Originally published on RMI Outlet.
Image by BlackRockSolar (CC BY 2.0 license)
What happens when you really want solar but the obstacles seem too great? You may not have a suitable space. Or there may be a tree blocking your roof. Or you live in a condominium where you don’t have your own roof.
This is where promising approaches for increasing customer access, such as shared solar, come in. They create opportunities for customers to get the benefit of distributed solar without putting it on their own roof. With shared solar projects (also referred to as “community solar”) customers either own or rent a portion of a larger project that is off site and then receive a credit for the generation on their electricity bill. Often, the customer sees a cost premium in the near term and then some economic benefit for the subscription, usually through rates that stay steady rather than increase over time.
BRINGING SHARED SOLAR TO SCALE
Right now though, shared solar projects and other shared renewables programs have not been able to scale. While the largest program in the country today is 20 MW, only a handful are greater than 1 MW. The majority of these projects are between 30 and 100 kW. So that means most programs have between ~40 customers on the low end and ~600 customers on the high end.
So what is required for these types of programs to scale? As we discussed in Bridges to New Solar Business Models, for solar PV broadly to continue to scale, shared solar specifically has to become more valuable for utilities, solar companies, and customers. This means that either the benefits solar PV projects provide have to increase or the costs of the projects have to decrease. Unlocking this value will require increased collaboration between solar companies and utilities, including for shared solar programs.
Solar companies already play an important role in these programs. They typically procure project financing, install the project, and arrange the power purchase agreements with the utility. Then, over the lifetime of the project, they service the PV project, making sure it operates properly and is maintained. When it comes to enrolling customers, they often take the lead on the marketing aspects, providing customers with brochures and pamphlets and online bill calculators to estimate potential savings.
Utilities have also provided important support for these projects. They often manage the program, facilitate the tie between customers and the PV projects, handle the customer billing, and enable the interconnection of these projects onto the grid.
SOLAR COMPANY AND UTILITY COLLABORATION
But increased collaboration between the solar companies and utilities could help unlock additional value that can benefit all customers. Today, utilities have access to all of the customers in their territories, creating opportunities to educate their customers on the possible options and use their brand to decrease some customers’ concerns about new service providers. They can help identify potential sites, as they’re familiar with the land and customers in their territory. They can also provide greater market certainty to solar companies by committing to buy solar for a period of time and creating a sufficient runway to reach volumes where solar companies can start to drive down the total costs of installations.
Combining solar companies’ strengths with utilities could create an environment that can yield additional value. Possible elements of a project better positioned to scale could include:
- Collaboration to identify sites: Many customers want to be able to see and show the solar PV projects they buy power from. However, current community solar efforts usually focus on developing projects on sites that will be interconnected quickly and have low lease terms. Projects don’t have to be located at one site though, and could be more valuable if they’re located near customers and installed at certain locations. Utilities and solar companies could work together to identify a portfolio of sites, including remote fields, parks and parking lots, and nearby customer rooftops, and then provide customers with options and allow them to choose to buy from the sites they find most desirable.
- Clear and transparent procurement processes: Today, solar projects are typically procured through a one-time request for proposals (RFP). However, solar companies could decrease their costs if they have higher volume certainty over time. They could do this by revising the RFP process, seeking a multi-year contract (e.g., three to five years) for distributed PV installations. As part of this deal, the solar company would need to meet certain performance benchmarks over time.
- Joint marketing: Surveys show that many customers are still unaware of the opportunities in investing in solar PV. In fact, many of these shared solar programs have enrolled subscribers through word-of-mouth alone. The utility can help increase subscribers quickly, using its access to customers to increase awareness through bill inserts and online engagement on the utility webpage. Also, the utilities and solar companies can co-brand and co-message the program, emphasizing the simplicity and convenience— customers won’t need house visits and crews to install equipment on the customers’ premises, will not be involved with any on-site operations and maintenance, and could change locations without the hassle of relocating any physical equipment. Shared solar could also create an opportunity to market other utility programs. For instance, a customer who is interested in community solar could also be someone interested in efficiency or electric vehicles, and it makes sense to either offer bundles of measures together or target customers for new technology offerings as they become available.
- Community engagement: Due to the nature of shared projects located near customers, there’s a reason these programs have been called “community solar.” Yet few programs have fully embraced a community-oriented approach to encourage high levels of customer participation. In addition to traditional utility access channels, the program can meet customers where they are, engaging possible participants at community centers, including places of worship, to generate enthusiasm. Further, as some solar companies have started to do with referral programs, the utility and solar companies can work together to develop a referral program that creates community champions and rewards customers for providing program referrals.
Examples of existing shared solar programs taking some of these concepts and putting them into practice include:
- Arizona Salt River Project customers sign up for kW blocks and buy the output at a fixed rate, which represents a near-term premium of ~10 percent but also provides participants with bill savings if rates increase. More than 1,000 residential customers and 100 schools have participated in the program.
- Duke Energy’s Green Source Rider program in North Carolina enables nonresidential customers to displace new load with renewable energy. Duke handles customer applications and then arranges power purchase agreements with renewable energy suppliers. Participants buy the generation at the power purchase agreement rate and receive a credit based on avoided energy and capacity rates.
- A rural cooperative in Minnesota, Steel-Waseca Cooperative Electric, has a new program that offers a steep discount for customers on their first panel if they agree to install a free electric water heater that responds to utility price signals.
TURNING CONCEPTS INTO ACTION
While it will take some initiative from utilities, solar companies, clean energy advocates, and customers to get these types of programs going, none of these concepts will require regulatory overhaul to get there. Instead, turning these concepts into action will start with increased engagement between solar companies and utilities, like we’re seeing in efforts from around the country, such as the More than Smart Initiative in California or the e21 initiative in Minnesota. These initiatives are convening a diverse group of stakeholders to create a shared vision for what programs and policies should look like. They encourage collaborative thinking to identify approaches for meeting customer needs, and strategies to ensure that a grid with increasing amounts of distributed energy resources stays affordable and reliable.
There may not be consensus on some aspects of the shared solar program, such as the pricing mechanism, and final decisions will likely require negotiation in front of the public utility commission or the regulatory body that advises on utility matters. In theses cases, it’s critical that the costs and benefits are transparent, and that all actors are sufficiently motivated to create value. This could be assured by providing incentive mechanisms for the utility and the solar companies, and by establishing a pricing mechanism that fairly credits program participants for solar benefits while ensuring fixed cost recovery and minimizing cross-subsidies.
Increasing access to solar for customers will be important for enabling distributed solar to scale in a way that can be fair and equitable. While the initial efforts in this area have been promising, there are certainly ways that utilities and solar companies can incorporate new approaches that will help further reduce project costs and also make the benefits easier to access. With these increases in value, we can envision a thriving and sustainable market for distributed solar PV.
Further blog posts will cover two other ways of increasing solar’s value that are discussed in RMI’s report Bridges to New Solar Business Models—utilizing distributed solar as a grid resource and incorporating distributed solar in technology bundles.
See other blogs in this series: