As many have predicted, community solar continues its nationwide growth. We previously discussed the fourteen states that have adopted specific enabling legislation for community solar. With the growth in business potential, more and more states are working to adopt or revise policies to accommodate this new model for distributed energy generation. According to the NC Clean Technology Center, in Q1 2016, seven states have considered, amended or clarified rules governing community solar programs; and in states that are slow to respond, utilities are taking the lead, submitting proposals for community solar programs without a specific enabling legislative framework in place. According to SEPA’s recently released report, “Community Solar: Program Design Models,” there were 68 active programs in 23 states in the summer of 2015, with many more programs being planned.
Geographic Distribution of Community Solar Projects
In New York, EnterSolar started construction of the first community solar project in the state. Relatively small in terms of capacity (less than 1 MW), the project is developed under New York’s first phase for community solar development that limits development to areas with the highest grid locational benefits and to low-income communities. This month New York enters the second phase of the program that allows for full implementation of net metered community solar projects across the state. Many developers are already working hard to secure development contracts, and even the city of New York has introduced a municipal plan to promote community solar developments within city neighborhoods.
Nothing is wrong with community solar. On the contrary, we think that community solar is awesome. However, despite its great potential to unlock solar energy to more than half of electric consumers in the U.S., and although it is gaining traction nationwide, development rates for community solar are nevertheless 20% lower than expected. Even in states that have addressed management structure and regulatory uncertainty concerns projects are still not springing up as one would have expected. So what is it? Why aren’t we seeing more community solar projects?
It’s the offtaker, stupid!
The reality on the ground is that developers and utilities are still struggling with selling community solar to customers. Relatively complex in structure and less known than other models of distributed solar generation, community solar is a hard sale. Customers are wary of entering into unfamiliar financial adventures involving multiple parties, especially when the transaction involves an upfront investment as is the case with most community solar schemes.
Part of the challenge lies with the fact that customer attitudes to community solar vary. While some programs are fully subscribed and thriving, others are underachieving. Many have tried to identify the winning set of program features that makes a community solar project appealing, but because regulatory frameworks, transaction structure, and management schemes vary greatly from one project to another, identifying best practices from existing projects has proved to be an elusive task.
However, a recent study conducted by Pacific Consulting Group, might have finally revealed the answer to the question of what makes a community solar project successful. Taking a creative approach to solving a persistent problem, PCG focused on customers instead of projects. PCG conducted a market survey among potential offtakers in eight community solar states, asking respondents questions aimed at identifying how market acceptance of community solar changes with project features. Unsurprisingly, the number one factor in customer acceptance is initial investment; projects that do not include an initial investment or require only a small upfront investment are highly valued. The second is percentage of electricity bill to be covered by the investment; the lower the percentage of the bill covered, the less attractive is the project. Together, the two attributes account for 20% of total importance. Other interesting findings are that customers value savings five years out as more important than immediate savings (suggesting that customers are not intimidated by the long-term commitment associated with community solar), customers are largely indifferent to what they lease or own, and are not persuaded by incentives other than the potential payback (e.g., late fee forgiveness).
Relative Importance of Seven Program Attribute on the Decision to Adopt Community Solar
(Sources: PCG; SEPA)
The study also measured customer responsiveness to marketing approaches and revealed interesting trends among communities. The most important findings are that messages emphasizing customer ownership and individual economic gains resonate better than messages emphasizing conservation or “green” considerations. Utilities, nonprofits, and solar organizations enjoy better credibility and therefore have better prospects in influencing potential customers than other entities or individuals (indicating the value of business partnerships). Also, personal messages targeting individual customers are more effective than mass media (with a message on the utility bill being the most effective form of customer engagement).
All I want is peace of mind
Understanding how to approach customers and how to tailor transactions in a manner that is appealing to potential offtakers is very important for the continued growth of community solar, but it is not enough. Even after we have addressed project features, payout structure, and marketing strategies, we still need to find an entity that will manage the project once it is operational, and long-term management of multi-party endeavors is costly. Some states have tried to address this concern by introducing an intermediary special purpose entity responsible for aggregating membership interests and managing the relationship with the local utility. But the question of cost and management remained largely unanswered, at least until now. Responding to market needs, community solar management firms are emerging. Firms like Clean Energy Collective offer management platforms that ease operations, reduce costs, and give offtakers, investors, and utilities exactly what they need - peace of mind.
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Photo by Patrick Fore on Unsplash