Can Community Solar Programs Bring Solar Ownership to the Masses?
Americans For Energy Leadership On 01.24.11,
In Opinion, By McKenna Morrigan
Americans For Energy Leadership
http://leadenergy.org/
Community solar is a concept that has lots of cheerleaders. And what’s not to love? At it’s best, this market-based deployment strategy can expand access to clean energy, create jobs, spur local investment, and help drive down the cost of solar panels.
But while the concept of community solar has had strong support from policymakers and clean energy advocates for several years, actual community solar projects have been slow to materialize. Now, two statewide community solar programs and a host of other new state and local policies to encourage community solar may be catalyzing a wave of new projects. Will the reality of community solar live up to the ideal?
Community Solar Spreads the Benefits and Rewards of Clean Energy Investment
Community energy carries all the environmental, economic, and national security benefits of clean energy in any form, but with a distinct advantage. A review of research by Northwest SEED suggests that community energy projects deliver 2-5 times the economic benefits of projects built by out-of-state investors. And, in places that import electricity from outside the area, community energy can also keep utility dollars in the community, with multiplier benefits for the local economy. Community energy provides distributed generation, with associated benefits such as increased system reliability and resilience, lower peak power requirements, minimal transmission requirements and reduced line losses.
Examples of community energy began in rural areas of the Midwest, where farmers joined together to capture some of the benefits of the commercial wind development boom underway at the time. These projects blazed the “community energy” trail, developing novel legal structures and forms of financing, and proving that community energy could be a source of job creation and economic development.
But community wind has limited applicability, given the requirements of a strong wind resource, access to transmission capacity, and lots of open space to make a project financially viable. In contrast, solar photovoltaics (PVs) are well suited for modular applications of varying scales and can be placed on existing structures, making them a great fit for urban areas where retail electricity rates and demand loads are often highest.
Community solar is appealing in part because, despite broad interest among the public in solar energy, most people don’t have the ability to install solar PV on their own property. A 2008 study by the National Renewable Energy Laboratory found that only 22 to 27% of residential rooftop area is suitable for hosting an on-site PV system after adjusting for structural, shading, or ownership issues. And in places like New York City, where home ownership rates are especially low, only a small number of people have incentives to invest in solar PV.
Community solar projects address this barrier by decoupling solar PV investment from on-site generation. Owners of community solar contribute funds to pay for a portion of a project, and reap benefits proportional to their investment. Community solar projects can be installed on the property of one of the project owners, on a separate private site, or on a shared location, such as local or state government property. Owners can include renters, homeowners, local businesses, even utilities.
Early Projects Suggest Two Different Approaches
Only a handful of community solar projects are complete, with another handful in development, so no definitive model exists. But so far, projects fall into two approaches.
The first and more common is the utility-sponsored approach. These projects are legally owned by a utility, and individuals voluntarily contribute funds to help finance them, either up front or on a monthly basis. In exchange, contributors receive credit on their utility bill equal to the output of electricity from their portion of the investment. Early examples of this approach include the Sacramento Municipal Utility District (SMUD) SolarShares program and the Ellensburg, WA Community Solar Park. These public utilities have been very successful in using this approach to finance solar installation and the concept is spreading quickly.
Despite its popularity, the utility-sponsored approach has some significant limitations. According to an analysis by the New Rules Project at the Institute for Local Self-Reliance (ILSR), utility-sponsored projects can compare unfavorably to the economics of individual ownership. In some cases, contributors never even achieve full payback of their initial investment, making this approach much like other “green power” programs where utility customers simply pay a premium for clean energy. Only where there is a production incentive that generously rewards community projects (such as in Washington State) does this model seem cost-effective for contributors.
Still, for those who cannot invest in solar themselves, the utility-sponsored approach is often the only option. The second approach might be called a true community ownership model, where the risks and benefits of ownership are shared among individual participants, often through an ownership structure such as a cooperative or an LLC. This model is much stronger in concept, but it has proven very challenging to get off the ground, despite strong interest in many communities.
As David Brosch, lead developer of University Park Solar Community in Maryland, one of the first community solar projects in the country, said, “It took us over two years to develop our project structure and only two months to find our members.” The Clean Energy Collective’s Mid-Valley Solar Array in Colorado, a 77.7 kW community solar project, is another early and widely touted example of the ownership approach, which its founders hope to replicate around the country. Compared to the utility-developed approach, these projects have shown to be more attractive investments, with paybacks faster than would be possible through individual solar PV ownership.
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