State Policy, Utilities Ignite Community Solar Growth

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By Rebecca Kern

Sept. 21 — The community solar market is heating up thanks to favorable state legislation and interest from utilities in installing solar panels that provide cost-sharing among consumers who don't have access to rooftop solar.

With nearly 50 percent of the households and businesses unable to host rooftop solar systems, community solar is a largely untapped market for consumers looking to invest in solar, which is becoming cheaper than retail electricity in parts of the country. In fact, the average price of installing photovoltaic systems is projected to drop 40 percent by 2020, from $2.16 per watt in 2014 to $1.24 per watt in 2020.

“There's tremendous potential for growth in community solar,” David Feldman, senior financial analyst at the National Renewable Energy Laboratory told Bloomberg BNA. “Given the percentage of people who can't use on-site solar, but could easily use shared solar, one could see growth there.”

Solar developers and utility companies are driving a lot of the growth in the community solar market, leading to a projected 59 percent annual growth rate over the next five years. In 2015, an estimated 115 megawatts of community solar projects are expected to be installed nationwide and that annual rate will grow to an estimated 534 megawatts in 2020. The total amount of community solar installments are projected to reach 1.8 gigawatts by 2020, according to a June 2015 market outlook for community solar from GTM Research.

Bob Gibson, vice president of education and communication for the Solar Electric Power Association, an educational nonprofit, said that utilities are starting to see community solar as a profitable enterprise, rather than just a subsidized program.

“That's part of this evolution. You're seeing how these models work where you actually can make it affordable and financially beneficial to the utility and to the customer. That's the sweet spot that they're reaching,” he said. 

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How It Works

Community solar allows residential, commercial, nonprofit and municipal consumers to support the deployment of solar through various forms, including group purchasing of the solar equipment, crowd financing and community investment, and donation-based models.

There are various models for community solar projects, but the majority of projects today are utility-sponsored. Utility customers participate by contributing either an up-front payment or an ongoing monthly payment to support the solar project. Then the customers receive a payment or credit back on their electric bills based on their contribution and how much electricity the solar project produced.

Typically there is a large commercial customer that acts as the anchor of the project and accounts for between 40 percent and 60 percent of an individual community solar project, and then the remainder is made up of residential customers, Cory Honeyman, a senior analyst at GTM Research, said in an interview.

Third-party solar development companies such as Clean Energy Collective (CEC) and SunShare, which are market leaders in community solar development, help manage a large number of the community solar projects nationwide. Developers have different models. CEC, for example, partners with utilities that agree to buy all of the electricity from the solar array through a long-term power purchase agreement. CEC then oversees the projects, partnering with photovoltaic system providers such as First Solar. CEC owns the arrays and manages all operations and maintenance of the systems. It also licenses software for the billing and crediting to customers' bills.

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“We’re the bridge between utilities and consumers, to allow the two of them to work in a symbiotic fashion as opposed to a one-way relationship,” Paul Spencer, president and founder of CEC, told Bloomberg BNA.

Third-party companies such as SunShare say building community solar projects, as opposed to rooftop systems, is a much more economical business concept, with a report saying it is half the cost of rooftop solar to build.

“The value proposition of community solar is super easy,” said David Amster-Olszewski, chief executive officer and founder of SunShare. “It's how you bring solar energy to everybody who wants it ... in a cost-effective way.”

“We're able to dramatically decrease the cost of construction, management and financing when the panels don't have to be placed on hundreds of thousands of small roofs,” he said.

State Policies Spurring Markets

Legislation in a handful of states encouraging the development of community solar systems has driven a lot of the growth in community solar over the past several years.

“When you look at states specifically like Minnesota, California, Massachusetts, Colorado, and then soon New York, those states have set forth mandates in a very cookie-cutter program design to attract a lot of companies that are looking to scale up their community solar presence quickly,” Honeyman, the GTM Research analyst, said.

He said that now much of the near-term growth in community solar is concentrated in four or five state markets “that have the right design in place for scale.” He said 90 percent of the installations expected in 2015 and 2016 will take place in states with community solar legislation in effect.

As of mid-August, legislatures in 13 states plus the District of Columbia have enacted legislation in support of community solar policies, according to Vote Solar, a nonprofit that advocates for greater solar deployment. 

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Also, more than 40 states have enacted net metering policies. Net metering credits residential or commercial customers who generate their own electricity and allows for excess electricity they generate to flow back to the grid.

Various state laws generally mandate that utilities offer customers the option of community solar, with varying parameters on how they define it. The legislation often puts a cap on the size of the projects—for example, they can't be larger than one or two megawatts—as well as requirements about how many subscribers a community solar system has to have. For example, one large company can't be the only subscriber, explained Jocelyn Durkay, energy policy specialist at the National Conference of State Legislatures, a nonprofit providing bipartisan policy analysis.

Also state legislation often stipulates how much a single subscriber can purchase. For example, one subscriber can't purchase 90 percent of the solar array, Durkay said.

Legislation: The Good, The Bad and The Sunny

Colorado has been the leader in community solar development. It was the first state to pass community solar legislation in 2010, which has served as a model for other states. Clean Energy Collective and SunShare started their businesses in Colorado as well.

In fact, when the Colorado Solar Gardens policy first passed in 2010 as a pilot program run by Xcel Energy Inc., an investor-owned utility that serves Colorado and other westernstates, it was so popular that the subscriptions sold out in 30 minutes. This year, Colorado's state legislature passed a bill to expand participation in the Solar Gardens program.

Meanwhile, some states have passed policies that ended up hindering the growth of community solar. CEC's Spencer points to state-mandated caps on how much community solar can be installed in a certain time frame. Massachusetts for example, has raised its initial cap of 400 megawatts, which it surpassed four years ahead of schedule, to 1.6 gigawatts by 2020.

“Megawatt caps are definitely not beneficial because essentially what it does is it causes the industry to perform in spurts and fits,” Spencer said. He explained that when the cap is met, a lot of the businesses leave town, which affects the local economy as well.

SunShare's Amster-Olszewski also said that caps on the total size and population of community solar projects can inhibit growth.

But state legislation that removes red tape and standardizes state permitting and zoning regulations is very helpful, because it helps establish best practices for how companies should develop projects, he said.

SunShare often has to work with 50 or more jurisdictions in a state to go through the land use process, Amster-Olszewski said. “If you don't have alignment throughout the state, that can really slow down development and adds unnecessary costs to the customer,” he said.

The soon-to-be hottest new market for community solar is in New York, where the legislature passed the first phase of a shared renewable energy program. Both CEC and SunShare are planning to develop projects there.

“New York's program may be one of the best structured policies that we’ve seen,” Spencer said.

He said one of the strongest features of New York's program is that doesn't have a statewide cap, “where you build the industry and then crush the industry.” Spencer also said it appeals to different types of consumers, and isn't just catering to large consumers. It also offers incentives for low-income consumers.

Utilities Getting in on the Game

Another factor that's fueling expansion in community solar is an uptick in investment from utilities that are developing their own community solar projects.

Utilities say community solar makes economic sense, as the price of solar continues to drop and consumer demand for solar increases.

Among utilities, rural electric co-ops are leading the development of community solar projects.

“We are consumer-owned. Co-ops can respond to what their members want, and what's happening is that more and more co-ops are finding that their members are interested in solar options. Community solar offers an ideal response for that desire. It’s scalable. You can start out small and grow the community solar project,” said Tracy Warren, senior communications manager for the National Rural Electric Co-op Association.

She said that while the numbers continue to increase, as of mid-July, there were 43 community solar projects run by co-ops in 16 states and 35 more projects planned in 17 states.

However, rural electric co-ops provide electricity to only 12 percent of the nation's customers, meaning that the real potential for growth in community solar lies among investor-owned and publicly owned utilities.

Xcel Energy is one of the investor-owned utilities that has entered into the community solar market. Xcel has 24 projects installed in Colorado totaling 17 megawatts, but the largest market will be in Minnesota with active applications for more than 1.1 gigawatts of solar projects, or about 1,200 projects. The company plans to start developing projects in Wisconsin next.

Frank Prager, Xcel Energy's vice president of policy and federal affairs, said that as a utility, Xcel has to ensure that the rates of customers who don't want community solar aren't affected as it enters this market.

“You need to make sure that customers who want solar can get access to it and that customers who don't want solar aren't paying too much in terms of the subsidy,” he said.

GTM Research's Honeyman projects that utilities will be the biggest contributors to the growth of the community solar over the next five years.

“[The growth] is really pegged to the fact that utilities are looking for a way to strengthen their relationship with customers via some kind of solar product offering that keeps customers ultimately on the grid, as rooftop solar becomes an increasingly attractive value proposition. This is a happy medium approach for utilities to get their skin in the game,” he said.

There appears to be little opposition to community solar as it begins to develop, Honeyman said. “Generally speaking, there is minimal resistance to community solar since utilities are often more involved in such projects' development than rooftop solar,” he said.

However, there has been some heat between utilities and solar developers in the project scope and size. “There are select instances where utilities and solar developers disagree over how a community solar market should be designed, in terms of incentives and annual caps on development, as has been the case in Minnesota,” he said.

Electricity Savings Are Regional

Community solar is currently economically viable in parts of the country where electricity rates are high and has the potential to become more competitive in the future, analysts and developers say.

Today community solar customers are seeing annual electricity savings between 1 percent and 15 percent, Honeyman said. But once there are more energy companies in the community solar marketplace, the prices of community solar will drop, he said.

The savings that community solar subscribers receive depend on the cost of electricity in the region and the solar resources in the state.

“If you were in Arizona and Colorado, there's a lower cost of generation than if you were in Minnesota or New Jersey,” Glen Andersen, energy program manager at the National Conference of State Legislatures, said.

He also said the electricity rates depend on the competitiveness of the electricity market.

“They have high electricity rates in California, for example, so it does make [community solar] more competitive. But if you were in a state like Kentucky, where electricity rates are really low, whether or not you're going to see savings over just buying it from the utility is more questionable,” Andersen said.

CEC's Spencer said his company is starting to see community solar rates trend closer to wholesale electricity rates [rates paid by electricity suppliers, like utilities, to purchase electricity on the wholesale market] than to retail rates [the rates utilities charge to consumers].

“What’s interesting about it trending closer to wholesale instead of retail is that it allows the power utility and consumer ecosystem to actually embrace these types of solutions because everybody is getting something out of it that they want,” he said. “Utilities are getting power that’s not super expensive, the customers are getting clean energy but they’re also getting a good payback. So it aligns everybody’s interests.”

Steve Corneli, senior vice president of policy and strategy at NRG Energy Inc., one of the large mainstream energy companies entering the community solar market, said that in the next four to five years community solar will be even more competitive with retail electricity rates.

“Especially where the policies are friendly and not handicapping community solar, it will be the first choice for cost and environmental attributes,” he said.

Bright Future Ahead

Developers, analysts and utilities predict that the pace of community solar will continue to grow in the future as prices of solar decline and more utilities get involved. In 2015 and 2016, the total amount of community solar projects installed is projected to increase by seven-fold, GTM Research estimates.

The drive for the large push in installments by the end of 2016 is largely because a 30 percent federal solar investment tax credit for residential and commercial properties is set to expire. After Dec. 31, 2016, the commercial credit will drop to 10 percent and the residential credit will drop to zero unless Congress extends the deadline.

Corneli said that while the investment tax credit and the state net metering policies are helping community solar grow, they won't be necessary in the future.

“By maintaining the kinds of shared solar-friendly policies we have today, that gets us to the point that at the end of the decade they are no longer essential,” he said. At that point, all community solar will need is commercially friendly policies to keep it growing, he said.

Xcel's Prager agreed. “The more you see the price of solar go down, the less you're going to need the subsidies in place,” he said. “I think there's a really bright future for solar garden.”

In the end, the key lever to continued community solar growth is the entrance of more major, established-energy companies, such as NRG, and more utilities, Honeyman said.

“In the long term, every developer of solar projects, regardless of market segment right now, has to be thinking about how they can make a play in community solar,” he said. “In the very long term, it will be right up there with the other market segments. It’s really just a function of the timeline for other major players entering the space and the level and pace of adoption from other utilities.”

To contact the reporter on this story: Rebecca Kern in Washington at

To contact the editor responsible for this story: Larry Pearl at

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