Utilities fear what they cannot control with community solar

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Utilities love solar. Or at least they love utility-scale solar, i.e. installations they can own or control through power purchase agreements. But as the battle with net energy metering has shown, utilities fear what they cannot control.

Some states and some utilities have embraced community solar, particularly in the western United States. No surprises there. Colorado, thanks in part to its Solar Gardens Act, has seen community solar flourish.

And towards the end of last month, California's two community solar bills currently before the legislature made it through critical votes. AB 1014 passed with a resoundingly positive 49 to 15 votes before heading to the Senate, while the Assembly will consider SB43 this month.

The Solar Electric Power Association and the Interstate Renewable Energy Council (IREC) are keeping track of community solar, state by state.

The major trend from its “matrix” is easy to spot: the push for community solar has largely been driven by cooperative and municipal utilities.

Besides Colorado, where Xcel Energy indeed excels at bringing community solar to its customers, many investor-owned utilities seem to be struggling with the concept of sharing, even in California.

San Diego Gas & Electric probably has the most to fear in terms of residential solar growth in its territory. Earlier this year, Lee Krevat, director of SDG&E's smart grid division, said the utility had seen an explosive rise in rooftop solar with growth rates at around 40% a year. Last July, SDG&E recorded 400 new installations – in March there were 700 installations, he said. Goodness knows what this July's installation rate will be.

SDG&E has been an early mover with its ‘Connected to the Sun’ proposal for two pilot programmes before the California Public Utilities Commission (CPUC).

“SDG&E supports solar energy and believes solar power should be affordable and easily available to any customer who wants it,” an SDG&E spokeswoman said. “SDG&E supports the concept of a shared renewable programme that is carefully crafted, and is endeavouring to implement such an option for our customers through our pending application at the CPUC.

“We believe this is the best approach for these kinds of programmes because it does not require cost shift or place a financial burden on non-participating customers.”

Cost shifts are a dubious point of contention. Utilities argue that community solar, like net energy metering, shifts costs to non-solar customers. But the evidence is on their side.

Last December, Stanford public policy analysts published a report about a failed piece of shared renewables legislation, SB 843. Pacific Gas & Electric claimed that the bill would shift US$4 billion in statewide costs from participating to nonparticipating customers over its life – US$1.7 billion for its customers.

“The primary argument made against community solar, particularly by the utilities, is that proposed rate structures create an unfair, and often regressive, cost shift,” the authors wrote in Analysis of Community Solar Policy: Developments in the State of California.

But, they concluded: “There should be very little, if any, cost shift to other utility customers under the legislation… any cost shift is substantially less than that under the status quo of net energy metering.”

PG&E and Southern California Edison, the state's third investor-owned utility, have yet to follow SDG&E's lead.

But SEPA representatives told webinar participants last week that there are advantages of community solar for large utilities.

Mike Taylor, director of research at SEPA, said: “There are many utilities, particularly in the west that have taken community solar to heart and have a managed programme of their own. Why would utilities want to go through a community solar programme? What's their elevator pitch to an executive?

“Utilities want to stay proactively engaged with their customers, who are asking about solar – utilities may want to stay in that game and offer some choice. Community solar offers some more economic value to the customer.

“It can be more cost effective than distributed projects, you can gain some economies of scale, you can capitalise on some tax benefits that maybe a homeowner cannot … or perhaps these projects can be cheaper than offering a rebate programme for on site [rooftop] solar.”

But utilities have to take care to design the project appropriately for their market and territory.

“If a utility in Kansas were to start up a programme, odds are this is a big relative development to that local market, whereas a community programme in Arizona or California, this might be a smaller piece, relative to that market.

“Utilities can get caught by this if they're not careful. Customers have choices now, they can put solar on their roof, they can contract with third parties, they could theoretically buy renewable energy credits of some kind, but those dollar per kilowatt hour costs should be competitive with the other options.

“There are some utilities that are going back to their project and saying prices have changed in the market and our customers are going to other options and not signing up as fast as we thought they would.”

The SolarShares programme run by Sacramento Municipal Utility District (SMUD) is a popular 1MW project operated through a power purchase agreement with a developer.

SMUD has 700 customers signed up, with a waiting list of around 60 customers at any one time, said Bob Gibson, VP of education and outreach SEPA – whereas Trico's Electric Sunwatts in Arizona is struggling with competition from third-party finance options, he said.

Tax and securities issues for community solar are also a thorny regulatory issue yet to be addressed, said Gibson.

“One utility said it's like trying to do a Rubik's cube: you figure out the security side, and you turn it over and you try to figure out the tax side. You turn it back over and you've messed up the security side.”

“People like solar and the utility can play a really useful role in bringing solar into a community. But you do have to deal with some issues in terms of how to take advantage of the tax incentives. That can really change the cost of the programme. To take advantage of the tax code, the system has to be located on your property.”

However, a cooperative in Tennessee has structured its community solar as a limited partnership, while coops have formed limited liability companies to create a taxable subsidiary, he added.

A medium-term additional benefit for consumers of community solar may arise if the developer flips the project back to a non-profit utility after five to six years of depreciation.

“We've seen some prices as low as 5c-6c per kWh once the tax depreciation and tax advantages have been taken by an entity that has that tax appetite. For those who are subscribing this is a resource for the future and many years out that would be a hedge.”

Ultimately, one of the biggest appeals of community solar is the value proposition and that does not always come down to the cheapest rate: communities want power sourced as locally as possible. Green pricing failed to gain mass appeal 10 years ago because consumers were being sold ‘clean power’ generated by wind two states away.

“A locally owned resource that is a new and clean resource like solar, having it in the community does make a difference,” said Gibson.

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