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From consumer interest to fully subscribed programs: SEPA report drills into details of community solar success

Community solar capacity in the United States more than doubled between 2016 and 2017, from 347 megawatts (MW) at the end of 2016, to 734 MW at the end of 2017. At present, 228 utilities in 36 states have active community solar programs.

Those figures, — from “Community Solar Program Design Models,” a new report by the Smart Electric Power Alliance (SEPA) — reflect the ongoing popularity of community solar. In fact, a series of consumer surveys cited in the report found high interest — in some cases, 90 percent of customers surveyed — in learning more about community solar. The challenge for project developers, whether utilities or third parties, is translating that general interest into the nuts-and-bolts details of a fully subscribed program.

Figure 1: Community solar program map.

In another survey cited in the report — by SEPA and the Coalition for Community Solar Access (CCSA) — the average community solar  program had an 83-percent subscription rate. But a simple average of this kind can be misleading. Individual programs vary widely — in their size, value proposition for customers, and local markets conditions and launch years. These differences may affect subscription rates.

To tease out the impact of some of these harder-to-gauge differences, the SEPA-CCSA survey of community solar developers included 30 utilities and 26 third-party developers. These organizations account for more than 444 MW of community solar capacity, which is 60 percent of the total community solar market.

 

Upfront savings drive high subscription rates

SEPA defines community or shared solar as a voluntary business model that allows multiple subscribers to pay for a share of a specific offsite solar project and receive credit on their electricity bill for their portion of power produced.

A key driver for subscription rates among such programs was the different financial benefits they offered subscribers. Not surprising, programs promising immediate bill savings were, almost universally, fully subscribed. Programs designed to provide a hedge against potential rate hikes or to pay back an upfront investment after a set period resulted in lower subscription rates.

Marketing budgets also appears to have an effect on the subscription rates. Programs spending more than 5 cents per Watt (cents/W) of capacity had higher subscription rates than those spending less.

The program’s capacity, administrator, and launch year may have less of an impact on subscription rates. A caveat here is that the sample sizes for many of the comparison sets in the report are quite small. Thus, these findings should be considered illustrative instead of absolute.

 

Who’s participating — the residential-commercial split

Most community solar programs have a mix of residential and small commercial customers. A few programs, such as Austin Energy’s, limit participation to residential customers, while only one, Xcel’s Solar*Connect program in Wisconsin, is solely for commercial customers.

SEPA discovered that project size is correlated to the split of residential and commercial subscribers. In programs with under 1 MW of total capacity, 91 percent of subscribers were residential customers. However, programs with more than 1 MW of total capacity commercial customers were in the majority, accounting for 66 percent of subscribers, versus 34 percent for residential customers.

Figure 2: Community solar program participation based on project size.

The reason for this significant discrepancy isn’t clear. Many small community solar programs are located in service territories of rural electric cooperatives, which have a greater percentage of residential meters than the rest of the industry.

Whether the program administrator is a third party or a utility can also provide a hint as to the split between residential and commercial customer participation. Programs with third-party administrators subscribed a majority of capacity — 68 percent — to commercial customers, while utility-led programs subscribed a majority of capacity — 52 percent — to residential customers.

Third parties’ focus on C&I customers may be rooted in lower costs for customer acquisition; that is, it’s cheaper to sell larger blocks of a project to a commercial customer that smaller blocks to residential customers.

The consumer surveys conducted by SEPA explored interest in community solar among a smaller subset of program developers — three public power utilities, two investor-owned utilities and one cooperative utility.

In addition to the high interest in community solar in general, these surveys also found significant familiarity with rooftop solar as a consumer option in general. At five of the six utilities, 20 to 50 percent of the customers surveyed had already considered rooftop solar options.

And, broadly speaking, customers do not appear interested in trivial participation. Rather, many said they would want a community solar program to cover 50 to 100 percent of their annual electric bill. These utility-specific surveys bolster the results of a 2016 survey conducted by SEPA and The Shelton Group, which estimated a potential national market for community solar of around 6.5 million U.S. households.

 

Expanding LMI access

Compared to rooftop solar, a key benefit of community solar is that it is more accessible to low- to moderate-income (LMI) customers, since subscribers do not need to own their roofs or have high credit scores to participate. At the same time, LMI customers are more price conscious, so expanding the participation of this community may require a subscription price equal to or below the prevailing cost of electricity.

As solar power — including community solar — is still a premium-priced product in many areas, expanding LMI access remains a challenge, but one that is starting to be addressed. In the larger SEPA-CCSA survey, 44 percent of program administrators indicated they had some level of LMI participation.

The examples here illustrate different options for increasing LMI enrollment in community solar programs.

Subsidizing LMI programs: The New York Public Utilities Commission has approved a pilot program in which Consolidated Edison (ConEd) will directly provide community solar to customers through its low-income bill assistance program. The initial phase of the program will provide 3MW of community solar capacity, which is anticipated to provide savings of $5 per month to  between 800 to 1,600 participants. If the cost of the program exceeds the generation value, ConEd will be able to recover the shortfall from all ratepayers through a bill adjustment.

Leveraging external funding: Grand Valley Power in Grand Junction, Colorado partnered with GRID Alternatives to build a dedicated LMI project. Equipment and time were donated, erasing a majority of initial project costs. LMI subscribers who participate get solar power and a reduced electric bill. The subscribers are selected by lottery and can change every 2 years. The Poudre Valley Rural Electric Association in Fort Collins used a grant from the Colorado Energy Office and financing from the U.S. Department of Energy to reduce project costs. This allowed them to develop a project with 700 kilowatts allocated to LMI subscribers. LMI subscribers receive a 30-percent upfront discount and a 4-year term to guarantee savings and provide customer flexibility.

Future uncertain?

In the short term, SEPA expects consumer interest in community solar — and the resulting market growth — to continue. Declining solar costs, increasing customer awareness of the business model, and more state policies supporting community solar will all contribute.

Whether this growth continues in the long term remains undetermined. Will community solar continue to have the emotional pull on consumers once state renewable portfolio standards are met and the standard utility power supply has a greater share of renewable generation?  Can community solar appeal to subscribers beyond a core demographic of the most environmentally conscientious?

One thing we have learned from our research is that — like utility business models in general — community solar is evolving. Further, it is by nature a model that can be customized to local market conditions and customer preferences. Equally important, utilities are starting to explore the potential of these projects to provide grid support services as well as customer benefits.

As part of the larger energy industry transition, today’s community solar programs will provide a foundation for future growth and innovation.

Community Solar Program Design Models is available for free download here.

An upcoming SEPA report, Financing Community-Based Solar Projects: Case studies from the field, will be released shortly. To receive a publication alert, contact communications@sepapower.org.

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