September 15, 2014

Part 2: Existing Community Solar Models

The second in a four-part series on community solar power, this post describes four distinct models for community-scale solar development.

There are already approximately 80 existing community solar projects in ten states. As I explained in my last post, the term “community solar” loosely refers to a project that takes advantage of economies of scale by siting a solar array in one centralized location and allowing a number of local participants to benefit from the energy produced. But there are some major differences that distinguish these projects from one another. This post will highlight four existing community solar models and point out some of the elements that distinguish each project.


The “Adopt-A-Solar Panel” Structure

The simplest community solar model is one in which each investor, such as a local home or business, owns an individual panel in a larger array and receives credits on energy bills. For example, investors in this form of community solar can purchase their own panels located in a collective solar array and receive a credit directly on their energy bill. The Clean Energy Collective (CEC) prides itself on having set up the “first community solar garden,”that operates under this model. Notably, CEC’s model also establishes long-term contracts that set payment rates up front, thus hedging against future electricity rate increases. CEC is currently working on 33 projects in Colorado, Vermont, Massachusetts, New Mexico, Minnesota and Wisconsin. Next week’s blog post will explain how one policy, virtual net metering, makes these states particularly hospitable to CEC’s model.


The Solar Co-op

Another model allows participants to become members of a consumer-owned cooperative. Under this structure, the cooperative owns a solar array that a third party maintains and operates. Members then receive any benefit of their ownership through year-end dividends, or they might elect to put surplus earnings towards developing more solar projects. Cooperatives work well in other contexts where community members similarly seek to come together to form a democratic, member-owned, nonprofit organization (such as my local food coop or REI.)

In the solar power context, the cooperative structure may be less appealing to investors than the other models because the return on investment would likely be minimal. Moreover, certain tax and securities requirements present significant start-up obstacles. However, the success of one Washington cooperative solar share program, called Tangerine Power, offers some hope that even without the right policies in place, the cooperative structure could be a useful starting point for community solar in states where regulatory and financial hurdles make other options impracticable.


The Community-Oriented Utility 

Some community solar projects are owned by utilities. In California, the Sacramento Municipal Utility District (SMUD) has a successful “Solar Shares” program that allows customers to purchase solar power from a centrally located array on a monthly basis. This structure is attractive to customers who are interested in purchasing their power on an incremental basis. The SMUD program, like the CEC model, credits the customer on his or her utility bill at the end of the month. Unlike the CEC model, the customer does not own the panels under this model. But the minimal upfront cost to customers and the relative financial and managerial expertise of utilities can make this structure attractive.

The utility-owned model is attractive to progressive municipal utilities like SMUD, but Investor-Owned Utilities (IOUs) could also play a role in greater community solar deployment. In fact, New York’s Central Hudson Gas & Electric recently issued a proposal in response to the state’s call for utility reform that involves building and managing community solar farms ranging in size from 1 to 3 MW. The power generated at those farms would be available to customers on a subscription basis at a fixed rate, much like SMUD’s program.

Utility-owned community solar sounds to some community-scale solar advocates like an oxymoron. On the other hand, incentivizing utilities to invest in solar projects whose electricity and other benefits (mostly) inure to surrounding communities could be a way to achieve forward-thinking compromise.


Crowd-funded Solar: You and 3,000 of your closest friends

A new community solar model challenges the definition of “community” that the other models embrace by expanding it to include online investors. Traditional community solar projects have focused on drawing investment from, and delivering benefits to, a group of neighbors. But a burgeoning funding model involves crowdsourcing, which may sound familiar to those who have donated to a Kickstarter or Indigogo campaign. Companies like the Oakland-based Mosaic connect borrowers with investors who provide upfront capital. Mosaic’s investors earn approximately a 4.5 % return on their investment once the array is producing and selling energy. Investors, who can contribute as little as $25 to support the project, are projected to earn back their investment in about 9 years.  So far, Mosaic has sponsored 12 projects in three states, including an affordable housing project in California that sold all its shares in only eight hours.  

Crowdfunding has proven successful in supporting everything from films to food carts. Even the Securities and Exchange Commission (SEC) seems to see its value in helping small projects get off the ground, having issued proposed rules exempting crowdfunding from certain securities registration requirements. The interest in companies like Mosaic suggests that crowdfunding could be successful in the community solar context too.


All of these models face regulatory, administrative, and financial hurdles. Moreover, inhospitable state renewable energy policies make some models either legally or practically impossible to set up in some states. Next week’s post will discuss some of the existing obstacles in Oregon and will offer some suggestions for how the state can better facilitate community solar development.