCLUSION Community solar shows tremendous promise for utilities looking to participate in solar PV for both regulated and non-regulated businesses. Looking forward, we expect to see more utilities enter this space, given its competitive position relative to traditional rooftop solar PV solutions as well as its larger market size. As the electric industry evolves, utilities with welldeveloped community solar programs may be advantaged and able to export their insights into competitive jurisdictions. * Guaranteed rate for five years Introduction to Community Solar 4
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