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Shared Solar
March 24th, 2016

Via Vox, a look at the promise of shared solar:

To date, solar power has mostly been available to utilities (as big power plants) or individual home and business owners (as rooftop panels).

Left out has been … well, everyone else, those of us who are not utility executives and do not have the money, wherewithal, or suitable rooftops to install solar ourselves. That’s a lot of people who love solar power but have no way to get directly involved in it.

Happily, that situation is rapidly changing, thanks to the growth of shared solar. Shared solar refers to small-scale solar installations that multiple individuals co-own, or that divide their power output among multiple “subscribed” individuals. It’s a way for all those non-rooftop folks to directly support clean energy, while also supporting local jobs and economic development.

Here’s how shared solar fits into the larger energy picture, how it works, its benefits and drawbacks, and its future potential.

Solar PV is slowly seeping into every nook and cranny

I am on record predicting that solar photovoltaic (PV) cells are eventually going to take over the world. That is to say, they will eventually become the world’s predominant source of power. I’m not crazy enough to try to predict exactly when — 2060? 2080? — but I think it will happen within the century. (For more on why, see this post.)

One of those reasons is simple: Solar PV is incredibly scalable.

Because individual solar cells are so small, it’s possible to scale a PV installation to almost any size or shape. If coal and nuclear plants are giant boulders, PV is like sand, sifting in to fill any crack, available building, structure, or piece of land. It’s possible to put a solar cell in a piece of glass the size of a coaster. It’s also possible to build a 2,400-acre, 290 MW power plant with PV panels (with larger plants to come soon). 

Most notably, it’s possible to build at any size in between.

If you wanted to build a coal or nuclear plant, you’d be limited by capital to fund a plant, land on which to site it, and the patience and expertise to get through the years-long process of building it. A limited number of entities fit the bill.

By contrast, there isn’t one market for PV, there are dozens of them. At every scale, there are different customers, different incentives, different financing structures, and different value propositions.

The market for solar windows and building materials is different from the market for rooftop solar or commercial-building solar, which is different from the market for community-scale (0.5 to 5 MW) solar, the market for midsize (5 to 20 MW) solar, and the market for utility-scale (20 MW and up) solar.

This fluidity of solar PV isn’t fully appreciated in the US because the market has been somewhat crudely divided between (fairly small) residential and commercial rooftops and (fairly large) utility-scale solar plants — tiny or huge.

It’s only now that PV is starting to filter into those in-between markets in earnest, as legacy regulatory, legal, and financial structures are jury-rigged to accommodate it, in fits and starts.

The good news is that because PV is seeping down into the cracks, you’ll soon be able to access solar power directly, even if you don’t have a suitable rooftop, good credit, or a home state that offers net metering policies (a category that cumulatively includes 77 percent of Americans, according to GTM Research). That’s the promise of shared solar.

The bad news is it may take a while.

Shared solar is growing

First, some quick definitions, since terminology tends to be a little fuzzy in this area. I’ll follow the Rocky Mountain Institute (RMI) in defining “community-scale solar” as any solar installation between 0.5 and 5 MW. “Shared solar” refers to the subset of community-scale solar that is open to shared public participation.

Speaking of RMI, it has a bullish new report on community-scale solar. Here’s how it frames the problem:

(RMI)

Solar PV is growing very quickly, but it remains a tiny portion (1 percent) of US electricity. To scale up, it needs to access new markets. RMI claims that community-scale solar is a multi-GW market opportunity.

There are two kinds of community-scale solar. The first is utility-owned, with power sold to utility customers — a traditional arrangement between a utility and a power plant developer, just on a smaller scale. Lots of smaller utilities, municipals, and co-ops are getting into this.

The other is shared solar, in which customers a) share ownership of a community-scale PV array, b) “subscribe” to the power output of such an array, or c) both.

Existing community-scale solar is split roughly half and half between those two types.

How many shared solar projects are there? From a new report by Deloitte:

In 2010, only two shared solar projects existed [in the US]. Today 77 utilities administer 111 projects across 26 states, accounting for a combined capacity of about 106 megawatts (MW).

That’s a tiny base — less than 1 percent of installed solar PV capacity, according to GTM — but growth is accelerating.

According to RMI, if you include both types, community-scale solar could grow to 30 GW capacity by 2020.

(RMI)

Look closely at this graph. Those three dark blue lines at the left are 2020 forecasts for shared solar — one from GTM Research and two, low and high scenarios, from theNational Renewable Energy Laboratory (NREL).

The light blue line represents the boost that can come from cost reductions, which RMI thinks can drive the final installed cost of community solar down 40 percent, where it can compete with utility-scale solar prices. (The report has a detailed breakdown of where those cost reductions can be found.)

The green line represents the extension of the federal solar tax credit, which is a done deal as of last December.

And the red lines represent non-shared community-scale solar owned and run by utilities — the kind we’re ignoring for now.

Anyway, that’s the potential of shared solar by 2020: somewhere between GTM’s 1.8 GW, NREL’s 5.5–11 GW, and RMI’s 15 GW.

That’s a wide range of predictions, evidence of how fuzzy the category is (everyone’s counting slightly different things), how fluid the market is, and how much future growth depends on unpredictable swings in policy, markets, and customer demand. Most analysts agree, though, that shared solar is likely to get as big as, and eventually surpass, rooftop solar. It is a much, much bigger “addressable market.”

How shared solar works

Making generalizations about shared solar is a pain in the ass; there are many different structures found across the 26 states where shared solar projects exist.

Here’s a visual, from the Department of Energy’s Sunshot Initiative, showing shared solar models:

Typically, customers “subscribe” to a shared solar project. Some subscribe to a certain amount of capacity (say, the output of one panel), measured in kW. Some subscribe to a certain amount of power, measured in kWh. The credit for the power appears on a customer’s utility bill.

Who runs these things? “Shared solar arrays,” writes NREL, “can be hosted and administered by a variety of entities, including utilities, solar developers, residential or commercial landlords, community and nonprofit organizations, or a combination thereof.”

Exactly who can build and run a shared solar project depends on whether it is located in a regulated or deregulated energy market (more on that in a second) and what type of utility service area it’s in.

Shared solar is overwhelmingly driven, at least at the moment, by customer demand. So it makes sense that the utilities most responsive to their customers — co-ops, where customers are also owners — are leading the way on shared solar projects.

Deloitte offers this information-packed breakdown of shared solar by utility type:

(Deloitte)

As you can see, co-ops run the largest number of shared solar projects, but those projects are typically tiny, in the low kilowatts. (They are very often rural.)

Investor-owned utilities administer fewer projects, but they account for a much larger share of total shared-solar capacity, because those projects are generally bigger. They are more likely to be owned by third-party developers who want to maximize economies of scale by building up against the limit of what counts as community scale (it’s 1 MW in Minnesota, 2 MW in Colorado, for instance).

There are many differences in programs — who administers them, their minimum sizes, the length of the contract, and much more. Here’s a good, short guide to questions you should ask before jumping in; here’s a more in-depth guide on program design, from the Solar Electric Power Association.

Where the shared solar is

For now, the shared solar market is fairly concentrated in a few friendly states. GTM, which expects the shared solar market to grow sevenfold in just the next two years, projects that 80 percent of that near-term activity will happen in just four states:California, Colorado, Massachusetts, and Minnesota.

Fun fact: What’s generally acknowledged as the very first US shared solar project was built in Ellensburg, Washington, in 2006. To find out if there’s a project near you, visitShared Renewables HQ, a great clearinghouse for info (created by Vote Solar).

Policy drivers for shared solar

Deloitte identifies four policy drivers for shared solar (and has an interactive mapshowing how those policies are distributed):

1) Shared solar policies

Some states require utilities to run shared solar projects; some just require pilot projects; some have proposed but not yet passed policies.

(Deloitte)

2) Virtual net metering

Net metering allows customers to count “behind-the-meter” power production (like rooftop solar panels) against their utility bill, effectively rolling their meter backward. But conventional net metering can only be used by individual utility ratepayers (a homeowner or a business).

Virtual net metering allows third parties to aggregate multiple utility ratepayers behind a single (virtual) meter. So, for instance, an apartment building owner could install a solar array and renters could subscribe to it, each receiving a proportional credit on their utility bill. For obvious reasons, VNM opens up lots of new opportunities for shared solar.

(Deloitte)

3) Deregulation

In regulated utility markets, customers receive energy only from the utility, by law. In (some) deregulated markets they have “retail choice,” which means they can choose their own power providers.

In regulated states, only utilities can run shared solar programs. In deregulated states, third-party providers can compete in the space.

(Deloitte)

4) Renewable portfolio standards

Many states require that utilities get a certain percentage of their power from renewable sources. Obviously that gives utilities more incentives to seek out solar.

(Deloitte)

I would add one item to Deloitte’s list. It’s not a policy driver, but it’s a driver nonetheless.

For many utilities, especially smaller ones, setting up a shared solar program can be a daunting administrative task, requiring all sorts of unfamiliar business and financing arrangements.

There are now companies that offer all those administrative hassles as a service — an off-the-shelf product that will set up the program, administer it, and bill customers. Colorado’s Clean Energy Collective, for instance, is both a shared solar developer and a vendor of shared-solar services to utilities.

As more such vendors come online, setting up shared-solar programs will get easier and easier and spread faster.

(Minnesota Interfaith Power & Light)

Benefits of shared solar

Shared solar has many of the benefits of distributed “behind-the-meter” solar and many of the benefits of larger solar power plants, with few of the drawbacks of either.

Like utility-scale solar, it enjoys economies of scale and simple, established financing models; unlike utility-scale solar, it can squeeze into almost any surface or piece of land, near existing transmission or distribution lines.

Like distributed, behind-the-meter solar it is low risk, can be sited near existing load, increases the resilience of the distribution grid, and satisfies the powerful consumer craving for solar power; at the same time, it is cheaper, simpler (fewer contracts per kW of capacity), and more inclusive than behind-the-meter solar.

Utilities, especially investor-owned utilities, aren’t in love with it (to them it’s just a more expensive version of a solar plant), but if they get their act together, they can use small, strategically sited shared solar projects to ease grid congestion or avoid expensive new grid investments.

Here’s RMI’s visual on the benefits (you may have to click over to the report to read the tiny type):

(RMI)

Shared solar can bring solar to low-income customers

One benefit is worth calling out in particular: Shared solar can help low-income customers get in on the solar craze.

Rooftop solar can be expensive, even with incentives or leasing programs, leaving low-income ratepayers out. Shared solar can let them in on the benefits of solar. A couple of recent reports show how.

One is the “Low-Income Solar Policy Guide,” from a coalition of groups including GRID Alternatives, Vote Solar, and the Center for Social Inclusion. The other is from the Interstate Renewable Energy Council (IREC): “Shared Renewable Energy for Low- to Moderate-Income Consumers: Policy Guidelines and Model Provisions.”

Both get into the technical weeds on program design and financing. I will spare you the gory details; the take-home message is that there are a variety of tools available to policymakers, utilities, and developers to ensure that low-income communities benefit from shared solar.

Owning some solar power of your own will eventually be routine

Shared solar still faces all kinds of barriers, both regulatory and in the form of “soft costs” — customer acquisition, permitting, managing, billing, that sort of stuff.

There are also concerns about whether the Securities and Exchange Commission (SEC) will treat shared-solar investments as securities, which could trigger all sorts of problems, but I’ll spare you those gory details as well. It’s being hashed out. (The NREL report has much more on that issue.)

Over time, as the market matures and the popularity of shared solar spreads, more states will adopt friendly regulations. The administrative aspects will become more standardized and easier to adapt to local circumstances. And growth will accelerate.

Every analyst and market watcher agrees: Shared solar is heading for a boom. It may take a while, but sooner or later every American will be able to buy some solar power of their very own.

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As potential uses for building and parking lot roofspace continue to grow, unique opportunities to understand and profit from this trend will emerge. Roof Options is committed to tracking the evolving uses of roof estate – spanning solar power, rainwater harvesting, wind power, gardens & farms, “cooling” sites, advertising, apiculture, and telecom transmission platforms – to help unlock the nascent, complex, and expanding roofspace asset class.

Educated at Yale University (Bachelor of Arts - History) and Harvard (Master in Public Policy - International Development), Monty Simus has held a lifelong interest in environmental and conservation issues, primarily as they relate to freshwater scarcity, renewable energy, and national park policy. Working from a water-scarce base in Las Vegas with his wife and son, he is the founder of Water Politics, an organization dedicated to the identification and analysis of geopolitical water issues arising from the world’s growing and vast water deficits, and is also a co-founder of SmartMarkets, an eco-preneurial venture that applies web 2.0 technology and online social networking innovations to motivate energy & water conservation. He previously worked for an independent power producer in Central Asia; co-authored an article appearing in the Summer 2010 issue of the Tulane Environmental Law Journal, titled: “The Water Ethic: The Inexorable Birth Of A Certain Alienable Right”; and authored an article appearing in the inaugural issue of Johns Hopkins University's Global Water Magazine in July 2010 titled: “H2Own: The Water Ethic and an Equitable Market for the Exchange of Individual Water Efficiency Credits.”

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