September 30, 2014

Part 4: State Community Solar Statutes

The fourth part in a series on community solar, this post investigates the evolving state trend of engaging utilities in planning community solar projects.

Two weeks ago, I wrote about existing community solar models. One model I discussed involved a utility-sponsored program allowing customers to buy into a community array and receive on-bill credits. According to recent research by the Solar Electric Power Association (SEPA), the utility-sponsored model currently leads the community solar movement. One explanation for this trend may be that utilities are beginning to realize (with a little legislative prodding) that they can get out ahead of a growing community solar movement by initiating the projects on their own. Redefining the role of the utility is certainly at the forefront of many people’s minds throughout the country (including my colleague, Nate Larsen) and investing in and managing community solar may be another manifestation of that trend.

While rural electric cooperatives and municipal utilities are at the front of the utility-led community solar trend, investor-owned utilities (IOUs) follow closely behind. Cooperatives and municipal utilities have much more flexibility because they are locally controlled rather than regulated by the states. The fact that they are leading the community solar development trend suggests that local accountability can drive their decisions even in the absence of policies that fail to favor community solar. But the fact that IOUs are actively initiating community solar projects as well suggests that something beyond accountability is spurring this trend.

Policies favoring community solar are one piece of the puzzle. Last week I wrote about a policy called virtual net metering, which allows customers to receive on-bill credits for remote generation. It is not surprising that virtual net metering is available in every state that has begun to experience a community-solar renaissance. But virtual net metering alone does not seem to encourage these projects. Rather, the most effective drivers of these changes seem to be incentives that make the projects cost effective or mandates that require their development. In fact, Colorado, Maine, Massachusetts, Minnesota, New Hampshire, Vermont, and Washington all have community solar statutes or specific incentives, and the majority of existing and proposed projects are in these states.

These statutes all take slightly different approaches to incentivizing community solar. Some have been more successful than others. Colorado was one of the first states to pass a “community solar garden” statute, which defines a community solar project, explains membership requirements, and outlines how a utility should interact with community solar gardens.  Importantly, Colorado’s Renewable Portfolio Standard (RPS) specifically requires IOUs to purchase power from distributed generation projects, and the community solar statute allows up to 20% of the required distributed generation Renewable Energy Credits (RECs) from those projects to come from community projects.

Recently, California established a “shared renewables green tariff” requiring utilities to allow customers to purchase electricity from a utility-operated renewable community project. Like Colorado, California has an aggressive RPS, but this program would offer solar capacity above and beyond its 33% renewable energy by 2020 goal. 

Minnesota’s community solar statute requires its major utility, Xcel Energy, to administer a community solar program. Other IOUs have the option, but are not required, to develop community solar programs as well. Notably, Minnesota’s Solar Electricity Standard includes a 1.5% solar carve out, though proposals to include additional community solar incentives died with the original bill.

New England also has its own collection of community solar statutes. Massachusetts was one of the first states to develop an RPS, and it has an aggressive solar program with a solar carve out and a number of available grants and incentives for streamlined permitting and efficiency programs. Vermont has a small-scale renewables incentive program that establishes a per-watt incentive for schools, municipalities, and low-income nonprofit housing organizations to install PV systems. Maine has its own Community-based Renewable Energy Pilot Program. Under Maine’s program, participants qualify for a $0.10 per kWh incentive under a long-term contract, and the RECs generated from the project qualify for an additional multiplier making them worth 1.5 times the value of the electricity. 

Finally, Washington State offers production incentives of $0.30 to $0.54 per kWh for community projects, but limits eligible projects to 75 kW and restricts their locations. Size and siting limits like this may be feasible for other community solar models (a church, for example, could be around 20 kW) but most existing utility-sponsored projects are larger.

The above states have made the most progress with existing or proposed projects. Others are getting there, though. Washington D.C.’s Community Renewable Energy Amendment Act of 2013 authorized virtual net metering, and proposed regulations will flesh out specific eligibility requirements. New Hampshire’s new shared solar law similarly blesses virtual net metering. New York is in the process of a complete utility overhaul that incorporates, among many other changes, community solar projects. (For more on the NY utility reform process, see Nate Larsen’s recent blog post.)

States have taken different approaches to designing and implementing community solar legislation. Although policies like virtual net metering are important to facilitating these projects, it seems that specific mandates or directives have been the most successful in spurring their development. In the states that have adopted these policies, utilities have begun to take the lead on community solar investment. Whether this is a good thing for the community solar movement remains to be seen. To some extent, allowing utilities to take the lead on community solar makes sense in light of the myriad of obstacles that the other models face (for example Securities and Exchange Commission filings requirements and lack of adequate appetite for tax credits). But the downside could be that these programs will not result in the same potential return on investment for participants that the other models could eventually offer with the right regulatory environment and decreasing costs. Maybe there is room for both. But for now, the predominant state trend of engaging utilities in planning community solar projects seems to make sense.