Scaling Up Solar Power in DC: Options for Community Solar
American University, School of International Service, Student Consultant Team:
Chris Ververis, Spencer Schecht, and Justin Donahoe
May 2015
1
Prepared For:
The DC Department of Environment:
Emil King -­‐ Policy Analyst, Energy Administration
Prepared by:
American University, School of International Service -­‐ graduate students:
Chris Ververis -­‐ chris.p.ververis@gmail.com, (615) 513-­‐4454
Spencer Schecht -­‐ spencerRschecht@gmail.com, (631) 766-­‐9838
Justin Donahoe -­‐ justin.c.donahoe@gmail.com, (315) 723-­‐4116
Project Advisor:
American University, School of International Service -­‐ Global Environmental Politics Program:
Simon Nicholson -­‐ Professor, Global Environmental Politics Program Director
Acknowledgements
We would like to thank our professor Simon Nicholson for holding us to such high standards and for his guidance through this process. Our contacts at the District Department of the Environment, Bill Updike, Emil King, Dan White, Jay Wilson, and Kate Johnson offered invaluable feedback to the scope and structure of our work. Interviews that provide much of the substance of this report were conducted with Grant Klein of DC Solar United Neighborhoods, Bridget French and John Supp of DC Sustainable Energy Utility, Marc Battle of Pepco, Mike Healy and Robin Dutta of Nextility, Amit Ronen of the GW Solar Institute, CJ Colavito of Standard Solar, Sam Brooks of ClearRock LLC, and Ryan Hodum of David Gardiner and Associates. We are incredibly appreciative to each of them for generously sharing their time and knowledge. 2
EXECUTIVE SUMMARY
This report serves as an overview of the local conditions and as a catalogue of options for community solar in Washington, DC. Community solar is a relatively new solar finance model that allows any DC ratepayer to invest in solar power and be credited for that electricity generation on their monthly bill. Community solar will soon arrive in Washington, DC, and many are excited by its prospects to significantly scale up installed capacity within the District and contribute to meeting the Sustainable DC targets of renewable energy generation and greenhouse gas emission reductions. This report aims to serve as a resource for community-­‐based organizations, neighborhood residents, advocates of renewable energy, solar developers, and local officials who are interested in learning more about the potential of community solar and planning community solar projects in DC. Washington currently has one of the best markets for solar in the nation and rooftop solar could provide as much as 23% of DC’s annual electricity. Community solar is expected to help scale up solar generation in DC a great deal, however, it remains unclear at this point by how much. Still, most agree that the additional financial options made possible through community solar will unlock potential for more solar power in DC. This report provides an overview of the three main community solar project models, a summary of each model’s overall applicability to DC, and provides a discussion of key project site, demographic, institutional, and policy considerations pertinent to facilitating community solar development. Methodologically, interviews with DC solar stakeholders and a literature review were conducted to identify common and emerging finance and project siting models most likely to be used in the District.
We explore three models of community solar development and their overall applicability to DC: the Utility-­‐Sponsored Model, currently not possible in DC, but may be in the future; The Special-­‐Purpose Entity Model, the most feasible model for DC under current conditions; and the Nonprofit Model, forecasted to be less scalable than the former two models but with more potential to assist low-­‐income residents. Through consultation with DDOE and other DC solar stakeholders, several key considerations and recommendations were identified as important to assess how community solar will fit with the unique infrastructure, demographics, institutions, and policies in the District: Project Site Considerations. There will be much innovation in project designs involving (1) commercial rooftops, (2) low-­‐rise apartments, and (3) government buildings, and this report explores various ways being considered to leverage community solar in these spaces. Demographic Considerations. It will be very important for DC solar actors to explore and learn how to leverage newly available investment opportunities for those that have traditionally lacked access to solar power, particularly (1) low-­‐income residents and (2) renter or short-­‐term housing residents. Institutional Considerations. Organizations and individuals should be attentive to the evolving solar landscape in DC as it grows and be proactive in sharing best practices as they emerge. Policy Considerations. Overall, DC has a very good environment for incentivizing solar adoption. Primary concerns, however, include finalizing the community solar regulations, how to handle the expiration of the US ITC, and understanding the implications of the potential Exelon-­‐Pepco merger.
Our research finds that DC government and solar advocates will have an important role to play in helping DC stakeholders identify ways to work with each other to leverage investment and creative partnerships as community solar grows within the District. 3
TABLE OF CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
Introduction ………………………………………………………………………………………………………………... 1.1.
Purpose of the Report …………………………………………………………………………………….. 1.2.
Context for this Report ……………………………………………………………………….………….. Background ……………………………………………………………………………………………………..………….. 2.1.
DC’s Energy Future and Goals ……………………………………………………………..………….. 2.2.
Scalability of Solar in DC ……………………………………………………………………..………….. 2.3.
The DC Policy Environment ………..………..………..………..………..………..………..……….. 2.4.
Explaining Community Solar ………….…..………..………..………..………..………..…………. 2.5.
Why Community Solar is Right for DC ………..………..………..………..………..……………. Methodology …………………………………………………………………………………………………..………….. Models for Community Solar …………….…………………………………………………………….…….…… 4.1.
Utility-­‐Sponsored Model …………………………………………………………………….…………... 4.2.
Special Purpose-­‐Entity (SPE) Model ……………………………………………………………….. 4.3.
Non-­‐Profit Model ……………………………………………………………………………….……...….. 4.4.
Summary of Applicability to DC …………………………………………………………………….. Key Considerations for Community Solar in DC ……………………………………………….…………… 5.1.
Project Site Considerations ……………………………………………….…………………………….. 5.1.1.
Fit for Commercial Rooftop ……………………………………………….……………….. 5.1.2.
Fit for Low-­‐Rise Apartment Rooftops …………………………………………………. 5.1.3.
Fit for Government Building Rooftops ………………………………………………... 5.2.
Demographic Considerations ……………………………………………….…………………………. 5.2.1.
Facilitates access for low-­‐income residents ………………………………………... 5.2.2.
Facilitates access for renters and short-­‐term housing residents …………. 5.3.
Institutional Considerations ……………………………………………….…………………………... 5.4.
Policy Considerations ……………………………………………….…………………………………….. Recommendations …………………………………………………………………………………………..………….. Conclusions ……………………………………………………………………………………………………..………….. Appendix …………………………………………………………………………………………………………………….. References ………………………………………………………………………………………………………………….. 5 5 5 6 6 7 8 9 10 11 12 12 15 17 18 19 19 19 21 22 23 23 24 25 26 28 29 30 32 4
1. INTRODUCTION
1.1 Purpose of this Report This report serves as an overview of local conditions and as a catalogue of options for community solar in Washington, DC. Community solar is a relatively new solar finance model that allows any DC ratepayer to invest in solar power and be credited for that electricity generation on their monthly bill. While there is growing enthusiasm about community solar in DC and the prospects for implementation, as of May 2015, there are not yet any completed projects within the District. This report aims to serve as a resource for community-­‐based organizations, neighborhood residents, advocates of renewable energy, solar developers, and local officials who are interested in learning more about the potential of community solar and planning community solar projects in DC.
1.2 Context for this Report Human interference with the climate system is clear, and it is largely due to the continued use of fossil fuels for energy production.1 As such, there is strong international consensus that the de-­‐carbonization of global energy production is needed in order to avert the worst impacts of climate change.2 Although climate change is a global challenge, the policies and practices that facilitate a clean-­‐energy transition are largely local. It is in this context that DC must chart a way forward towards a post-­‐carbon energy system, and do so in a manner that aligns with the District’s stated commitment to their core values of quality of life, economic growth, and equal access to opportunity.3 More broadly, DC holds a special position of influence to the country and the world as the nation’s capital and should strive to achieve high standards of equitable access to low-­‐carbon energy sources. The Sustainable DC Plan, finalized in 2012, envisions a city that is sustainable -­‐ not just environmentally, but economically and socially as well. However, like many Americans, DC residents have concerns for how low-­‐carbon energy sources can provide reliable electricity, support economic growth, and improve social equity. These concerns are valid; however, they apply equally to fossil fuel energy sources. Socially, for instance, polluting fossil fuel power plants often present a significant issue as they are frequently located closer to low-­‐income areas, disproportionately impacting public health. Economically, for example, volatile and gradually increasing fossil fuel prices should not have to remain the status quo when clean and stable priced energy sources are available right here within the District. Solar power within the District will play an important role in DC’s clean energy transition. Although solar currently contributes only a small fraction of the city’s electricity needs, there is a large potential for rooftop solar to scale up across the District. However, despite an outstanding array of policy mechanisms and financial incentives, solar adoption in the District has remained relatively low. A new and emerging solar financing model, community solar, has high potential to provide additional finance options to spur increased solar investment across the District. 1
IPCC, 2013
MacKay, 2009
3
Sustainable DC, 2012
2
5
2. BACKGROUND
2.1 DC’s Energy Future and Goals In 2012, the District of Columbia published its Sustainable DC Plan. Among other sectors, this Plan establishes a number of energy goals and targets to achieve by 2032 (see Figure 3.1). Overall, the city aims to increase the use of renewable energy to supply 50% of the District’s energy consumption by 2032 and it is continuing to work to develop the policies and financial incentives to reach this target. Although a diverse supply of renewable energy sources will be needed, it is commonly understood that community solar offers significant potential to the overall renewable energy portfolio. Therefore, it will be important for the DC community to consider both the maximum solar potential in DC, as well as community solar project models best suited to maximize its penetration into the energy market by 2032. Of the Energy Action items detailed below, Action 2.4, which aims to enable community solar as an option for solar investment, has been completed through the passage of the Community Renewable Energy Act of 2013. However, no community solar projects have yet come online in DC as of May 2015 due to the continuing Public Service Commission efforts to finalize regulations. Action 2.2, which seeks to complete a feasibility study to identify opportunities for neighborhood-­‐scale renewable energy systems, has also yet to be completed. Overall, the DC government and other solar advocates will need to do much more to encourage greater and faster investment in solar over the coming years. It is very important in the near-­‐term that DDOE, its sister agencies, and community groups focus efforts on education and outreach in both identifying potential project sites as well as working to connect potential subscribers with projects in development. These actions will be very important for meeting Action 2.3 of building 1,000 additional residential and commercial renewable energy projects, as well as meeting overall GHG reduction targets.
Figure 3.1 from Sustainable DC Plan
Sustainable DC Plan’s Energy Goal 2 and associated Actions items to increase use of renewable energy to make up 50% of the District’s energy supply.
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2.2 Scalability of Solar in DC As solar power continues to grow within the District, it is important for DC stakeholders to assess both the technical solar potential and the feasible solar potential given current legal and regulatory barriers. A clear understanding of the scalability of solar should be used to inform how DC government, industry, and investors prioritize among clean energy sources.
Current Level of Contribution of Solar to DC Power. Washington’s distributed generation solar capacity in early 2015 was roughly 14 megawatts (MW),4 which increased from 9 MW in 2014.5 The District’s total electricity demand in 2014 was 11,086,000 megawatt-­‐hours (MWh) while total solar photovoltaic (PV) generation contributed 17,000 MWh, just 0.15% of total electricity demand.4
How Solar is Generated in DC. Current solar generation is sourced from residential, commercial, and utility projects including generation outside of the District. As of May 2015, there are no completed community solar projects within DC due to continuing regulation development under the Community Renewable Energy Act of 2013.
Scalability of Solar in DC. It is estimated that approximately 2585 gigawatt-­‐hours (GWh) per year of solar PV may be possible within DC with rooftop installations.6 If accurate, this suggests that DC may technically be able to source as much as 23% of its total annual electricity demand from local solar generation, assuming only moderate increases in panel efficiency. This would increase solar generation by about 150 times the total installed capacity in 2014.7 This estimate for total installed capacity, however, is likely to be downwardly adjusted soon due to updated estimates of likely total rooftop use for PV.8 This implies that, notwithstanding significant improvements in panel efficiencies, it will be necessary for DC stakeholders to focus on incentivizing renewable energy generation, including solar and other clean energy, outside of the District’s borders. Significant adoption of renewable energy sources will be required if DC is to attain its energy goals of 50% de-­‐carbonization of the electricity sector by 2032, and especially for attaining greater emission cuts towards 2050.
Potential of Community Solar. Community solar is considered to have the potential to help scale up solar generation in DC a great deal, according to several DC solar professionals. However, it is unclear at this point by how much. Many solar advocates agree that the additional financial options available through community solar will unlock significantly more solar power in DC than without this finance option. It will be very important for DC government and other stakeholders to understand the total potential of community solar for increasing solar capacity in the District. A feasibility assessment for total solar potential should be completed to help guide policy and clean energy investment. 4
interview with Emil King, DDOE
About DC Solar Carve Out: http://www.seia.org/state-solar-policy/washington-dc
6
MapDwell
7
Calculation: 2585 GWh / 11,086 GWh = 0.23 → 23% ; 2585 GWh / 17 GWh = 152 → 150 times
8
interview with Emil King, DDOE
5
7
The DC Renewable Portfolio Standard (RPS) requires solar PV generation to contribute 2.5%, or about 275,000 MWh, of total annual electricity generation by 2023.9 Given that total rooftop solar capacity in DC could meet at most 23% of total electricity demand, then the 2.5 % RPS requirement could require as much as 11% of all available rooftop to be covered with solar panels by 2023.10 This is a significant proportion of total DC rooftops. If accurate, community solar financing may prove to be crucially important for reaching these current RPS goals as well as further increases in solar generation within the District after 2023.
2.3 The DC Policy Environment
Washington, DC is currently considered one of the top cities to invest in solar energy,11 and continued public support of DC’s current policies will help solar maintain its rate of growth. The following is a brief overview of the key policies operating at the federal and district level.
Federal Policy. At the federal level, there are a number of tax credits and loan programs that play a significant role in the solar energy market in DC. The Business Energy Investment Tax Credit (ITC) and the Residential Renewable Energy Tax Credit provide a significant boost to solar adoption. The Clean Renewable Energy Bonds (CREBs) and the U.S. Department of Energy’s Loan Guarantee Program additionally provide key support in financing solar energy projects.
Municipal Policy. For DC policy, there are also a number of key incentives that drive solar development. The Renewable Portfolio Standard (RPS) establishes a number of benchmarks that utilities must meet for renewable energy production and generates revenue from an alternative compliance payment (ACP) for utilities that fall short of the mandated carve out. The RPS currently is set for 20% renewable energy by 2023 with 2.5% as solar generation.12 The RPS is supported by net metering13 and the Solar Renewable Energy Credit (SREC) market.14 Property Assessed Clean Energy (PACE) Financing provides financing for both energy efficiency and renewable energy projects up to $10 million.15 The Solar Advantage Plus Program fully subsidizes the cost of installation of solar PV systems for eligible low-­‐income residents in DC as a rebate on a first-­‐come, first-­‐serve basis.16 DC passed the Community Renewable Energy Act of 2013 (CREA).17 This bill is intended to enable community solar as an additional finance model, however regulation for the implementation of CREA was only recently finalized by the Public Service Commission (PSC), with regard to virtual net metering among other regulatory details. As these regulations are put into practice, it will be important for the DC community to understand the advantages and disadvantages of various community solar 9
interview with Sam Brooks, ClearRock LLC
Calculation: 2.5% / 23% = 0.108 → 11% of total rooftops in DC
11
NC Clean Energy Technology Center, http://nccleantech.ncsu.edu/wp-content/uploads/Going-Solar-in-America-Ranking-SolarsValue-to-Customers_FINAL1.pdf
12
DC RPS: http://programs.dsireusa.org/system/program/detail/303
13
Net Metering: http://programs.dsireusa.org/system/program/detail/105
14
SREC: http://programs.dsireusa.org/system/program/detail/5686
15
PACE: http://programs.dsireusa.org/system/program/detail/4206
16
Solar Advantage Plus Program: http://programs.dsireusa.org/system/program/detail/5700
17
CREA: https://sites.google.com/site/dcsolarunitedneighborhoods/key-issues-and-committees/community-renewable-energy-actof-2012
10
8
financing permutations and siting options. Due to the continued low penetration of solar in the DC generation mix, community solar may offer the additional creative financing models needed to both overcome barriers and accelerate adoption in the residential and commercial markets, as well as in low-­‐
income communities.
2.4 Explaining Community Solar
Community solar can be defined as a solar-­‐electric system that provides power and/or financial benefit to multiple community members, including individual homes, building owners, and businesses.18 Community solar projects can be financed through pooled investment from multiple members of a community who receive power and financial benefits in return. Community solar is significant in the clean energy market because it expands access to solar power to those previously unable to invest including renters, homeowners with shaded roofs, tenants of apartment buildings, low-­‐income residents, and others physically or financially unable to pool the necessary resources. It does this by giving utility ratepayers access to virtual net-­‐metering, which allows electricity produced by a customer’s portion of a solar installation to be credited to their monthly electric bill.19 Overall, community solar is considered by many to be a game changer in the solar market because it decouples site solar generation and site electrical load. This means individuals can earn credit for solar generation anywhere in the city on their utility bill. However, the ultimate scalability of community solar will depend on the extent that effective and scalable finance and siting models are pursued within DC. Ultimately, community solar done right is the democratization of solar energy. This new way to participate in solar energy markets unlocks new investment opportunities for all DC residents, from large building owners to historically disadvantaged populations. By allowing energy generated by community solar systems to be virtually partitioned and credited to any ratepayer’s utility bill, it wholly reconfigures the solar energy market. In terms of grid integration, community solar interacts with the grid the same way as traditional solar, feeding electrons in and offsetting demand on a central energy generator. By allowing some or all of a solar system’s power to be sold off to subscribers located anywhere in DC, system sizes are no longer limited to size of the load at the site of generation or by what the roof owner is willing to invest. Lastly, this kind of market opens new opportunities to foster community realtionships and promote the social valuation of community solar in DC.
18
DOE Guide to Community Share Solar, p. 5
DC SUN: https://sites.google.com/site/dcsolarunitedneighborhoods/key-issues-and-committees/community-renewable-energyact-of-2012
19
9
2.5 Why Community Solar is Right for DC
Community solar has the potential to unlock significant energy investment opportunities for DC residents. From our conversations with DC solar stakeholders we have identified a number of ways in which community solar can serve an important role in helping DC achieve its sustainability goals while offering a myriad of co-­‐benefits along the way:
Good Local Economics. The District of Columbia currently has one of the strongest solar markets in the nation. Residents and businesses stand to save substantially on electricity prices by going solar, but they’ll need guidance from DC government and industry to recognize the opportunity. Community solar enables the benefits of relatively cheap and stable electricity to become both accessible and affordable to middle and lower-­‐income residents, those of whom are the most burdened by current electricity costs. By expanding the financing options available to potential investors, increased investment becomes possible within the city limits. This also helps to maintain and expand good, local energy jobs inside the District that cannot be outsourced. Equitable Access. Currently only about 25% of residential rooftops are suitable for hosting an on-­‐site PV system,20 and approximately 28% of DC residents rent their living space and do not have access to a solar-­‐ready rooftop.21 With community solar, this is a substantial portion of DC that can now access solar energy possibilities because it creates an opportunity for anyone who wants to benefit from low solar costs to do so regardless of whether or not they own a rooftop. Groups of individuals in the community who lack access to a rooftop can pursue partnerships with owners of commercial buildings, low-­‐rise apartments, and government buildings to utilize currently unused rooftop space, substantially expanding feasible solar project development in the near and medium-­‐term. Strengthening Community. Community solar additionally serves as a way to further democratize energy production at the local level. Through expanding the options available to residents from diverse socioeconomic backgrounds, communities within DC are more freely able to chose their own energy future and pursue alternative energy sources. These choices can be guided not only by what is good for their pocketbook, but are also good for the community as a whole. Through community solar, businesses and government especially have the opportunity to facilitate clean energy development that is good for their bottom line, and when the investment is shared with resident communities, also substantially benefits the lives of their neighbors. This includes creating specialized projects that provide opportunities targeted at low-­‐income residents.
20
21
Department of Energy, 2012
Sturtevant, 2012
10
3. METHODOLOGY
This report seeks to provide recommendations to the DC community for effectively driving community solar development within the City limits. It does so by (1) providing an overview of the three main community solar project models, (2) summarizing each model’s overall applicability to DC, and (3) providing a discussion of key project site, demographic, institutional, and policy considerations pertinent to facilitating its development in DC. The approach of this study was the following: Literature Review and Informational Interviews. A literature review of policy papers, reports, and case studies was conducted to identify common and emerging community solar models and to understand the various ways in which models are characterized and implemented. Various interviews were also conducted with representatives from DDOE, DC Sun, DC SEU, Pepco, GW Solar Institute, Nextility, Standard Solar, David Gardiner and Associates, and ClearRock LLC.
Characterization of Community Solar Models. Based on the literature review and interviews with DC solar stakeholders, key characteristics about each model was reviewed for its appropriateness to the DC solar market and included in a descriptive overview in the report. Although there do exist additional community solar models, the models selected at the time of this report represent options widely used across the country and are considered of particularly important consideration for the DC community. Representative case studies for each model were assessed and included in the report. Finally, each model was assessed for its overall applicability to DC and its comparative importance relative to the role of other project models. Key Considerations for Community Solar in DC. Through consultation with DDOE and other DC solar stakeholders, seven key considerations were identified as important to assess the fit of community solar with DC’s unique infrastructure, demographics, institutions, and policies. These seven considerations were organized into four thematic categories and are discussed below. Project Site Considerations. Identification, access, and efficient use of various types of rooftops are of great interest to various DC stakeholders. Three common types of rooftops are explored in this report for the potential of community solar to overcome barriers to adoption relative to traditional solar financing: (1) commercial rooftops, (2) low-­‐rise apartments, (3) government buildings. Demographic Considerations. Most stakeholders recognize that community solar creates significant potential for accelerated solar adoption in DC by opening up new buy-­‐in opportunities to all DC residents and further lowering financial barriers for investment. Two of the largest and most underserved DC populations are explored in this report for how community solar might be used by government, nonprofits, and for-­‐profit entities to expand access: (1) low-­‐income residents, and (2) renters and short-­‐term housing residents. Institutional Considerations. As community solar becomes more established in DC, it will be important to keep track of how organizations evolve within the new market, keep stock of how entities can collaborate effectively to pool investment and expand access, and share best practices. For this reason, the roles of government, nonprofits, developers, utilities, and others are discussed in this report. 11
Policy Considerations. There are a number of considerations and uncertainties to bear in mind with regards to how the policy environment in DC will affect renewable energy development overall. A number of key policy dynamics are discussed in this section of the report, including the CREA regulation finalization, the upcoming expiration of the U.S. ITC in 2016, and the potential merger between Pepco and Exelon, among other key issues. 4. MODELS FOR COMMUNITY SOLAR There are a multitude of community solar models, and submodel variants within each model group, which are most popular in states where community solar is already underway. Here, the (1) Utility-­‐Sponsored Subscription Model, the (2) Special-­‐Purpose Entity Model, and the (3) Non-­‐Profit Model will be further analyzed, with a case study for each model examined. The Utility-­‐Sponsored Subscription Model leverages the vertical integration of the utility as generator and distributor, acting as a hub for subscribers to enter into a community solar project. Subscriber benefits are lower, relative to other models, but are nonetheless straightforward for the customer-­‐
participant. The Special-­‐Purpose Entity Model generally has a more-­‐decentralized generation, distribution, and account-­‐management regime, as the project owners are separate from the utility. Structured to offer more direct subscriber benefits, such as SREC’s or tax credits, subscribers become investors into the project—ostensibly owners of a portion of the array’s electrical output. The Non-­‐Profit Model is a fairly straightforward model, offering participants the opportunity to donate funds towards the erection of a PV array. Typically, participants may be offered benefits for their involvement, but do not make a profit from their contribution. 4.1 Utility-­‐Sponsored Subscription Model The Utility-­‐Sponsored Subscription Model allows for ratepayers to buy a portion of a solar project that is owned and managed by an existing electric utility. The utility finds financing for the project and offers ratepayers a subscription to its power generation. The ratepayers receive a deduction off their utility bills proportionate to their share of solar generation. The Utility-­‐Sponsored Subscription Model requires virtual net metering, a policy that allows solar shareholders to spin their electricity meters backwards to earn credit remotely for the solar power generated by their community solar array.22 According to the National Renewable Energy Laboratory, 96% of community solar generated capacity is through a utility sponsored model.23 With the Utility-­‐Sponsored Subscription Model, utility customers have access and the option to purchase or subscribe to a community solar program “as if the resident had solar panels on their own roof.”24 The ownership of the project generally lies with the utility itself, though conditions may allow for third-­‐party ownership, with Power Purchase Agreements (PPA’s) in place between the utility and 22
Elana Bulman, “Community Solar Models Nationwide and Possibilities for New York City” (Senior Thesis, Eugene Lang College,
The New School University), 12-13.
23
National Renewable Energy Laboratory, “Community Shared Solar: Markets and Future Trends,” Presented by Jenny Heeter
(Renewable Energy Markets Conference, December 4, 2014), 8.
24
Bulman, 12.
12
customer. Rather than owning any one portion of the physical solar panel or array itself, customers who enter into a PPA with the utility or third party purchase the benefits of a portion of the solar system’s electrical generation; depending on the restrictions in place per the PPA, these benefits may not include the right or ability to sell SREC’s on the market. At the end of the PPA, or if the customer’s exit is facilitated, all the benefits granted revert back to the utility from the customer participant. The overall scale found within the Utility-­‐Sponsored Subscription Model varies greatly, dependent predominantly on the utility’s risk aversion to piecemeal buy-­‐ins by individuals; as such, utilities generally prefer smaller-­‐scale projects, in order to facilitate the prerequisite number of customers to make the project economically viable.25 Entry into a utility-­‐driven community solar model is predicated upon an upfront payment from the participants, and mechanisms that make it difficult—
and only under certain circumstances—to exit the project. Payment types vary according to project needs, from converting costs to a kWh rate, to purchasing “shares” of the project. Exiting the program is heavily discouraged, due to the utility’s desire to maximize the array’s economic viability. One advantage to the utility-­‐driven model is that intra-­‐utility changes of address won’t necessitate an exit of the program itself. Otherwise, leaving the project generally incurs a financial penalty, although some utilities allow this to be waived should the customer transfer their participation share(s) to another or new customer. The Utility-­‐Sponsored Subscription Model positions the utility itself in the center of the project, ownership, maintenance, generation, and bill payments are retained by the utility, and as such, customer access to solar benefits are supplied by the utility. Virtual net metering is often employed by the utility, in which the electrical supply is credited to the participant’s utility account on a dollar-­‐per-­‐kWh basis. While some projects offer a retail rate credit to participants, still others offer only a wholesale credit, which increases the solar project’s economic viability vis-­‐a-­‐vis the utility; however, it decreases the simple payback period of its participants, which could lower the desirability and rate of participation in the project.26 Because virtual net metering “must be passed either at the state level, or the municipal level for municipal-­‐owned utilities,”27 community solar projects enacted through the Utility-­‐Sponsored Subscription Model are sporadic and geographically limited. Because utility-­‐driven solar projects generally restrict the aggregate amount of individual participation—that is, utilities tend to prevent participants to crowd out access of other participants by controlling the total amount of PV electricity that can be net metered to any individual account—utilities will often allow participants to “true-­‐up” their solar generation—supplementing their entire energy demands through the generation of solar electricity from their “shares”—but generally disallows participation beyond 100% of their annual electricity demands. Because PPA’s dictate the buyback of excess generation by the utility, the utility in turn attempts to limit the probability of this occurrence. Some utilities, such as Colorado’s Xcel utility, allow “true-­‐up” of participants’ solar generation up to 120% of their previous twelve-­‐month demands; 25
Austin Energy, “Best-Practices Basis for an Austin Energy Community Solar Choice Program: A Preliminary Review for
Discussion,” 4-7.
26
Bulman, 14.
27
Ibid, 13.
13
on the other hand, it limits individual ability to subscribe to large portions of Community Solar projects, which, in the absence of a large, diverse subscriber base, can ultimately limit the economic viability of some projects.28 While currently not feasible in DC due to the regulatory constraints on Pepco’s generation ability, the Utility-­‐Sponsored Subscription Model has the highest potential to scale up given its streamlined nature with the public utility. In general, “utilities are likely to have the legal, financial, and program-­‐management infrastructure to handle organizing and implementing a community shared solar project.”29 That is, utilities have an established framework of knowledge in which to implement successful Community Solar projects under their direction. It will be very important for all DC solar stakeholders to monitor the Pepco-­‐Exelon merger as it develops. Other advantages of this model include: low-­‐cost capital access by utilities, lower transaction costs associated with customers’ payments for the systems through utilities’ bills, and grid integration benefits based on utilities’ assessment of good sites for solar. Furthermore, this model is in theory the easiest for the average ratepayer to enter. The ratepayer can trust that if they make the initial investment, the credit will appear on their monthly energy bill through the Virtual Net Metering mechanism. The ratepayer does not have to understand the complexities of entering into an agreement with a Special-­‐Purpose Entity and they can assume that their investment will be handled properly by the vertically-­‐integrated Utility-­‐Sponsored Model.
Case Study Overview: Seattle City Light The seeds of Community Solar were planted in Seattle in 2008, when the United States Department of Energy awarded the city a 25 Solar America Cities grant to facilitate solar projects throughout Seattle. It was here that "project efforts confirmed that the greatest barrier to widespread solar energy use in Seattle isn't [the] climate-­‐-­‐its awareness, planning, infrastructure, and economics.”30 In 2009, new state energy production credits doubled incentive rates; it was a catalyst to the creation of solar projects originating from the Seattle City Light utility, which sought to install Community Solar projects throughout Seattle to meet the city's energy needs. As its first Community Solar project, Seattle City Light partnered with the Seattle Parks and Recreation Department to install three solar PV arrays on top of picnic shelters. Completed in 2012, it generates approximately 24,000-­‐26,000 kWh annually and serves as a demonstration of the communal harnessing of public spaces to reach energy needs through solar PV. In 2013, Seattle City Light established a Community Solar program at the Seattle Aquarium; divided into 1,850 purchasable units, the 44.4 kW system not only provides electricity to its participants—over 75 MWh of solar production since its inception—but also exposure for the potential that PV solar in general, and community solar in particular, have to offer its community. In fact, the system plays a role in the Aquarium’s educational and conservation efforts, particularly aimed at the 40,000 school children who visit a year (usually as part of an education field trip organized by schools).31 28
Brad Seaman, Shawn Olson, et al., “Beyond Single-Subscriber Solar: Recommendations for Encouraging Distributed Solar
Generation in Boulder, Colorado, Under Two Future Utility-Ownership Scenarios” (University of Colorado, Boulder), 15.
29
Jason Coughlin, et al., “A Guide to Community Shared Solar: Utility, Private, and Nonprofit Project Development” (U.S.
Department of Energy), 8.
30
“Community Solar--Watts in it for Me?” http://www.seattle.gov/light/solarenergy/commsolar.asp
31
Ibid.
14
By inspiring conservation efforts through its education efforts, the project “supports a healthy marine ecosystem by reducing our carbon footprint,” according to the Seattle Aquarium’s Director of Conservation and Education Jim Wharton. “It also supports one of our key messages: that people are working together to preserve Puget Sound through both individual actions and community initiatives.”32 Through 2014, Seattle City Light have developed and constructed two additional community solar projects: the 75 kW Phinney Ridge project, as well as the 26 kW Capitol Hill EcoDistrict project.33 The EcoDistrict project directly addresses one of the most challenging barriers to mass adoption of solar energy: front-­‐loaded costs involved in the purchase of an entire system which excludes many on the lower end of the socio-­‐economic scale. Located on the top of a Capitol Hill Housing (CHH) building in the Capitol Hill EcoDistrict, the program offers individuals the opportunity to buy shares of the 26 kW system. After this initial investment expires in 2020, the ownership of the system then transfers to the affordable housing organization CHH; since the upfront costs have already been absorbed in the initial investment cycle, these panels will provide the CHH building with an inexpensive and clean electricity source which will drive down the operation costs of the building, thus (indirectly) benefitting the low-­‐
income residents within. As with each of the projects constructed, owned, and managed by Seattle City Light, shares—
each representing the output of a 250-­‐watt panel—are available for customers to purchase at $150 per share. Participants are only limited to the purchase of 125 shares, or approximately 3.3 kW of installed PV solar energy; whereas participants within most Utility-­‐Sponsored model are usually limited by a proportion of installed PV capacity in relation to their household energy demands from the previous twelve months (in order to limit the excess amount that utilities would credit participant accounts at the retail rate), customers of Seattle City Light could conceivably purchase the equivalent of a 3.3 kW system for approximately $19,000, with no other limits on their ability to do so.34
4.2 Special Purpose-­‐Entity (SPE) Model The Special-­‐Purpose Entity Model is a formation of a private entity or business for the direct purpose of organizing a community shared solar project. This model can be divided into two distinct modes of lowering the barriers to PV access. In contrast to the Utility-­‐Sponsored Model of centralized generation, distribution, and account (e.g., Virtual Net Metering), the Special-­‐Purpose Entity Model removes the utility from the generation equation. The utility is still employed in its distribution capacity of electricity, as well as its reckoning of demand and supply for VNM purposes, where applicable; Special-­‐Purpose Entities are organizations created for the express purpose of erecting community solar projects to a particular community, generating the solar electricity in which the utility will distribute. In a Rural Electric Cooperative submodel within the Special-­‐Purpose Entity Model, the overall structure is very similar to the Utility-­‐Sponsored Subscription Model; however, “the main difference is in the capacity of customers to advocate for community solar” because “[e]lectric coops are owned by the members and are governed by an elected board of directors.”35 In this way, participants are more than simply customers; participants could potentially assist in directing current and future community solar 32
33
34
35
“Community Solar Project in Partnership with Seattle City Light.” http://www.seattleaquarium.org/community-solar
“Community Solar - Current Projects.” http://www.seattle.gov/light/solarenergy/commsolarcurrent.asp
“Capitol Hill EcoDistrict.” http://capitolhillecodistrict.org/projects/
Bulman, 23.
15
projects. Relatedly, the Cooperative submodel is “legally owned by its members and governed by a democratically elected board,” as subject to the respective state’s Cooperative Law.36 The LLC submodel allows “contributors to an ownership stake in the project and make money back from their contribution.”37 By forming a for-­‐profit Limited Liability Corporation, groups interested in furthering the viability of community solar are capable of taking advantage of the benefits that are offered to LLC’s: nonprofit entities are ineligible to receive solar tax credits, for instance, whereas LLC’s are eligible, thus lowering the operating costs of community solar projects and ostensively decreasing the Simple Payback Period for contributors. This advantage, however, will be less defining at the end of 2015, as the federal Incentive Tax Credit is set to expire in December of 2016, though several states have enacted their own tax benefits for PV generation. One barrier to the LLC model has been removed by legislation: the Jumpstart Our Business Startup Act (2012) removed the investor/advertising limitations, “so Solar LLC’s can advertise and have an unlimited number of investors, lowering the minimum amount each investor has to pay.”38
Case Study Overview: Addison County Relocalization Network (ACORN)
The Addison County Relocalization Network (ACORN) is a member-­‐
owned Special Entity Group that administers the ACORN Renewable Energy Coop. Amongst other projects, ACORN has developed an 147.8 kW array on green space provided to them by the Town of Middlebury; while ACORN owns and operates the site themselves, it is worth noting the municipal-­‐
industrial synergy apparent in the ACORN array: by providing the (albeit green) space in order to erect the Community Solar system, the town of Middlebury not only provided ACORN the land but also of a means to reduce the overall costs of the project. At $660,000, half of the project was funded by the Co-­‐operative Companies of Middlebury, with the other half funded by ACORN coop members themselves.39 The funding by the latter group emerged as a key factor in the success of the program, as it provided “credibility to [the] project and provided momentum to move forward with construction.”40 Low-­‐interest loans obtained by ACORN further solidified its financial feasibility, and the Co-­‐operative Insurance Companies of Middlebury’s “willing to guarantee [emphasis original] the loans was key for lenders”41 and for the stability of the project itself, as it allowed a larger return on investment for the coop subscribers, which in turn made the project more attractive for subscribers to invest in the project.” Each subscriber, investing a $2,000 membership fee, draws a 2% per annum interest on their investment, with a further $0.02 per kWh rebate on their monthly electricity bills until the twelfth year, when the rebate increases to $0.05 kWh, for 25 years (the projected lifetime of the PV array). The rapidity of the project’s construction—thirty-­‐nine days after all agreements were made and groundbreaking commenced—and the ability to secure investors with a large “tax appetite” has led ACORN to initiate plans on a second community solar site. For the next project, ACORN seeks to focus 36
37
Ibid, 36.
Ibid, 27.
Ibid, 27.
39
Ibid, 32.
40
“Acorn Energy Solar One Approach and Lessons Learned.”
41
Ibid.
38
16
the equity-­‐investor side of its funding on a larger number of smaller equity financiers who could either be or become lifetime Co-­‐op members after submitting up to $100.00 for the second array. Thus, crowdfunded financing not only adds stability to the project but also solidifies communal ties around the array and the benefits of community solar projects. Furthermore, a larger-­‐scale project will utilize economies of scale that can offer even more attractive returns on investment, as even with the first array, its subscribers “will earn 7% or more on their subscription fee over the 25-­‐year life of the project.”42 While a relatively small community solar project, the ACORN array in Middlebury suggests that a sprawling locale can take advantage of community solar.
4.3 Non-­‐Profit Model The Nonprofit Model is when a nonprofit organization recruits a developer and subscribers for a community solar project. It can be further divided into two submodels. Both submodels share a few defining characteristics. Firstly, the group in charge of the community solar project is registered as a nonprofit organization and, as such, does not have access to tax benefits that for-­‐profit groups do have access to. In a variation of this submodel, “a non-­‐profit may partner with a third party for-­‐profit entity, which can own and install the system and take the tax benefits”43 Secondly, in direct relation to the first point, the projects are not viewed in the context of an investor seeking an economic return, but rather as an altruistic method of furthering particular community solar projects. In the Flat Donation submodel, the project relies on individual donations with no expectations on a return on investment. Rather, “the donation is intended to help the community center, organization, or school reduce their carbon emissions and save money on electricity in order to focus their funding on fulfilling their mission and/or educate their clients or customers about renewable energy.”44 The Zero Interest Loan submodel employs crowdfunding to finance the proposed solar project; through the savings in electricity achieved by PV generation, donors are paid back their principle, which “allows donors to recoup their investment,”45 but not profit from the funding.
Case Study Overview: Solar for Sakai
Originally conceived as a municipal solar project, the Solar for Sakai array was initiated by the Special-­‐Purpose Entity, Community Energy Solutions, as a project “to raise funds for solar projects that do not only provide value to the contributors, but provide other values to the community.”46 Sakai Intermediate School was the first to partner with Community Energy Solutions, which erected a 5.1 kW solar array on top of the school building. At a cost of $50,000 in total, $30,000 was raised from the donations from twenty-­‐
six individuals and organizations with the remaining $20,000 submitted by the utility Puget Sound Energy. Since the Sakai school owns the solar array, the donations do not include 42
43
44
45
46
Ibid.
Coughlin et al., 27.
Bulman, 39.
Ibid, 43.
Ibid, 40.
17
any direct participation benefits; instead, “the school agreed to apply all savings and revenue from the PV generation to additional energy conservation efforts.”47 While it is an extremely small-­‐scale project, it is a nexus of community-­‐ and awareness-­‐building campaign to further the adoption of renewable energy sources. Indeed, “Community Energy Solutions highlights the educational benefits of the solar system.”48 Community Energy Solutions has included information online on the amount of carbon emissions avoided vis-­‐a-­‐vis the output of its array, and teachers in the Sakai school orient their renewable/sustainable lessons towards the PV system found on top of the school building.
4.4 Summary of Applicability to DC
Not only are the current conditions in the District not ideal for the flourishing of the Utility-­‐Sponsored Model, they in fact forbid its existence: DC regulations of Pepco prohibit the utility from venturing into any electricity-­‐generation scheme; however, the possibility of a Pepco-­‐Exelon merger, still far from its final-­‐approval stage, has the potential to disrupt the current prohibitions against utility generation. In that case, the Utility-­‐Sponsored Model would be an attractive pathway to implement a scaling up of Community Solar in DC, given its streamlined nature with the public utility. Utility-­‐
Sponsored Community Solar projects account for the vast majority of community solar projects in existence, and Pepco’s large servicing area (one that includes 801,000 customers located in Prince George's and Montgomery counties in Maryland, as well as the District of Columbia itself) could be fully utilized.49 Considering the transient nature of the DC population, intra-­‐service access would be critical to the success of a potential future Utility-­‐Sponsored Subscriber Model, should the regulatory landscape prove more favorable. Given the deregulated nature of the public utility in the District, the Special-­‐Purpose Entity Model is a highly attractive modality of delivering Community Solar the Washington, DC. In fact, energy suppliers offering their services as an “Alternate Energy Supplier,” allows customers to purchase electricity options beyond Pepco’s “Standard Offer Service.”50 With investment services, this model is the best option to provide economic benefits to non-­‐home-­‐owning contributors. Furthermore, the UPCS project, in University Park, Maryland, has taken advantage of the benefits of a Special-­‐Purpose Entity, directly benefitting the Church of the Brethren with a 22 kW array. Many of the stakeholders we spoke with expressed their optimism for the Special-­‐Purpose Entity Model in DC. The Non-­‐Profit Model is a straightforward archetype for District residents to benefit from community solar projects. While this setup does not provide direct economic benefits (aside from a recouping of one’s initial investment through the Zero Interest Loan submodel), it will appeal to individuals and organizations looking to “go green” and provide educational and public-­‐relations opportunities. Given the large number of non-­‐home-­‐owning residents within the District, wealthier renters may find this to be an attractive option to assist a particular organization (a local school, for example) obtained a PV array. Because of the lack of direct economic benefits, the potential of the Non-­‐
Profit Model to maximize DC’s adoption of community solar is limited.
47
“Solar for Sakai on Bainbridge Island, Washington.” http://nwcommunityenergy.org/solar/solar-case-studies/copy2_of_thevineyard-energy-project
48
Bulman, 40.
49
“Service Area Map.” http://www.pepco.com/connect-with-us/doing-business-with-us/builders-and-inspectors/resources/servicearea-map/
50
Ibid.
18
5. KEY CONSIDERATIONS FOR COMMUNITY SOLAR IN DC
This section discusses four key thematic areas considered important for scaling up community solar in DC: (1) potential project sites, (2) demographic factors, (3) institutional dynamics, and (4) policy considerations. This structure was chosen based on information gathered from interviews with DC stakeholders and from a review of various reports on community solar from across the country. Each of the following sections will provide an overview of current dynamics and limitations involved in traditional solar financing, describe unique contributions offered by community solar, highlight dynamics and potential scenarios possible specific to the District, and detail key recommendations for how DC stakeholders can engage with community solar opportunities.
5.1 Project Site Considerations
5.1.1 Fit for Commercial Rooftop Traditional Solar Development. DC has a lot of commercial rooftop space, and opening these rooftops up to development is key for the city to reach its full solar potential. Traditional solar models are often attractive for single site owners because a solar system can be installed with both a manageable upfront cost with a relatively short payback period, while the system can contribute meaningfully to providing green power and saving on electricity costs. However, each of these components -­‐ upfront cost, payback period, and net energy savings -­‐ can vary substantially by project site for building owners. Therefore it is very unlikely that every feasible commercial rooftop in DC will be developed in the short-­‐ and medium-­‐term, especially for owners of multi-­‐tenants buildings who pass on the cost of electricity to tenants, as well as facilities with very high or very low energy use.
What Community Solar Offers. Community solar overcomes a number of barriers in traditional solar by no longer requiring that the property site owner also be the sole investor in the solar system. This is a transformative development in the commercial rooftop sector because investment potential can be leveraged from a larger pool of subscribers for a given project site. A characteristic example of this is that any downtown multi-­‐tenant building can now choose to lease out its entire roof space to a 3rd party manager to organize subscribers representing a group of its building tenants, local outside organizations, and/or low-­‐income DC residents. Single Owner Commercial Properties. Typically, the capacity of a rooftop solar system can supply only a small fraction of a commercial building's energy needs. Before community solar, there was little incentive to go through the hassle of starting a solar project and laying down the upfront capital. Community solar decouples the building and building owner from the energy generation and how it is fed into the grid. This creates novel opportunities for commercial building owners to sell off their solar power as that may be more appealing than only compensating a small fraction of their utility bill. For example, property owners that lack the capital for purchasing a solar system can open up their rooftop for pooled investment from outside groups. There could be any number of options to incentivize building owners to allow for community solar projects on-­‐site. Examples might include receiving a regular fee from the community renewable energy facility (CREF) for leasing the rooftop, 19
receiving the SRECs generated from the solar project, and leveraging creative support for solar development in its public relations efforts. Multi-­‐Tenant Commercial Properties. Building owners often have little economic incentive to invest in a solar system because costs of electricity are passed on to the building’s tenants. This “split incentive” problem is well known in the rental market and it is considered a significant barrier to solar development in these types of properties. Community solar opens up new and creative opportunities for making solar feasible on these properties. For example, as an extension of the third party model for traditional solar, these entities can come in, raise capital, own and operate the system, and actually manage the CREF subscribers for the building owner. This creates a new frame of rooftop space as valuable real estate for property owners across the District. Additionally, if the building owner does want to have leverage over how the CREF is operated, the owner can become a subscriber or add conditional terms to the project agreement. Such conditional terms could include making subscriptions available to the building tenants, or ensuring the building owner have certain ways he can use the presence of the system for PR or other strategic business uses.
Low-­‐Electricity Use Properties. For commercial properties that use little electricity relative to the size of the facility’s roof space, the size of a rooftop solar system with traditional solar financing can actually be limited by the system’s capacity to net meter on-­‐site electricity use. For instance, if a warehouse roof can support a 500 kW system but the building only draws a 100 kW load, the owner is only able to install a system at around the 100 kW scale on-­‐site. Through community solar and virtual net metering, that 500 kW system can be built, with the remaining 400kW sold to community solar subscribers. This potential is further facilitated by the potential for a third party manager that can save the project site business from needing to deal with the hassle of managing a larger on-­‐site system. In another scenario, it may prove more attractive to sell off all 500 kW of power to subscribers if the price of the produced electricity is not competitive with current electricity rates for that commercial or industrial facility. In this case, the electricity produced by the CREF could be fed directly back to the grid, instead of net metered, and off-­‐site subscribers would receive the virtual net metering for all of the electricity produced. As in other scenarios, the property owner could arrange to receive a variety of benefits from this arrangement, including property leasing payments, SREC ownership, and other financial or functional arrangements as a part of the original CREF agreement.
High Electricity Use Properties. For some properties that use substantially more electricity than the rooftop solar could offset, it has sometimes been the case that the rooftop is not chosen to be used for solar development because the investment appears to be too much of a hassle and the financial benefits appear marginal relative to the overall costs of operations. In this instance, community solar might create a business case for the property owner to allow a CREF on its rooftop for both its own marginal financial benefit, but also to help others access solar who might otherwise lack access and benefits greatly from the investment. 20
Key Recommendations. We think there will be a lot of project design innovations in commercial rooftop development and DDOE and DC solar advocates should seek to support its development as community solar comes online. The arrival of community solar opens up new opportunities to put empty roof space to use, essentially creating a mutual fund over property owners’ heads. DC institutions will serve an important role in educating commercial property owners of the new financial incentives that will exist under community solar. This includes understanding leasing versus ownership pros and cons, how owners’ roof space can be leased to a community solar project, and how SREC arrangements can be set up to maximize incentives for investors. More potential incentives for property owners to support community solar should be explored.
5.1.2 Fit for Low-­‐Rise Apartment Rooftops Traditional Solar Development. Low-­‐rise apartments also constitute a significant portion of total DC rooftop space. However, right now there is little to no incentive for low-­‐rise apartment owners to invest in rooftop solar to offset the cost tenants pay for their own electricity costs. In a similar way to how community solar addresses this “split incentive” problem between commercial property owner and tenant, this market may also now see some innovative solar financing models. Nationally, only 25% of residential rooftop area is suitable for hosting an on-­‐site PV system. If we assume this as true for DC as well, and factor that residential rooftops comprise an even smaller percentage than that as well as a high renter population, we can conclude most residents do not have direct access to a roof favorable for solar energy production. Under traditional solar development, these people are limited in their energy options and, as coined by a DC solar advocacy group, fall into the category of “second class solar citizens.”
What Community Solar Offers. Owners will be able to lease out rooftop space to third parties for community renewable energy facilities (CREFs). Although this third party model was also possible under traditional solar financing, there are now additional financing options that are unique to low-­‐rise apartments. Building owners can explore creative options for serving and attracting tenants, such as introducing subscriptions to solar electricity as a property amenity and allowing a third party to manage the CREF subscriptions.
Incorporating Solar as a Building Amenity. Conversations with solar developers revealed that large-­‐scale projects on apartment rooftops are not anticipated. However, there are many opportunity costs for covering an apartment rooftop with solar. For instance, building owners would then be excluding the possibility of building a rooftop patio or other amenities. This choice would come down to the value proposition of solar compared to other potential projects. Part of this value equation then could be in advertising subscriptions to solar as a building amenity. A point of clarity needed here is if apartment dwellers with a flat rate utility bill would be allowed to credit a CREF subscription to their account. This will be an important question to address when designing subscription strategies for Pepco ratepayers in residing in such apartment buildings. 21
Key Recommendations. Apartment rooftops often face competition for alternate uses (such as patios, decks, etc.) so these sites should be investigated further on a case-­‐by-­‐case basis. It will be likely that apartment owners will prefer that any solar installation to serve the tenants as much as possible. Therefore, it should be a priority of the solar industry and DC government to work with these property owners to identify community solar finance models that can both serve the building tenants as well as the property owner’s bottom line. Finally, there may be potential for owners and managers of community solar projects to work with the apartment business to improve outreach and opportunities for renter subscriptions to solar projects around the city. If this was determined to be feasible, DC stakeholders should explore models that would enable shorter term CREF subscriptions. This could be used to further expand community solar subscriptions within the DC renter market.
5.1.3 Fit for Government Building Rooftops Traditional Solar Development. There is a significant presence of both federal and municipal rooftop in DC. Generally, government rooftop solar development has been restricted to either direct government purchases or 3rd party ownership and management. Although public buildings are often considered to have great potential for solar, industry and investors have been wary of engaging in the bureaucratic process and rules involved in government property projects.
What Community Solar Offers. With community solar, DC government can choose to open up roof space for solar in a number of new ways. Most notably, solar investment can be leveraged from private capital in order to both increase the city’s share of clean power and also create opportunities for social good for DC residents. Although government building rooftop is generally not yet considered by many industry groups to be a high potential location for community solar development, there are a number of key ways that government can help lead on developing community solar across the District on its rooftops. Ultimately, the impact of community solar on solar rooftop development will depend on government leadership in defining project options.
Municipal Property. There is generally high technical potential for solar on government rooftops across the District, however like most potential sites, funding has been a limitation and bureaucratic processes have generally inhibited outside investment through traditional solar finance models. Community solar stands to open up this investment substantially if government entities can take the lead on securing project site approvals and bidding out investment through community solar projects. For example, DC government can lead aggressively on Requests for Proposals (RFPs) for solar community projects across the district and further mandate a certain percentage of subscribers be low income residents or other groups that traditionally lack access to investment opportunities. Integrating such a mandate would support industry and nonprofits operating in the community solar space to build capacity for education and outreach into these communities. Some good project sites might include public schools, administrative buildings, brownfields, and municipal utility properties.
Federal Property. Federal government property likely has many of the same challenges with overcoming bureaucracy to spur community solar investment and so it is unlikely that industry groups will work to overcome these barriers in the near-­‐term while the solar market for private property remains active in the DC area. Again, these barriers can be better overcome 22
by federal agency leadership on submitting project options with clear parameters to which industry can work to with. Because government projects tend to prefer shorter than average contracts, on the order of 10 years in some cases, there is some acknowledgement that these short term agreements might only continue to be doable while SREC values are relatively high. Key Recommendations. Consultation with industry stakeholders has revealed a clear concern for working with government bureaucracy. To help move projects forward on government buildings by leveraging private capital, DC government should identify ways to lead on this front and provide clear opportunities to potential investors. This process may involve continued Requests for Proposals (RFPs) by DC government with a focus in community solar projects. Notably, these RFPs might be designed to require specific types and proportions of subscribers, such as low-­‐income residents, and encourage non-­‐
profit involvement in mobilizing subscribers for for-­‐profit projects across the city.
5.2 Demographic Considerations
5.2.1 Facilitates access for low-­‐income residents. Traditional Solar Development. Although solar project prices have been falling over the last few years considerably, there still exist major barriers for low income residents in the form of upfront costs and time investments. These economic hurdles left solar energy as an option for the privileged and excluded participation among low income residents.
What Community Solar Offers. Community solar done right means equitable access to solar energy for all DC ratepayers, regardless of socioeconomic position. By expanding project site and group investment options, community solar has potential to further increase low-­‐
income access to solar by reducing initial upfront costs and eases access to buy-­‐in opportunities. Community solar also opens up a new vehicle for philanthropic organizations to create a value stream for their own particular interest group. For instance, an organization can sponsor a community renewable energy facility (CREF) with a specific quota for low-­‐income subscribers. Collaboration among entities. The low-­‐income demographic has considerably less inertia towards solar adoption than the building and business owners discussed in the previous sections. Community solar opens up novel opportunities for these historically disadvantaged populations. Therefore, it will require collaboration among civil society, advocacy groups, government, and others active in the DC solar space to tailor CREFs to potential low-­‐income subscribers. We expect to see nonprofits and governments work together on outreach and education and connect individuals to community solar projects in development. As explained above, each CREF will be a unique configuration of financing, ownership, and siting. It will fall upon government entities, social advocacy groups, and industry to cooperate around specific low income projects. Specifically, getting the initial buy-­‐in price as low as possible, possibly in a trade-­‐off with other aspects of the project, will be key for low-­‐income participation. 23
Particularly important in the low-­‐income solar adoption conversation is the anticipated deflation of SREC values and the end of the Investment Tax Credit in December 2016. In a conversation with a DC solar energy professional, PV has as low as a 4 year payback period with an 18% return on investment. If the ITC expires and SRECs values decline, 10 year payback averages are expected with a 7% return on investment. The low-­‐income sector is potentially the most vulnerable to these market shifts. While others will still have investment opportunities that take longer to pay back, barriers in the form of upfront costs re-­‐enter the conversation.
Government Low-­‐Income Programs. A deep understanding of the state of current government lead low-­‐income programs is outside the scope of this research. However, it is important to note the potential for community solar to plug into established funding systems and social equity programs. Key Recommendations. DDOE should work with entities in DC already engaged in low-­‐income outreach and projects to create new options specifically for low-­‐income residents, and updating current aid programs to adjust for CS options. Awareness is essential for buy-­‐in among this demographic, however, and it will be the duty of many actors within the DC solar space to educate and reach out to potential low-­‐income markets. From interviews with advocacy groups and solar companies, many are optimistic that community solar will generate more options and lower barriers to solar adoption amongst, what one organization calls, traditional “second class solar citizens.” It was also speculated in some of our interviews that ACP funds can be earmarked for low-­‐income projects that need more subsidization for viability.
5.2.2 Facilitates access for renters and short-­‐term housing residents
Traditional Solar Development. Prior to community solar in DC, residents that lacked ownership or access to a viable roof for solar also lacked access to solar as an investment option. Many DC inhabitants are transient and population turnover is relatively fast. For these reasons, solar was not a viable option for these regularly mobile ratepayers. his was the case despite the fact that tax dollars go towards supporting solar initiatives, such as the DOE SunShot Initiative. What Community Solar Offers. DC renters will now be free to subscribe to CREFs and receive virtual net metering on their monthly electric bill regardless of where they live or if they move to a new residence so long as they bring their Pepco bill with them. This untethering of site of generation and credited electrical load opens up new opportunities for renter and short-­‐term housing subscribers.
Tailoring to Renters. In theory, renters and short term housing dwellers can subscribe to a CREF and can move the subscription to a new bill elsewhere in the city as they move around. What is easy in theory may not be the case as it translates into reality. It will be important to lubricate this process of lateral movement of the CREF subscription to attract mobile ratepayers to community solar options and keep them there through ease of access.
24
Subscription to a CREF may also create a newfound connection to the broader DC community. Community solar advocates can leverage this in creative ways, such as providing an informational pamphlet of who else within the District is subscribed to that CREF. Key Recommendations. Overall, this demographic represents a huge potential subscriber market in DC, however, DDOE and industry will need to continue to identify best ways to access these potential customers. In particular, solar advocates should explore ways to encourage buy-­‐in, potentially at much shorter contract periods as is normal for 15 year PPAs. Also, because of the traditional paradigm that solar energy meant ownership, there may be an issue with initially generating momentum among this base of ratepayers. This will require tailored outreach and subscription considerations from that can be aided by DDOE.
5.3 Institutional Considerations
Traditional Solar Development. Organizations working to scale up solar in the District have valuable experience with traditional solar models within DC and from experiences across the country. These project models generally involve a limited number of investors at a single project site and project bidding and development is generally quite competitive between developers. What Community Solar Offers. As of early 2015, no entities have experience with scaling up community solar in DC due to the continued effort by the Public Service Commission to finalize CREA regulations. However, there is much anticipation around community solar coming to DC. As such, there is continuing need to assess which actors in DC will be involved and how they can best act to effectively use community solar to increase solar generation within the District. As some recognize, there will likely be emerging models of collaboration between developers, property owners, and subscribers so it will be important for all actors to track and share best practices as this new market develops and there is a normalization of business models. Notably, there will likely be increased specialization among developers in community solar as they learn how to manage subscribers and navigate the DC market. Organizations present in DC are already developing projects for when the regulations are completed. It is also very likely that firms from states with an established community solar market will likely move into DC to invest as well (including companies from MA, NC, CO, MN, VA, and MD among others).
The Role of the Local Utility Company (Pepco). From an interview with Pepco, it is evident that the utility is supportive of CREA and it looks forward to working with developers across the district on scaling up distributed solar power. Because Pepco currently only manages distribution, not electricity generation, the company claims to be content with the development of community solar, as much as any other energy source, and foresees providing support through information sharing and consultation on grid interconnection aspects of project development. However, the current potential merger between Pepco and Exelon would give the merged company generation capacity and some have expressed concern for how this might affect the utility’s role in facilitating solar development in DC. 25
The Role of Developers, Nonprofits, and DC Government. Overall, it is expected that there will be quite a bit of creative partnership between organizations and individuals as community solar ramps up in the coming years. Such collaboration may involve educating and tracking potential customers, pooling investment, and sharing space for project site developments. Special Purpose Entities (SPEs) like Standard Solar, SolarCity, Nextility, Sunedison, Clean Energy Collective, and many other local and nonlocal firms will likely continue to compete for projects and their efforts will vary substantially in both project size and extent that they engage with traditional solar and community solar across the District. However, for those entities that do engage in community solar development they will likely expand their efforts and finance models to include more creative partnerships than what is currently done in the District. Nonprofits which currently help support solar adoption in DC through outreach and education will very likely also work to help support individuals and organizations organize community solar purchases. DC Solar United Neighborhoods (DC SUN), for example, has been very active in helping DC residents make bulk purchases throughout the District, and has been a key actor in supporting the development of CREA.
DC government will have an important role to play in helping DC stakeholders identify ways to work with each other to leverage investment and creative partnerships across the District. For example, as community solar starts to pick up speed in DC, various investors within and outside of DC will need assistance in navigating the DC market, especially for-­‐profit solar companies from other states as well as various potential subscriber organizations like churches, business associations, and nonprofits unfamiliar with how to go solar. To facilitate this development, it will be very important for DC government to archive and share best practices as they emerge, as well as ensure a zoning and investment environment that is amenable to continued community solar development.
Key Recommendations. DC Government, and particularly DDOE, has an important role to play in this space as a steward among the private, non-­‐profit, and government sectors who will each be engaging with community solar over the coming years in their own ways. In particular, as creative project and financing models develop in DC, DDOE should work to stay engaged with developers and spread best practices as they emerge
5.4 Policy Considerations
Community Renewable Energy Act of 2013. At the time of writing, the Public Service Commission has released its decision of final rulemaking, however, DC solar advocates do not expect any Community Renewable Energy Facilities (CREFs) to come online until later this year or possibly not until 2016. It is a contentious issue among the stakeholders we spoke with that the credit rate for community solar is two-­‐thirds the value of the retail rate. We think it is worth outreach by DDOE or the PSC to explaining the rationale for this rate design to strengthen transparency for the process. The construction of the CREA and the PSC’s rules allow for a widely different permutations of siting, financing, and ownership. Innovative approaches to these permutations will flow from the CREA, however, can be supported and scaled by input and guidance from solar advocacy groups and government agencies, such as DDOE. Many solar groups see community solar as an incredibly flexible mechanism for solar adoption and for scaling renewable energy in the District significantly. 26
U.S. Investment Tax Credit (ITC). Many solar industry representatives we spoke with see community solar projects as a race against time to qualify for the ITC, which is set to expire on December 31, 2016. There is pessimism as to whether the ITC will be continued. If it is not, the 30% credit for both commercial and residential projects will drop to 0% for residential and 10% for commercial projects. While the option for a federal level “ramp-­‐down”, in order to make the expiration less of a precipitous crash, is merely speculative, these conversations will probably pick up steam through 2016. The ITC’s expiration will also incentivize commercial development of CREFs as there will still be 10% available for commercial projects. This may trigger a shift in project deployment to favor commercial projects.
Other DC Policies. There are many considerations surrounding how community solar will interact with existing policies, agencies, and incentives. A thorough elucidation of these considerations is outside the scope of this report, however, they are worth mentioning as they may prove to be increasingly important to the future of community solar in Washington, DC. HUD and other housing agencies are still brainstorming ways to engage with community solar. There has been talk of restructuring some finance and loan mechanisms to incorporate new possibilities with community solar. Whereas the Office of Planning will be actively engaged in creating favorable zoning conditions for CREFs, inter-­‐jurisdictional cooperation among the various authorities of DC, Maryland, and Virginia will be required at border sites. Related policies, including the Low Income Housing Tax Credit, the Solar Advantage Plus Program, the Residential Renewable Tax Credit, Clean Renewable Energy Bonds, and the federal Loan Guarantee Programs have potential to be leveraged in concert with community solar and should be explored. Key Recommendations. It is important for DDOE and others engaging with the CREA to remain flexible in order to adapt to the dynamic community solar market expected in DC. DDOE should remain open to engaging with ideas on how to float the DC solar market down from the ITC’s expiration as the time approaches. Working with current solar and social equity programs may yield high value collaborations and should be investigated further. In a number of interviews, we were told that there is a “surprising lack of information” regarding the ACP. While DDOE is assured that the significantly lower than expected ACP fund is fully accounted for and explainable, many we have spoken with are less confident. We feel a concise explanation of the ACP shortage in the form of a distributable one-­‐pager may help to clear up any misinformation and fortify trust in PSC decisions.
27
6. RECOMMENDATIONS The following are key recommendations for DC government, solar industry, and citizen advocates to consider with regards to supporting community solar development in DC over the coming years.
Research ●
An analysis to confirm the technical and feasible solar potential within the District should be a priority for all DC solar stakeholders. This clear understanding of the scalability of solar should be used to inform how actors prioritize among clean energy sources within and outside of DC. ●
A mitigation wedge analysis of potential GHG reduction scenarios in the electricity sector should be completed to improve and guide energy policy development. ●
A thorough analysis of participation trends in solar investment should be done to develop targeted outreach and maximize the scalability of community solar. Community Solar Models
●
Government should remain adaptable while creative financing and innovative project site proposals emerge as the DC community solar market develops. ●
Solar industries operating in DC should continue to share information about successful community solar projects. ●
DC government should work to track success stories and share best practices from projects within DC and from across the country. This effort should identify which finance options have high potential within DC and be used to guide further project development. ●
DC Government should be proactive in providing guidance to private industry in using government building rooftop space. ●
Low-­‐rise apartment owners should be consulted with to determine if there are options for utilizing rooftops for community solar development. Particularly, innovative business models for including community solar subscriptions as a building amenity should be pursued. ●
If Pepco-­‐Exelon merger goes through, community solar advocates should be aware that the Utility-­‐Sponsored Model can be an important driver of solar adoption. Outreach
●
Solar advocates should provide general education of new community solar opportunities for DC residents and solar advocates, including financing options, subscription opportunities, siting opportunities, and avenues for collaboration. ●
Industry should work to tailor its approaches to recruiting high potential sites as different site owners are motivated by different interests. Similarly, industry should tailor its approaches to high potential subscribers as different subscribers will respond to different incentives. ●
Multi-­‐family apartment owners should be consulted to determine how DC renters might be included in outreach efforts to recruit CREF subscribers. 28
Collaboration
•
DDOE should serve as a steward among actors to facilitate cooperation and maximize solar energy installations. •
Organizers should bring community solar stakeholders together to have an inclusive, transparent conversation as a community in order to identify pathways for cooperation and pursue creative partnerships and CREF arrangements. •
All entities should work to leverage networks of other organizations like nonprofits, businesses, and residents to scale community solar up quickly. Policy
●
DDOE should work with solar developers to leverage community solar projects to meet DC’s RPS goals of 2.5% solar PV by 2032. ●
The DC Office of Planning should continue to improve zoning regulations to allow for solar rooftop development across DC. ●
Policy makers should work on innovative approaches to meld current government low-­‐income programs with emerging community solar projects. 7. CONCLUSIONS
Optimism prevails surrounding community solar prospects in DC. Solar developers have several megawatts of projects lined up and solar advocacy groups are preparing to scale up outreach, education, and collaboration over the coming months and years. However, the success of community solar in the District is not inevitable. There must be cooperation among entities and individuals as community solar opens up unique financing and siting models. The goal of deep de-­‐carbonization must be recognized as a common thread throughout these engagements. From this overarching ambition flows the myriad of economic incentives that make a strong business case both for siting CREFs and buying into one. We present four key concluding points: 1. Many of the stakeholders we spoke with believe that community solar will be an essential piece to meeting DC’s RPS goals. It is also important to note that it will not be wholly sufficient. At most, rooftop solar can supply 23% of the DC energy demand. This means DC should research generation opportunities outside the District as well as other low carbon energy sources to meet its renewable energy goals. 2. As community solar comes online for the first time in the next year, it will be important for DDOE, industry, solar advocates, and other government agencies to remain adaptable to this emerging market and responsive to the many permutations of siting and financing options. Community solar invites significant creativity into the solar market, meaning that yet unrealized pathways for scalability should be fostered as they develop. 3. In the way that community solar opens up participation to many more actors in DC including individuals, businesses, government, non-­‐profits, schools, churches and others, DDOE can serve an important role to steward cooperation among these many parties. DDOE and other solar 29
entities in DC can aim to incentivize low-­‐income buy in, explain the business proposition of community solar to interested parties, and seek to maximize capacity with virtual net metering 4. As the nation’s capital, DC has a critical role to play as an example of progressive energy policies to the rest of the world. DC is attempting a wholesale restructuring of its energy system to decarbonize up to 50% of its energy portfolio over the next 17 years. This will require new and innovative engagements from industry and government as the city navigates through this unchartered territory. We believe that DDOE should stay attentive to the evolving nature of community solar dynamics to best serve utility customers in DC in the most equitable, economic, and environmentally friendly way. This report is just the beginning of academic analyses of the DC community solar landscape. We invite further research by institutions, universities, businesses, and advocates in the effort to maximize renewable energy adoption in Washington, DC and other metropolitan areas throughout the world. Responding appropriately to the threats of climate change will require a swift transition to a low-­‐carbon energy system. More research to aid this transition in effective ways will be required to elucidate yet undiscovered opportunities.
8. APPENDIX
8.1 Utility-­‐Sponsored Subscriber Model51 52
Community Solar Array Size
Project
SMUD SolarShares
1 MW Installed
Ellensburg 139.6 kW
Community Renewable Energy Park
St. George’s SunSmart
Participation Cost
250 kW
Subscriber Benefits
SREC’s
Virtual Net Metering
Utility Retention
$7.91/watt installed capacity
$0.30 kWh production incentive
$2,500/share at 0.5 kW per share
Simple Payback Period: 34 years
Solar Pioneer I and II
30 kW, 64 $185.70 per 44 Prepaid Solar Energy
kW
watt installed capacity
Solar Gardens Institute
10 kW -­‐ 2 $2,000 -­‐ 20 year subscription MW
$2,500 per kW plans with VNM
installed capacity
Other Notes
Utility Retention
8.2 Special-­‐Purpose Entity Model53 54
51
52
Bulman, 14-21, 24-25.
Austin Energy, 2-1.
30
Community Solar Array Project
Size
Appalachian Institute for Renewable Energy
2.4 kW
Participation Cost
$4,010 for 2.1 kW share
Subscriber Benefits
Simple Payback Period: 13 years
SREC’s
Needs 35% North Carolina interconnection State Tax Credit
agreement before able to buy/sell SREC’s
University Park 22 kW $2,000 Community Solar
investment
Simple Payback Investors Allotted Period: 6-­‐7 years, SREC’s
based on projected 7-­‐8% return during 20 year lease
Clean Energy Collective (Pilot Program)
$725 per panel, or $3.15 per watt
Simple Payback Period: 13 years; $0.11/kWh PPA
Winthrop 22.8 Community Solar kW
Project
Investment in $500 increments, max. $15,000
Net Metering, Production Tax Benefits
Edmonds 4.3 Community Solar kW
Cooperative
$25 Membership Fee + $1,000 per SunSlice (10 max) for 10 year contract
$100 cash back per SunSlice per year; Production Tax Credit
Edmonds 4.3 Community Solar kW
Cooperative
$25 Membership Fee + $1,000 per SunSlice (10 max) for 10 year contract
$100 cash back per SunSlice per year; Production Tax Credit
77.7 kW
Simple Solar-­‐
Florida Keys Electric Cooperative
96.6 $999 per 175 Simple Payback kW, watt panel for 25 Period: 23 years
21 kW year lease
Sol Partners-­‐
United Power
20 kW $1,050 per 210 Retail Rate Credit watt panel for 25 of $0.11/kWh; year lease
Simple Payback Period: 26 years
53
54
Other Notes
Total Energy Output: 6.2% above original estimates, allowing UPCS to sell ~7,000 kWh to Pepco for $680
LLC retains SREC’s 120% Restriction
and sells upfront to lower subscriber cost of participation
System ownership transfers to Town of Winthrop (Washington State) in 2020
Participant Exit: Full Panel Value less 4% panel value per year into lease
Bulman, 36-37.
Jason Coughlin, 29-30.
31
8.3 Non-­‐Profit Model55
Community Solar Project
Array Size
Solar Mosaic
“Rays the Roof” 9.8 kWh Project on annual Linden Hills production
Cooperative
Participation Cost
Contributions in $100 increments
Subscriber Benefits SREC’s Other Notes
Contributions paid back in 10 years.
800-­‐900 customers
New Generation 3.9 kW
Energy
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Bulman, Elana. “Community Solar Models Nationwide and Possibilities for New York City.” The New School University. May 2012. http://solargardens.org/CommunitySolarModels.pdf Burr et al., “Shining Cities.” Frontier Group. 2015 http://www.environmentnorthcarolina.org/sites/environment/files/reports/NC_ShiningCities2015_scrn.
pdf Capitol Hill EcoDistrict. “Capitol Hill EcoDistrict.” http://capitolhillecodistrict.org/projects/
DOE. “A Guide to Community Solar: Utility, Private, and Non-­‐profit Project Development.” Department of Energy. May 2012. http://www.nrel.gov/docs/fy12osti/54570.pdf DSIRE. “Programs in District of Columbia.” NC Clean Energy Technology Center. 2015. http://programs.dsireusa.org/system/program?state=TER 55
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Pepco, Inc. “Service Area Map.” http://www.pepco.com/connect-­‐with-­‐us/doing-­‐business-­‐with-­‐
us/builders-­‐and-­‐inspectors/resources/service-­‐area-­‐map/
Seaman, Brad, Shawn Olson, et al. “Beyond Single-­‐Subscriber Solar: Recommendations for Encouraging Distributed Solar Generation in Boulder, Colorado, Under Two Future Utility-­‐Ownership Scenarios.” University of Colorado, Boulder. https://www-­‐
static.bouldercolorado.gov/docs/Distributed_Solar_CU_report-­‐1-­‐201306171537.pdf
Seattle Aquarium. “Community Solar Project in Partnership with Seattle City Light.” http://www.seattleaquarium.org/community-­‐solar Seattle City Light. “Community Solar -­‐ Current Projects.” http://www.seattle.gov/light/solarenergy/commsolarcurrent.asp
Seattle City Light. “Community Solar-­‐-­‐Watts in it for Me?” http://www.seattle.gov/light/solarenergy/commsolar.asp.
Sturtevant, Lisa A. “Washington DC area is becoming a region of renters.” The Washington Post. 2012. http://www.washingtonpost.com/blogs/where-­‐we-­‐live/post/washington-­‐dc-­‐area-­‐is-­‐becoming-­‐a-­‐region-­‐
of-­‐renters/2012/09/11/0878dc1c-­‐fc1f-­‐11e1-­‐a31e-­‐804fccb658f9_blog.html Sustainable DC, “Sustainable DC Plan.” 2012. http://sustainable.dc.gov/sites/default/files/dc/sites/sustainable/page_content/attachments/DCS-­‐
008%20Report%20508.3j.pdf
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