Comfortably past its infancy but not yet widespread, the U.S. community solar market sits in a developmental middle zone.
Advocates say the model — which, done right, can widen solar availability for the 50 to 75 percent of Americans who don't have the option of installing their own system — should play a central role in clean energy policies going forward.
But first the sector has to find a way to scale up.
Community solar generally refers to large-scale solar installations that customers can subscribe to, paying monthly for solar energy credits — often at a discount that knocks costs off their regular utility bill. Because they are typically located offsite, community solar gardens can provide solar power to renters as well as people with roofs unsuitable for traditional solar because of shading or slope.
So far, community solar markets have flourished in just a few states, such as Minnesota, Colorado and Massachusetts, that have favorable policies.
Those leading states have been able to cobble together a significant market: Last year the U.S. passed 1 gigawatt of installed community solar capacity.
“In a short time, the industry has matured,” said Jeff Cramer, executive director at the Coalition for Community Solar Access (CCSA), a membership group representing businesses and nonprofits that promote the sector.
“You’re seeing the movement of community solar from pilot in the truest sense of the word… [to] a significant piece of a 100 percent [renewable portfolio standard]," Cramer said.
Developers and pro-community solar policy groups have been working to improve accessibility, the core tenet of community solar’s appeal. While their work is not complete — nearly half the states in the country have less than 10 megawatts of community solar installed — they’ve made progress in leading markets.
Today, fewer providers require high credit scores, termination fees have declined or disappeared, and discounts over retail rates are becoming more common.
“There has been quite an evolution,” said Hannah Muller, director of public policy at Clearway Energy Group, a top-tier community solar developer based in California. “It’s reached the point where this is something I’d tell my mom to sign up for.”
Now, the sector is confronting its next set of challenges: further easing the way for customers and making sure utilities don’t hamper growth.
Questions remain about the best solution for billing, how utilities can best integrate projects, and how to make community solar available to even more customers — including less-affluent subscribers.
Two bills better than one?
As the community solar market has grown up, contract terms have generally become more flexible. Developers now largely offer guaranteed discounts compared to regular retail rates and have shifted away from cancellation fees and toward month-to-month subscriptions.
“Even in the last year, it’s been crazy how much the tone in the industry has shifted to reexamine how community solar is being messaged and being brought to the customer,” said MJ Shiao, director of community solar at Arcadia Power, a platform that connects users with local clean energy and purchases of renewable energy credits. “The conversation is dramatically different now.”
At a July event hosted by CCSA, the Solar Energy Industries Association and the Smart Electric Power Alliance, community solar developers said “most providers” now offer discounts ranging from 5 to 15 percent. States such as Minnesota and New York have also established ceilings for early termination fees.
But one of the industry’s most pernicious problems, the question of how to bill customers, remains a live issue. Customers in many markets still receive two bills; providers are divided over whether that's a problem.
CleanChoice Energy, a retail energy provider that also offers community solar, argues that consolidated billing, which puts all charges and credits on one document, can backfire. Customers are used to paying their utility bill, and many large investor-owned utilities may not have the tools necessary to consolidate billing, leaving costs to the developer, said Vice President of Regulatory and Compliance Jennifer Spinosi.
“The argument that dual billing is an obstacle or barrier to community solar adoption is simply a red herring,” said Spinosi. “In part informed by the experience we’ve had in the retail market, we’re actually concerned that utility consolidated billing could have negative impacts on the community solar market, both in terms of that market’s ability to scale and also in terms of potentially having a negative impact on the customer experience.”
While acknowledging that reconciling credits and charges on two separate bills "can be a messy process," Zaid Ashai, CEO at Boston-based developer Nexamp, said the company still believes two bills make the most sense for customers. Credits appear on their utility bill and the company also sends a separate invoice with community solar credits. That keeps the customer experience with the utility much the same, according to Nexamp, while offering subscribers a concrete connection to the solar project and trust in the third party that is running it.
However, other community solar developers view the two-bill solution as confusing and favor consolidating all credits and debits onto one utility bill. Sorting out the model that’s best for customers and companies will be key to growing the market, developers say.
“That is the single most important change that we have to make happen over the next couple of years,” said Tom Sweeney, president of renewable assets for Colorado-based developer Clean Energy Collective, at the CCSA event. “It will be the enabler of real growth.”
Finance and accessibility
Another enabler of scale is reconciling customer desires with development requirements. Though investors now view community solar as bankable, the industry is still working to achieve a compromise between the needs of financiers, who look for long-term, contracted cash flows, and those of buyers, who favor flexibility.
Mandates in certain states like Colorado and New Jersey to set aside portions of projects or total capacity for low- to moderate-income subscribers have also presented some financing challenges, say developers. Onerous steps like income verification and other compliance requirements can make it difficult for low- and moderate-income customers to sign up.
At the CCSA event, Ashai at Nexamp called those state policies “laudable goals,” but said their implementation has made projects difficult to finance. Laura Pagliarulo, SVP of community solar at CleanChoice, said some financiers are still resistant to doing away with high credit score requirements, which can disproportionately impact low-income subscribers and doesn’t accurately measure one's likelihood to pay utility bills.
“The industry now needs to turn its attention to how to make community solar work while serving low-income communities,” Pagliarulo said.
Reliance on a handful of states
As the community solar market becomes more sophisticated, developers are experimenting with configurations that add to a project’s value proposition. Clearway, for instance, is beginning to add storage to projects in Massachusetts and New York.
“There’s a lot yet to be decided in terms of how these batteries can best be operated,” said Muller. “But simply getting them installed and on the grid presents such an opportunity.”
Recently, however, getting even solar-only community projects interconnected to the grid has proven a difficult task in some key markets. In Massachusetts, a National Grid study on the interconnection of distributed generation had halted nearly 1 gigawatt worth of projects, most community solar. Though the utility recently announced that about 300 megawatts of that total can proceed, developers are still warning of delays.
The situation in Massachusetts indicates just how much the budding sector relies on certain states for its success. Ashai painted the oversubscription of programs in Minnesota, Illinois and Massachusetts as indicative of both the market's success and its struggle.
“The challenge is that some of the cornerstone markets in community solar are at a standstill,” said Ashai. “When a cornerstone market pauses from a regulatory standpoint, it is very difficult to continue to grow unless other states are in play.”
Other states are emerging, according to analysts at Wood Mackenzie Power & Renewables. New York is set to overtake Minnesota as the largest community solar market in 2019, and programs in New Jersey, Maryland, Maine and other states should diffuse pressure on market front-runners. And as those budding markets lay out rules and regulations, the industry sees it as another opportunity to get the model right.
“If I had one word for 2020, it’d be scale, scale, scale, scale. That’s really it,” said Muller. “Once we get the market structures right on interconnection rules and tariff compensation, community solar will take off just like Netflix.”