August 26, 2020

Distributed Generation Series: Understanding Corporate Community Solar

By Jacqueline Levere, Senior Analyst, Renewables Supply

This is part two of our Distributed Generation Series that will delve into distributed energy fundamentals. This installment will explore community solar. Check out part one on navigating onsite solar.

 


 

Many states in the U.S. have issued programs for community solar, which provide virtual crediting options for energy consumers. However, not every community solar program is open for corporate subscription. Let’s discuss who should consider community solar, how it works, and how Edison can help.

Who should consider community solar?

Community solar may be a viable option for corporate buyers looking to scale their local renewable energy generation who have already maximized or do not have a scalable behind the meter options. Community solar presents an opportunity to scale in markets that have had limited success for virtual power purchase agreements. In particular, these programs can be a fit for buyers who have load in densely populated areas or whose load is distributed across many smaller locations.

Even when a behind the meter project is a possibility, community solar may be the preferred option as it does not require onsite construction or installation, can be contracted for a shorter term, and may offer more favorable economics. Further, community solar often has an outsized impact on local renewable development, since the involvement of a large anchor subscriber can support the development beyond their slice of the project.

How Does It Work?

To participate, a buyer signs a contract with the community solar project owner to become an anchor tenant – or the largest subscriber – on the project. With an anchor tenant in place, the project more easily receives necessary funding for development and can subscribe the remainder of the project with smaller residential and commercial participants. Once operational, the generated energy is sold to the local utility, which in turn provides bill credits to the subscribers on their utility bill, as shown in Figure 1.

Figure 1: Community Solar Process & Compensation

distributed energy - community solar process

Community Solar Structure

One of the benefits of community solar is that unlike a green tariff that increases your electricity rate, strong community solar programs can result in a net-savings on your current energy bill.

While subscription structures vary between programs and developers, one of the most common structures is a fixed discount rate. For this model, the price the subscriber pays per kilowatt of energy from the solar farm is tied to the value of the bill credit they receive for the energy from their utility. Summarized plainly, this program is structured similarly to purchasing gift cards at a discount and then applying the full value on your bill at check out.

Sustainability Claims of Community Solar

As with most distributed generation assets, (see our previous post for more on onsite), the solar renewable energy credits (SRECs) associated with a community solar project are typically sold to the local utility. SRECs associated with community solar programs can be extremely valuable, making them prohibitively expensive to retain. Therefore, most community solar project owners do not allow project subscribers the option to retain the SRECs and the sustainability claims associated with them.

As part of this structure, anchor subscribers may have a REC arbitrage option, where the project SRECs are monetized and national RECs are provided in their place; the availability of this option depends on the developer. Subscriber claims cannot be made to the renewable energy produced by the solar asset because the RECs are sold as opposed to retired by the subscriber. Instead, subscribers often note the national REC arbitrage, if applicable, and cite benefits to the local community.

Risks & Considerations

To engage with this structure, buyers must have a good understanding of the various programs available, especially if they have locations in multiple states or utilities. Community solar programs vary significantly from state-to-state, and buyers must be sure they understand the differences in timing, contract structures, state incentives, and termination requirements between programs across their load.

Further, buyers must have a good understanding of how their energy usage might change overtime. Expected decreases and increases in load can lead to unexpected costs by oversubscribing or missed opportunity by under-sizing.

Since most community solar programs were created for residential customers, they often include regulations that make it more difficult for large corporate customers to participate. For instance, many programs cap the percentage of a community solar project that one user can take, regardless of their size. Therefore, larger corporate buyers may need to find a developer or owner with multiple different projects available in order to match their energy usage.

How Edison Can Help

Edison Energy is continually reviewing community solar programs to stay current on the best options available. We can help you analyze your energy usage and sustainability goals and strategize with you regarding community solar pursuits, among other structures. If community solar suits your needs, we’ll assist you in identifying strong counterparties, navigating regulatory limitations, and negotiating commercial terms.

Considering community solar? Interested in learning more about what opportunities best suit your needs? Reach out to our team.

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