Early distributed generation (DG) models inspired us to believe that we could all participate in the mission to democratize and decarbonize our energy infrastructure. Yet, for a long time, that was really only true for a quarter of U.S. households and businesses. For the other 75% or so, putting a solar PV system on their roof or property either wasn’t possible or wasn’t practical. Those hurdles are being addressed today through the proliferation of community solar, an adaptive DG model that has opened the door to a vast new customer base – one that includes all of us.
Tim Braun
For the initiated, community solar, or roofless solar, allows multiple unrelated customers – including renters, condo owners, businesses of any size, nonprofits and municipal entities – the option to share in the clean energy generation of a professionally designed and maintained utility-scale solar PV project located in a participating utility territory. Community solar developers utilize economies of scale to design and operate solar installations from several hundred kilowatts to several megawatts, providing broad and equal access to solar energy.
Rapidly increasing demand from both consumers and utilities is credited for community solar’s explosive growth in the U.S., and rightfully so, as both parties realize tangible economic, environmental and social benefits. Consumers are embracing community solar as a way to hedge against rising electricity rates, save money on their monthly bills, support energy independence and help reduce carbon emissions. Utilities are getting on board because it provides the ability to offer a cost-effective renewables program in a way that allows them to meet renewable portfolio standard requirements outside the net-metering framework, maintain a grid-tied connection with their customers, and protect against retail rate erosion.
Adaptability and scalability are fueling the optimism for community solar’s future, but so are falling solar equipment costs, program management efficiencies gained through enterprise software, and lower development and capital costs – all of which are allowing programs to be offered at a cost equal to or less than traditional fuel sources.
The model is now one of the fastest-growing segments in the solar industry, blossoming from just two projects in 2010 to about 90 today, spanning 25 states and dozens of cooperative, municipal, and investor-owned utilities, with a collective capacity exceeding 100 MW. Forecasts from the National Renewable Energy Laboratory show community solar accounting for up to 50% of the U.S. distributed PV market by 2020, representing $8.2 billion to $16.3 billion of cumulative investment.
Although we have reached a collective understanding that the “experimental phase” of community shared solar is over, there is also a greater appreciation for the fact that launching and maintaining a successful program is neither simple nor straightforward. It is complex, requires diverse skill sets and looks starkly different from one market to the next. There are common phases and components of the process that every developer, asset owner or project sponsor must navigate to get a project off the ground. Here are the most significant ones:
Product design
There are a wide variety of products and projects that are identified as “community solar,” each with variations in program economics, targeted subscribers and flexibility. As the community solar market evolves, we are learning more and more about how program design – including upfront costs, financing options, contract length, renewable energy credits, incentives and even customer relations – can influence customer behavior and program success.
At present, two general categories are most in play: 1) the upfront purchase model, under which customers make an upfront payment to buy individual panels and the corresponding monthly bill credits for the power they produce; and 2) the subscription or pay-as-you-go model, under which customers contract for bill credits, generally to offset 100% of electric usage, and then pay the project developer a percentage of the value of their credits, generating a net savings.
In all scenarios, project developers must do the upfront research to determine the value proposition to which target audiences will be most responsive. The product needs to be compelling enough to drive broad consumer participation, particularly for risk-averse consumers, while providing economics that meet developer and financial requirements.
Project finance
Like any other medium-scale solar facility, there is not one way to finance a community solar project or portfolio of projects. Developers work with the same sources they would during other projects, including local and regional banks, tax equity partners, and investment firms. For construction debt and even long-term debt, working with smaller regional banks instead of the larger institutions can be advantageous because single projects or multi-megawatt portfolios are a good size for them and transaction costs are lower. Tax equity is a growing segment of finance, but it is generally a source for developers meeting a much larger-scale threshold.
The main difference with community solar is that because there is usually a large pool of customers participating – typically a mix of individuals, businesses, and institutional organizations, such as municipalities – there can be a more complicated risk analysis than for projects with a single off-taker. This diversity can mitigate credit issues for financiers, particularly for projects that specifically include low- and moderate-income customers. In case of customer default, the account can simply be turned off and the default risk becomes the cost of remarketing that portion of the project.
It is also worth noting that engaging well-vetted software tools for customer acquisition and program management provides a significant advantage because it minimizes risk and helps meet the rigorous requirements for most lenders and financial partners.
Legal, securities and consumer protection
A successful community solar project, as well as a robust, long-term market, depends heavily on generating positive customer experiences. Thus, it is imperative for community solar developers and project stakeholders to comply with all legal, tax, and regulatory requirements and provide customers and potential customers with comprehensive and clear disclosures. Suffice it to say, this is one of the most complex aspects of community solar program development, and it can be one of the costliest if done improperly and without the appropriate specialists.
Community solar programing requires compliance with utility, business, land use, tax and securities regulations. Participation structures can be delicate, and state regulations vary widely. For instance, if the sale of interests or subscriptions in a community solar program is deemed a securities offering, it would incur substantially more time and expense and would be subject to a higher risk and extent of liability than if the solar garden’s structure did not constitute provision of a security. It seems obvious, but it is not that difficult for project developers to overstep state and federal securities laws in this way. There are relatively clear ways to avoid the product being a security – customer benefits are delivered via utility bill credit and are aligned with a customer’s expected annual utility charges – but it takes careful legal analysis, nonetheless.
Regulatory considerations can include a maximum kilowatt/megawatt capacity, a minimum number of customers, geographic restrictions on members, and a maximum amount of offset credit allowed per member. Expertise is required to properly navigate these components, particularly for project portfolios serving multiple utilities and jurisdictions.
Project development/delivery
Like finance, project development is much the same as with most solar facilities, with the primary areas of focus being site acquisition and permitting, system design and procurement, site preparation and installation, project commissioning, and operations and maintenance (O&M) procedures. Projects should be sited for convenient access to the grid, maximum grid benefit and lowest cost.
Good economies of scale start around 1 MW, and at 2 MW or greater, they get better. (A 1 MW facility will support 200 to 400 customers, depending on the mix of customer types.) The lower installed cost per watt translates into better pricing for the utility program and its participants, making it more attractive and successful.
It is also important for project development and customer acquisition to happen in appropriate timing with relation to each other. That is, you do not want to interconnect a project and then begin the sales and marketing process, nor do you want to sign up a throng of customers who then get parked in an unusually long development process.
Accounting and billing
The accounting and billing arrangement is a key element of successful program execution. Each participant’s share of a facility’s electricity output must be monitored and reported to the utility, the production is then merged with the customer’s corresponding credit rate, and the utility, in turn, provides credits to each participant’s monthly bill. It isn’t uncommon for developers and utilities implementing community solar programs to encounter technology hurdles and increased costs for updating a billing system or for other administrative expenses or use of resources.
Software available today can now automate this process, making it more efficient, reliable and cost-effective than any manually executed process. Comprehensive software platforms obtain production data, seamlessly integrate with existing legacy billing systems, apply credits directly on customer bills, provide all reporting, and allow developers and utilities to manage multiple facilities.
Program management
A typical array can provide power to hundreds of customers, all requiring administration for accurate bill credits. An integrated software platform will ease the burden on the utility and/or developer’s customer service team by automating important administrative processes while reducing the risk of errors. Complete program management tools will include customer enrollment, bill crediting, facility administration, and ongoing customer engagement, often for multiple facilities in the same program.
Customer enrollment can become efficient and cost-effective by creating an easy route to participation. Enrollment platforms should provide the consumer with specific program information, custom proposals and contracts with e-signature capabilities. When customers have the ability to research their utility’s program, receive accurate quotes, and sign up for participation online, participation increases, creating a successful program early on.
Software used for community solar program management should also have the ability to manage program rules and limitations, expedite financial tracking and program reporting, and provide document storage and accessibility. Details of a facility and customer information made easily accessible to utility staff will continue to improve and automate program management of a community solar array.
Marketing and sales
Because community solar is in high demand, it would seem that reaching and enrolling customers would be relatively simple. And often it is. One New York developer recently signed up more than 400 customers in just a few hours. But unfortunately, that is generally more the exception than the rule. In most markets, the bulk of potential customers don’t have a strong enough unaided understanding of the model or product options to be ready for immediate purchase. Not surprisingly, consumer education is paramount, and it should be done early, often, and across all traditional and social channels.
Community solar’s signature advantage, however, is that because a solar-ready roof and the corresponding site inspection and irradiance studies are not required to participate, community solar customer acquisition can be done completely online and at a fraction of even the lowest cost achievable by rooftop solar. Engaging and converting prospects into customers requires a comprehensive, seamless online experience – one empowered through a simple-yet-thorough program description, a savings calculator, a custom proposal generator, real-time credit check, electronically signed documents, and secure payment processing. The marketing program should also accommodate and fully leverage utility involvement when available. Prospective customers will find this the easiest way to buy solar, ensuring high prospect conversion and efficient project sellout.
Operations and maintenance
O&M may not be an obvious customer-facing component of a community solar program, but it is one that can have a direct impact on long-term program success. A professionally designed and maintained facility maximizes equipment efficiency and life span, which in turn maximizes performance, reduces cost and allows for better overall economics. This is an important part of the value proposition for new customers, yet it is also equally important for customer retention.
O&M services include electrical maintenance and system checks, panel additions and replacement, inverter maintenance/replacement, insurance for the array, monitoring of the array’s production, and weather station monitoring. This is also an area where integrated software is making great strides.
Funding long-term O&M services is usually baked into the retail pricing and held in third-party escrow, providing financiers, project sponsors and consumers with the confidence that the project will generate power – and value – for the intended term.
Customer engagement
Utilities and project owners can maintain and enhance valuable customer relations through customer engagement platforms. This type of customer engagement increases program participation levels and maximizes participant retention. Much like a facility’s O&M function, “Customer E&M” is the often underestimated and undervalued process of ongoing, long-term customer engagement and management. Continued engagement helps customers make a strong connection with their renewable energy assets.
A customer-facing online portal should provide visibility and education, including energy production, bill savings, environmental benefits, updates and account messaging, and sharable information viewable across platforms.
Ongoing customer engagement is the most important component of any successful community solar program. A customer-facing online portal provides participants with a direct connection to their solar panels. Further, this robust engagement through software allows a smooth transition to the evolving world at the grid edge, integrating new services and customer programs.
Despite the vast complexity in getting a project or program from concept to sellout, enthusiasm is rising and markets are opening. Some of the country’s largest investor-owned utilities and most advanced co-ops and municipal utilities are turning to community solar solutions in ways that are significant enough in size to serve a meaningful number of customers and achieve significant economies of scale. And retail demand is escalating as consumers become more educated and excited by the model and its value proposition.
Community solar is still some ways away from mainstream status, and the rapid scaling needed to reach its gigawatt-scale future requires a continued focus on innovation and creativity, the persistent pursuit of efficiencies, and expanded partnerships throughout the development process. With every program, solar providers, regulators, utilities, and advocates have a better understanding of the opportunities and barriers to reaching community solar’s multi-gigawatt destiny.
Tim Braun is director of public affairs at community solar company Clean Energy Collective.
