The Growing Popularity of Community Solar

As the U.S. electricity sector evolves, battle lines have been drawn on such issues as net metering, renewable portfolio standards, and distributed generation. One emerging trend being cheered across the board is community solar. Unlike typical net metering arrangements — in which customers offset their electricity bill through electricity generated by solar panels installed on their own roofs — community solar projects are physically separate from the customers’ property, and each bill is offset in proportion to a customer’s ownership stake in the development. Utilities are jumping on board with these projects, as they are seen as an alternate revenue stream in an age of declining demand and competition from third-party providers. Indeed, according to a November 2015 report from the Solar Electric Power Association (SEPA), there are at least 68 active community solar programs in the U.S., nearly 60% of which are led by utilities, co-operatives and other public power entities. Consumer advocates also praise community solar as a means through which non-homeowners, and lower-income customers, can participate in the country’s solar power revolution.

The community solar industry has been growing steadily over the years, and even though it makes up less than one percent of installed solar capacity here in the U.S., it appears that 2016 may be a great year for such projects. According to the above-referenced SEPA report, of those 68 active community solar programs, 24 are located in Colorado, Massachusetts, and Washington — three of the first states to enact community solar legislation. Since then, ten other states and the District of Columbia have also passed laws to participate in this growing market. The report projects that more than 200 MW of capacity will be integrated by the end of this year, a sharp increase from the 88 MW currently installed across the country. Looking beyond to 2020, GTM research predicts that community solar could increase by 500 MW annually.

 

The past year saw several other positive signs for this burgeoning industry. First, there was a private letter ruling from the IRS to allow a Vermont man to claim a 30% tax credit on a community solar project investment. Although such letters are only applicable to the individual taxpayer on the facts of the taxpayer’s case, community solar advocates hailed this decision as a promising indication of how the IRS would view similar requests to claim investment tax credits for community solar projects. Second, these kinds of developments are finally catching the eye of traditional financing institutions. One of the most prominent community solar project developers, Clean Energy Collective, teamed up with a Morgan Stanley subsidiary in Massachusetts last March, as did another developer, BlueWave, which announced last December that it secured $100 million for more community solar development in the state. Finally, Christmas came early for the solar industry last month when Congress extended the investment tax credit to 2022, prompting Bloomberg New Energy Finance to predict that new solar PV installations from 2016-2021 would increase from 41GW to 59GW as a result of the extension.

 

Despite the sunny long-term outlook for the community solar sector, however, there may still be some clouds on the horizon. One damper on private sector development is continued uncertainty over whether community solar subscriber agreements comply with securities laws. While hardly a deal-breaker for developers, as evidenced by the strong growth outlook, this uncertainty will ultimately require an SEC ruling to be dispelled. Driving down costs also remains a goal. Meanwhile, however, utilities and third-party developers are surging into 2016 with numerous community solar projects planned. As a new service for utilities to offer, third-parties to develop and operate, and consumers to take advantage of, it is clear that this new industry is here to stay and bound to get bigger.
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