Community solar programs are expanding. There are now 31 states with shared projects in operation, amounting to 1,147 megawatts, according to the Q2 2018 tally from Wood Mackenzie Power & Renewables.
Most of that community solar capacity sits in the top three markets — Minnesota, Massachusetts and Colorado — which collectively account for 810 megawatts. Another 600 megawatts could be coming for Massachusetts and Minnesota by the end of this year.
Other states are much smaller. In fact, there are eight states with only 100 or 200 kilowatts. Hardly a market. (Only 19 states have long-term programs in place.)
Still, more consumers around the U.S. are getting exposed to these programs around the country. Vote Solar and WoodMac worked together on an analysis of market potential earlier this year, finding that community solar capacity could reach 84 gigawatts by 2030 under a moderate-growth scenario. That capacity could serve 8.8 million customers and meet 1.6 to 2.6 percent of U.S. electricity consumption.
What would it take to hit that moderate-growth scenario? Oh, you know, just the perfect alignment of savings, simplicity and implementation.
"Solar subscribers overwhelmingly care about receiving tangible economic benefits, such as bill savings, predictable pricing, and low/no upfront costs — so delivering that economic value proposition to all customer segments is key to successfully scaling the community solar market. Improvements in program design and implementation, financing solutions and customer-focused offerings can successfully deliver those economic benefits to consumer participants," write WoodMac and Vote Solar.
This is not an easy lift. Community solar programs are incredibly complicated for both developers and consumers. It's hard being a C&I developer that also needs to do retail marketing and customer acquisition. And the shopping experience — which can force consumers to hand over private information to a third party and pore over long contracts — is still pretty convoluted.
However, as companies like Arcadia Power and EnergySage find a way to nationalize community solar offerings and simplify the buying experience, the friction may subside. (Full disclosure: I have a community solar subscription through Arcadia. As I detailed in a recent episode of The Interchange, they had the best offering and user experience, by far.)
As part of my journey to find a community solar offering, I talked with a half-dozen companies about the health of the market. I was very interested in how they juggle the complexity of projects while also trying to satisfy consumers.
In this edition of The Lead, we feature interviews with three of those companies: EnergySage, Nexamp and Arcadia Power. Each of them is approaching the market from a unique angle — all with the goal to simplify the buying process.
Can EnergySage Amazonify community solar?
EnergySage has become the go-to website for comparing residential solar quotes. Community solar was a natural place to focus, particularly because it can be so hard to understand the contracts used in the space.
"We would like to go much deeper into solar, so of course [we plan to] build a much more robust community solar marketplace to allow consumers to shop for community solar in a...transparent fashion," said CEO Vikram Aggarwal.
Aggarwal doesn't think community solar buyers are isolated. They are often looking for many different products — efficient appliances, home performance upgrades, maybe still considering rooftop solar — so EnergySage is redesigning the platform to include comparison shopping for a wider range of offerings.
"Now that we have the confidence from rooftop solar, we believe the same shopping process can work for other products and services. Typically, big-ticket items. The problem that we are solving for rooftop solar is very similar to the problems that consumers face while shopping for other things."
Stephen Lacey: So how does that relate to community solar? What are consumers looking for?
Vikram Aggarwal: We recently did some research with our customers who were signing up for our community solar marketplace. We found that people were very interested, but they were not actually signing up for community solar. We asked them, "What happened? What's the reason?" It's the term of the contract.
I think that's where increased transparency and standardization could be valuable to the consumer. As an average consumer, I would love to be able to sign up for a community solar project, but I know that 20 years is a very long time for a community solar contract, especially when the company may make it really difficult for me to cancel that contract.
You almost need a lawyer to look over those contracts. A lot of consumers stay away for small savings if it's too much effort or risk.
Stephen Lacey: How do you make this easier?
Vikram Aggarwal: You're buying electrons that can easily be redirected to anybody in the same geography, right? Why does the consumer need to jump through so many hoops to be able to sign up for a community solar option? If the companies make the product really easy to sign up — and easy to get out — I think people will be beating down the door to get it.
Stephen Lacey: How can you apply lessons you've learned from consumer behavior to community solar?
Vikram Aggarwal: An average consumer will expect the same shopping experience for solar as they do for every other product. The solar industry will not be an outlier.
What do you do today? You go pick up your smartphone, you go to Amazon, or go to whichever marketplace you feel comfortable for that particular product. You do your research, you understand your options. Wherever you feel the most comfortable shopping, that's where you will go and make that purchase. In every other industry, marketplaces have taken over. We rarely go directly to the vendor.
That is what the consumer is going to expect in terms of how they would like to shop. The solar industry would be better served if we get ready for that kind of a shopping experience. That is actually happening even today, so it's not just about the future.
How Nexamp became a B2B2C company
Nexamp is a developer focused on C&I and small utility-scale projects. The company shifted to community solar three years ago, expanding from Massachusetts into New York and Maryland.
Zaid Ashai, the CEO of Nexamp, is amped about community solar. But it's still new territory for developers accustomed to a single offtaker.
"The customer-acquisition costs have to be maintained at a certain level to allow a project to financially pencil out. And that's easier said than done. That requires a company to create an offering that's easy to understand and attractive to consumers. You also need a marketing plan that really messages to those customers effectively," said Ashai.
Stephen Lacey: That still seems like a new thing for developers to wrap their heads around.
Zaid Ashai: That's a very new thing. Solar developers typically were more of a B2B business, where they were dealing with either utility offtake contracts or C&I offtake contracts. They really didn't have the DNA to be consumer-facing. So this was something our industry had to learn — because now with community solar, we're B2B2C.
We're dealing with building large facilities, from 500 kilowatts to 10 megawatts. So you still need a utility mindset on developing projects when it comes to permitting, environmental, interconnection studies, etc. At the same time, we need a really good marketing team that can capture the customers in order to realize the benefit from that facility.
Stephen Lacey: How are you capturing those customers?
Zaid Ashai: We're doing a hybrid approach of digital and more traditional marketing.
On the digital side, we are using Facebook and Google AdWords as part of our campaign. That allows us to target the geographies where those facilities are located.
We also have channel partnerships with groups like the Boy Scouts of America, United Way, and others. We'll reach out to these groups to communicate the benefits of community solar to their constituents.
It's also direct mail and corporate events. The last thing is giving customers a financial incentive to refer others. And that's really picked up, because if you have customers that are happy, they're happy to really evangelize it to their neighbors and the surrounding communities.
Stephen Lacey: What's the competitive landscape like? How are you competing for customers in this early environment?
Zaid Ashai: We're proud to say that we have the highest discount rate. We have a 15 percent discount rate that we offer to our customers in Massachusetts. We have no hooks on long-term contracts or FICO scores.
We're very fortunate that we have the debt capital markets to support such a product. We did not want to build a product that would look like the other seven products in the market. No FICO score and no long-term contracts are very unusual in this market.
Stephen Lacey: Are customers getting turned away by contract terms?
Zaid Ashai: Yes. As an industry, we really have to do a better job at self-regulating ourselves. Make sure your contracts are in plain English. It's really important that customers understand what they're signing up for.
It's also critical that there's no hooks that create large penalties, that create friction. Customer comfort is critical. There are industries such as retail supply, where customers have gotten burned. My fear is that community solar providers put traps in very small print, and enforce them to the customer's detriment. That could inhibit the growth of the whole industry.
Stephen Lacey: How much information are consumers willing to give, and when do they drop off?
Zaid Ashai: From our experience, [providing your] address and basic contact details creates very little drop-off. The utility bill does create some friction. We try to explain it.
With some testing, we've changed our signup form a little bit. We check their eligibility. We then create a relationship and someone will contact them via email and explain why we need more information.
If there's resistance to the utility bill, imagine the resistance with other personal details used for credit scores.
States like New York have done a really good job of creating information exchanges with the utility. If you live in New York, you could just give me your utility bill number, and that's it. We can go through the secure utility exchange. We have to take certain protocols to make sure that that data is protected and anonymized. Then we can tell you how much we can sculpt for your savings.
Stephen Lacey: The retail solar industry is undergoing some pretty significant changes in leading markets, where we start to see saturation as solar providers look beyond first movers. Where are we with community solar customers?
Zaid Ashai: I think we're still very early. This industry's still very small in the whole mix of the solar industry.
The second phase of customers will be people who are more skeptical. They're maybe moved partially by green, but they don't want to spend the time pursuing it. That's a segment of consumers we don't really have to touch as much right now, because there are a number of customers ready to invest now, who are excited about community solar.
When does the industry need to really address those consumers? I imagine it's probably going to be at least two to three years out. To serve those customers, we need an interface that's frictionless, that's easy to understand, that's informative — even more so that what we have today.
We have a lot of product enhancements that we're looking at. I'm sure it's the same thing throughout the industry, because the products are still pretty young.
Arcadia Power wants to create fungible community solar
Like EnergySage, Arcadia Power sees community solar as a part of a much bigger suite of offerings for consumers. It's not an isolated service.
Arcadia Power is a hybrid company. It acts as a competitive electricity supplier. It recommends efficiency upgrades. It sources wind RECs. And it offers community solar subscriptions. All of those products are wrapped up into a single platform, under a single bill.
CEO Kiran Bhatraju calls Arcadia the "digital utility."
"The traditional utility, for 100 years, provided reliable service. But they haven't done a great job at...driving the different energy services to the customer that exists in the market — being able to look at a customer, understand who they are, and be able to drive them to the right product."
Again, I am a customer of Arcadia Power. After surveying five community solar offerings, Arcadia offered a flexible product that could give me bill savings immediately. Rather than wait for new capacity to come online in Massachusetts, I purchased panels upfront in a California project. If I choose to subscribe to a local project, Arcadia will shift me over at no charge.
Stephen Lacey: How are you crafting your community solar offerings differently?
Kiran Bhatraju: The way it exists today, community solar is difficult for a customer. A lot of the developers and companies have 20-year contracts, super-high FICO scores, and really high cancellation fees in case you move — even though our data shows customers do move every five and a half years.
The way we're structuring our community solar with developers is wholly different. It's totally fungible. It's actually the way it should be structured because the offtaker does move. There's no contract, there's no cancellation fee, and you can get a fixed savings rate for power from a local project. We've actually just started with projects in New York and Washington, D.C., but we've got a pipeline with multiple developers across all the major markets, so about 100 megawatts.
The acquisition of a customer on a no-contract, fixed-savings product is 10x easier than signing a 20-year deal with a huge cancellation fee.
Stephen Lacey: Is your crediting process different for customers as a result?
Kiran Bhatraju: We try to make it much easier. Traditional community solar gives you two bills, a bill from the utility and a bill from the developer. And then you have to try to make sense of the crediting.
Part of the technology we spent four years building is a way to consolidate bills with the other products and services that we're layering on to the utility. So actually when you sign up, you'll get just one bill from Arcadia Power, that includes the credit for the capacity that you were signed up for. You wouldn't have to go through this sort of complicated math problem. We do it for you. And we do it with the utility. And so it's a super-simple way. You can actually even pay by credit card with no fee, or bank debit, but you'll just get one bill from us with your community solar rate.
Having that one single bill is the thing that consumers actually want. They want simplicity.
Stephen Lacey: What are the most difficult pieces of the customer relationship? Where does it tend to break down?
Kiran Bhatraju: So we don't release retention rates, but I will say our retention is exponentially better than the standard retail energy supplier.
Moving can be pretty difficult. When you have a customer who lives in Kentucky, who then moves to Massachusetts, the availability of programs to that customer is radically different. A lot of customers don't actually understand that. I think that's where we see a lot of breakdown, and that's just because we have a fragmented electricity market in the U.S. That's been tough because people move. I mean, people move a lot. Especially millennials, which make up the vast majority of our customer base.
Stephen Lacey: Where are you finding your customers?
Kiran Bhatraju: We do 100 percent digital acquisition. We don't knock on doors or anything like that. It's modern marketing tactics. And we're selling a brand, ultimately. We're selling a lifestyle on how to be sustainable, right?
This goes back to the conversation we were having. People are not coming to us with specific questions about the [net present value] of rooftop solar — they're coming to us just saying, "I believe in climate change. What can I do?" And that's what we leveraged through a number of online channels.
Stephen Lacey: Is that why you started the company?
Kiran Bhatraju: It was just for this reason. Not everyone can get rooftop solar. I couldn't either. I knew friends of mine, they wanted options. They wanted to know how do I save money, how do I support renewables? What's Google doing? How can I do that?
I had a good friend who had a Sunrun roof, he had a Nest thermostat, and he bought an EV. But none of those products were connected to the pipe that was pumping electrons in to the home. And to me that was just this massive failure, that there wasn't a platform that was connecting all of the sort of energy products in and around the home.
That's ultimately what we want to be. We want to be a whole home energy management platform that drives everything; home IOT, supply, etc., all through one experience. Three years later, we've got customers in all 50 states and we're hoping to really dramatically expand the customer base in the next year.
Final thoughts
There is no way that community solar can reach 6 million to 8 million customers under the current structure. Policy will be the most important enabler of the market. One-off programs won't cut it.
But when policy is in place, the consumer experience is everything. Community solar contracts should be more like cellphone contracts, not infrastructure investments. Many providers are offering simpler and more flexible contracts, with minimal cancellation fees and easy transferability. But these products are still new and limited to a handful of companies.
There's also another wrinkle: With more flexibility comes more customer churn. The big challenge for community solar providers will be balancing the complicated business model with customer demands.
