So far, high prices and barriers to entry have made solar most accessible to well-to-do homeowners and corporations.
A new report from GTM Research, Wood Mackenzie and Vote Solar, a solar accessibility advocate, notes that 50 to 75 percent of U.S. consumers don’t have access to conventional rooftop installations. But if it is executed properly, community solar can change that, the authors say.
Assessing the possibilities of policies and business models, the report, which also received support from the Coalition for Community Solar Access and Grid Alternatives, notes that community solar installations could reach a total of 84 gigawatts of operating capacity, serve 8.8 million customers and account for as much as 2.6 percent of U.S. electricity consumption by 2030.
“Solar should be able to benefit everyone,” said MJ Shiao, head of Americas research at GTM Research. “But it’s difficult to apply onsite solar to folks who rent, or to low-income communities.”
Current community solar capacity through Q1 2018 sits at just below 1 gigawatt, a little less than 2 percent of overall installed solar capacity in the U.S. But a look back at the past eight years shows the market is just beginning to take off. Because community solar uses a subscription model and doesn’t require the space for an installation on site at the user's residence, it’s theoretically more accessible. Between 2016 and 2017, installed capacity more than doubled.
But several barriers, many involving the process of signing up participants, continue to constrain the sector.
“A sticky problem”
Development of a community solar project looks much like any other commercial or utility-scale project, and difficulties with customer acquisition echo those that have challenged the solar industry at large. Community solar often requires fewer steps for signing up subscribers than do other projects, but Shiao noted that “customer acquisition is a sticky problem” in all solar sectors.
That’s in part because community solar was designed to be flexible for users, but the administrative infrastructure used in the solar industry is the opposite.
Most power-purchase agreements last for a decade or longer. The majority of community solar contracts are no exception, according to Solstice, an organization that partners with community solar developers on customer experience. Solstice co-founder and CEO Steph Speirs said most contracts last for 20 to 25 years, a timeline that doesn’t match modern customer needs.
“When we started Solstice, we looked around and realized it was really difficult for ordinary people to get solar,” said Speirs. “People aren’t signing up for marriage for 20 years — why are we trying to force people to sign up for community solar for 20 years?”
Shiao said those signing on to community programs may not be thinking on a 25-year project timeline in the same way that homeowners looking to invest in residential solar probably are.
“If you’re thinking about community solar and trying to target renters, well, renters...[are] not necessarily sure that they’re going to stay in their apartment, or wherever they’re renting, long-term,” he said.
Solstice is trying to change the standard by sharing its customer data with developers. The company's data indicates consumers are less likely to sign on to projects that have cancellation fees or long-duration contracts. Those conditions narrow the subscription base available to a project, which ultimately means customer-acquisition costs increase.
Speirs expects customer demand to eventually compel change in contract structure. The organization has already noticed smaller developers offering shorter contracts without cancellations fees, which should nudge bigger players in that direction.
“The market will eventually get there,” said Speirs. “We’d like to see that happen faster.”
“An imperfect proxy”
Credit scoring represents another challenge for community solar subscribers and especially low-income customers, according to Speirs. Many developers require subscribers to have an excellent FICO score, above 650 or even 700 according to Solstice. That’s a high barrier for many customers, and Speirs believes it's an inaccurate predictor of whether a subscriber can keep up with contracted payments.
“FICO doesn’t measure whether you pay your utility bills on time or if you pay your rental or cell phone bills on time,” said Speirs. “It is an imperfect proxy for whether you should qualify for community solar.”
Solstice’s EnergyScore, a qualification metric developed with the support of a Department of Energy grant, aims to more accurately predict whether a customer can pay a subscription using demographic data. After analyzing 875,000 customer records to measure the correlation between utility delinquency payments and FICO scores, the company said its metric is 40 percentage points more accurate than FICO at predicting whether a customer will pay. It's also 11 percent more inclusive of low-income households.
“You can be more inclusive and you can be more accurate,” said Speirs. “Those things are not necessarily mutually exclusive.”
According to GTM Research, 31 million low-income households and 5.78 million affordable housing properties could benefit from community solar-related energy savings.
Eventually, Shiao said it’s possible developers will actually consider community solar projects less financially risky than others because there’s an entire roster of responsible parties rather than just one.
“It’s maybe a little more diverse than looking at one specific, big offtaker and betting the farm on one offtaker,” he said.
Shaping effective policy
So far, state policies have mostly determined where developers can actually pursue community solar projects. According to GTM Research, 42 states plus Washington, D.C. currently have some type of community solar program in place. But the great majority are one-off programs sponsored by utilities. Only 19 states have policy-enabled community solar markets, accounting for 71 percent of currently operating capacity.
Whether more states put supportive policies in place will likely be the most important factor in determining the sector’s success.
“Policy is obviously the driver that started community solar,” said Speirs. “Where you can see it flourishing and constraining...is [consistent with] each state’s policies.”
Solstice currently works in Massachusetts and New York, but it’s in contract negotiations to move into other budding markets next year including California, Minnesota, Illinois, Maryland and Rhode Island.
Speirs points to Colorado, a state once at the vanguard of community solar, as an example of policy struggles squeezing installations. The market in Colorado is now capped by three-year planning timelines and hinges on bidding on renewable energy credit value, which at times has gone into negative values.
Whether or not a state has established virtual net-metering policies isn’t the only factor in a state’s success. Speirs noted how states treat commercial versus residential entities, whether policies include a low-income adder or a carve-out, and how utilities embrace change can all shape a state market as well.
In the last year, Speirs said Solstice has noticed an uptick in inquiries from utilities wanting to learn how to structure community solar programs.
That’s a possible barometer of success. Utility interest indicates attitudes about community solar are changing, not only among risk-averse power companies, but among their customers as well.
In addition to passing legislation that establishes a community solar market, GTM Research analysts note the need to focus on “stable, fair rates and market participation structures” in state policy.
In structuring policies, states have a specific opportunity to include marginalized populations that experience disproportionate impacts from conventional generation. GTM Research notes in its report that “community solar can be used as a tool to target benefits to communities historically have been at the front lines of environmental pollution and negative impacts from traditional energy generation.”
Analysts recommend job training programs, siting preferences and community-focused incentives to provide benefits to populations that have been sidelined by the electricity system. Baking environmental justice initiatives into community solar development can also have positive impacts on public health.
According to Shiao, another indicator of good state policy is on customers' bills. He said the bill-crediting mechanisms that states and utilities use are “kind of all over the map,” literally and metaphorically. A lack of transparency in how credits work, or if they arrive late or are inaccurately calculated, can turn customers away. Though GTM Research doesn’t recommend a specific policy or program to credit customers, Shiao said the approach used does need to be clear to subscribers.
“Good policies tend to focus on inclusivity, ease of access, simplicity of access and really trying to create a bill-credit mechanism that is fair and stable for all participants,” Shiao said. “Certain customer classes, they want to see savings on their electric bill, but they also want that predictability that comes from solar and community solar in general. Having that bill-credit mechanism be stable and long-term is critical.”
Should states embrace supportive policies that boost the sector, analysts forecast that by 2030 community solar capacity will account for at least 1.7 percent and up to 2.6 percent of total electricity generation in the U.S. It will also bring in $81 billion to $120 billion in investments.
GTM Research’s most ambitious 2030 forecast shows that community solar will only cover 8.8 million of the 75 million to 113 million households and businesses without access to onsite solar. But better policies would help lower the barrier to entry for the millions of Americans currently locked out of the solar industry.
