- Industry: Energy & Utilities
As the costs of solar photovoltaic energy systems continue to decline, utilities are struggling with how best to approach solar. On the one hand, self-generation from rooftop solar represents a direct threat to the traditional utility business model. On the other hand, increased renewable generation represents lower emissions exposure in a carbon-constrained world.
By Paul Augustine
As the costs of solar photovoltaic energy systems continue to decline, utilities are struggling with how best to approach solar. On the one hand, self-generation from rooftop solar represents a direct threat to the traditional utility business model. On the other hand, increased renewable generation represents lower emissions exposure in a carbon-constrained world. One concept that is gaining traction in utility circles is community (shared) solar. Community solar refers to a photovoltaic electric system that provides power and/or financial benefit to multiple community members. A community solar participant typically purchases or leases a panel or multiple panels upfront and then receives an ongoing stream of credits on his/her utility bill. Shared access to solar through community solar expands the energy source to renters, condominium owners, those with shaded roofs, and those with financial barriers to installation. Utilities also benefit since they can maintain additional control over the solar systems by developing these centralized projects themselves. But in most states, policy and economic barriers still exist.
Investor Owned Utilities (IOUs) typically need enabling legislation for virtual net energy metering in order to be able to offer community solar to customers. Virtual net energy metering refers to an arrangement through which multiple customers are credited for a share of energy generated by a renewable energy facility that is not physically connected to their property. Unless the costs of transmission and distribution, reliability, and ancillary services provided by the utility are accounted for, netting the solar energy generated by a customer’s share of a community solar project from that customer’s electricity use on a one-for-one basis will be a hard pill for the utility to swallow. Many utilities are, therefore, advocating rate restructuring to better account for the full value of the services they provide to those with distributed energy resources. But while the IOUs are largely dependent on state regulators and legislators to create a system that allows them to offer community solar to their customers, there is an opportunity out there for community solar even absent policy changes. Public power entities and electric cooperatives—have greater flexibility to create community solar programs. These entities have, in fact, been pioneers of community solar projects in states without enabling policies.
The project economics must be attractive for all relevant stakeholders—the utility, the customers, and the developers (and their partners)—in order for community solar projects to be viable. In states with low retail electricity rates and low or no state incentives for solar, community solar projects are difficult to justify unless (1) customers are willing to pay a premium (with a longer payback period) or (2) the utility is willing to provide a sufficient subsidy. The customer’s willingness to pay can be better understood through an extensive stakeholder engagement process. Such a process will also inform the utility’s community solar marketing approach.
Community solar represents a great opportunity for utilities to reengage customers and to reduce the carbon intensity of the power they deliver. West Monroe has been using its business and technology expertise to help utilities explore possible community solar systems. With the complexity involved in the design and implementation of these projects, the constantly changing policies involved, and the dynamic system costs, a utility would benefit greatly from our experience and services.