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Will community solar become a least-cost option?

By Dan Chwastyk

In less than a decade, community solar has become one of the most popular models for advancing solar power in the United States, with ever-accelerating growth rates.

These programs offer access to solar power to customers who, for a variety of reasons, are unable to or uninterested in installing rooftop panels. But, depending on how a community solar program is designed, customers who sign up may not see immediate cost savings on their bills, either due to high buy-in costs or premium rates above their utilities’ regular retail rates.

But that higher-cost status quo started changing earlier this year. Customers in the Eversource and National Grid service territories in Massachusetts can now sign up for Clean Energy Collective’s (CEC’s) SolarPerks program and see immediate savings on their electric bills with no upfront investment.

Check out the Executive Summary of SEPA’s community solar survey here.

The program allows customers to subscribe to a portion of a shared community solar garden and receive a bill credit for all of the energy produced by their portion. Subscribers receive 100 percent of the bill credit, paying CEC 95 percent and keeping 5 percent as a net saving.

“Customers have responded to SolarPerk’s financial proposition,” said Paul Spencer, CEC’s president and founder. “We have far more capacity subscribed than is currently available, and we are actively expanding the program.”

CEC started the program in 2014 with two arrays totaling less than 2 MW — and quickly sold out both. The for-profit company based in Denver is now taking reservations for another four SolarPerks projects totaling 4.25 MW.

And Spencer added, “CEC has another 21 MW planned for this year in Massachusetts.”

The big question is whether the Massachusetts program is an anomaly or a harbinger of a new era in which community solar will be marketed as a lower- or even least-cost option.

Certainly, the past few years have seen a steep ramp in the number of community solar programs. As of August 2014, the Solar Electric Power Association (SEPA) was tracking 41 active community solar programs and 14 in the planning stages. Today, the number of active programs has risen to 66, while those in the planning stages have more than doubled to 40.

The financial equation for many of these projects now depends at least in part on regional variations, a situation that is likely to continue going forward.

Track community solar projects across the country with SEPA’s Utility Solar Database here.

The SolarPerks program is to a major extent the result of two policy initiatives. Massachusetts’ virtual net metering (VNM) law requires Eversource and National Grid to buy all the solar production from projects of 2 MW and under, up to a specified cap, largely at the utilities’ retail rates. As of April of 2015, this rate averaged a healthy 21 cents per kilowatt hour (kWh), about twice the national average.

CEC is also able to capture Massachusetts’ Renewable Energy Credits (RECs) generated by the SolarPerks projects, which have averaged about 25 cents per kWh, company officials said. The combined payment CEC receives from both these mechanisms — around 42 cents per kWh for all the energy produced by its Massachusetts community solar projects — is at least part of the reason the company is able to offer SolarPerks to customers with no upfront buy-in.

The falling costs of constructing and operating community solar are also at play. SEPA research shows that the upfront costs customers pay for a share in a community solar array has declined 43 percent from an average of $5.13 per Watt before 2010 to $2.92 per Watt in 2015.

Community Solar Graph2
Community solar average upfront customer costs, including all rebates and incentives. (Source: SEPA research)

The solar environment in Massachusetts is exceptional, but not unique. Washington State provides a Renewable Energy Production incentive specifically for community solar, paying from 30 cents to $1.08 per kWh up to a cap of $5,000 a year. Scheduled to sunset June 30, 2020, the incentive also requires project components to have been manufactured in the state.

Even in markets without production incentives, declining solar prices will eventually reach a tipping point at which players in all markets will be able to offer community solar at rates at or below prevailing utility retail rates. In Minnesota, SolarCity has already promised community solar at prices lower than utility retail, with the first projects to go online by the end of the year.

Find out about SEPA’s efforts to expand community solar across the country here.

Meanwhile, Spencer said CEC has plans in both Colorado and Texas to roll out financing options that will result in principal and interest payments lower than customers’ utility bill savings.

As we progress toward this tipping point, SEPA anticipates utilities will face a new set of challenges with their community solar programs. Instead of — or in addition to — coming up with attractive financing options that help customers with initial project buy-in, utilities may instead have to balance ever-increasing customer demand with the supplies of community solar their generation mix can provide.

Utilities and third parties such as CEC will be best positioned to succeed if they can develop community solar programs that offer different and possibly customized options in the most economic fashion.

Dan Chwastyk is SEPA’s utility strategy manager. He can be reached at [email protected].