News / A Brief History of Community Solar
community solar in Colorado

Author: Kacie Peters

Director, Business Development

 

Community Solar is the fastest-growing segment of the solar industry, growing from a few scattered projects in 2007 to 1 GW of installed capacity in 2019. The industry’s explosion can be traced from the first pioneering projects, through innovative legislation, and the creation of dynamic programs that helped to evolve the product from a niche premium product to a sustainable market segment.

Early Days: Utility Experiments in Shared Solar

Rooftop solar has long been viewed as a limited solution to scaling solar for two reasons:

  1. The majority of the population lives in homes unsuitable to mount systems onsite
  2. Solar investments have been seen as expensive and limited to the wealthy

While many acknowledged these shortcomings in the early days of residential solar in the early 2000s, it was hard to find a solution that worked. At the time, the only way to benefit from solar was to use electricity generated onsite to reduce consumption from the grid and/or be credited for energy sent to the grid through a process called “net metering.”

It was clear that if there were to be another way to benefit from solar, the utilities would need to invent it. Small co-op utilities and municipal utilities were the testing grounds for such products. In 2007, the Sacramento Municipal Utility District in California launched one of these experiments with the Solar Shares Program. Solar Shares allowed residents to pay a monthly fixed fee to receive energy credits on their electric bills. The 1 MW project sold out almost immediately, indicating that shared solar was a product the market needed.

Through the years, municipal utilities and co-ops throughout the country continued to experiment with community solar products. Most projects were small, serving less than 100 participants. Overwhelmingly, these projects were developed and owned by the utility and required either an upfront purchase of modules and with credits reflecting an allocation on an energy bill. However, scaling these systems was difficult – early adopters had to create the structure from scratch. The cost of consultants, lawyers, and accountants made these projects more expensive than utility power and difficult to replicate. If community solar were going to grow, it needed a commonly accepted structure and protocols. In other words, community solar needed a program to scale, and in 2010 the first program was legislated.

 

From Patchwork of Projects to a Patchwork of Programs

In 2010, Colorado launched the first community solar legislation called the Community Solar Garden’s Act and paved the way for Solar*Rewards Community, the first major community solar program. As we have covered previously, the legislation formally created a mechanism by which utilities in the state could credit energy bills for residents and businesses. After Colorado sparked the fuse community solar programs began popping up in other states across the country. Here are the most notable features of 3 of the major programs to explore the evolution of community solar:

 

Minnesota

Like Colorado, Minnesota’s largest utility is Xcel Energy, so it makes sense that the Land of 10,000 Lakes launched the most successful community solar program to date with the passage of the Community Solar Garden Legislation in 2013. It was the first uncapped program resulting in the largest capacity to date roughly 600 MW of community solar capacity is currently operating, the most of any state.

In most community solar markets, the value of community solar production is tied roughly to a portion of the retail cost of electricity (a remnant from rooftop net metering.) Still, Minnesota’s program is based on a specific tariff called the Value of Solar. According to MNSEIA, “The idea behind the ‘Value of Solar’ is to develop a rate that is payable to solar facilities that is equivalent to the direct benefit that the solar facility is providing to the utility, its ratepayers and society generally.” The Public Utilities Commission reviews this credit annually with the input of experts, stakeholders, and the utility. Historically, the Value of Solar Tariff has produced very attractive economics for subscribers resulting in the largest program in the country and inviting backlash from critics.

 

Massachusetts

Massachusetts also passed community solar legislation in 2013 to increase the options for homeowners and businesses to access solar energy. The market has gone through a few versions of incentive programs to promote the growth of community solar: SREC I and II, and the SMART Program. To date, Massachusetts has over 1600 MW of capacity in development.

The biggest contribution Massachusetts has made to the larger community solar landscape is defining the modern capacity configuration: an anchor tenant plus multiple residential subscribers. In previous programs, vague language stipulating “multiple subscribers” allowed investors and developers to market the systems almost exclusively to commercial subscribers. Although residential gardens existed, it was easier to underwrite the credit of a handful of entities than to manage hundreds of individuals. SREC II stipulated that one tenant could have up to 50% of the capacity, but the other 50% would be made up of allocations 25 kW or less. The anchor tenant made it easier to underwrite the system for financing, but having the other 50% open to smaller users opened participation to hundreds of households or small businesses per garden.

 

New York

Although Minnesota is currently ranked largest in community solar capacity, and Massachusetts has the largest queue for projects, New York has the most substantial community solar potential. Early in 2019, the state announced a goal 6 GW of total solar capacity by 2025.

Also, like Minnesota, New York has established crediting for community solar in an innovative way. Compensation from community solar assets is calculated in real-time based on the impact the asset is having on the local grid and environment. This value stack, called VDER has components that fluctuate on routine intervals, addressing some of the critiques that the Value of Solar tariff had experienced. VDER’s complexities make it hard to predict what rate/kWh a community solar project should charge a subscriber ahead of time. As a result, the fixed discount subscriptions pioneered in Massachusetts became the standard for residential contracts. Fixed discount products are tied to a discount to the real-time VDER credit, so it doesn’t matter what the value stack price is, a subscriber will always see savings to the credit.

 

Summary: Community Solar is Evolving with a Common Goal

Today, 18 states have community solar enabling legislation, and 11 states have programs with operational or mid-development projects. Each new iteration of community solar has taken some of the lessons of its predecessors while evolving program design, prompting new products and economics for consumers. The result is that community solar is now fulfilling the promise that the market’s pioneers identified over a decade ago – to increase participation and open the market for clean solar energy to everyone.

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