By Paul Augustine
West Monroe Partners
Smart cities continuously look for ways to become cleaner, more efficient, and more secure. They also seek opportunities to actively engage their citizens in this effort. One area of focus is transitioning to local renewable energy resources. Unfortunately, the density and location of most cities do not lend them to most forms of renewable energy. An exception is solar energy. Structurally, however, many cities do not have the space available to host utility-scale solar photovoltaic projects, and, as indicated by the National Renewable Energy Laboratory, only about one-quarter of residential rooftop area is suitable for solar photovoltaic systems. How then can smart cities take advantage of solar energy? The answer is community shared solar.
Community solar has a variety of flavors, but, for purposes here we will define community solar as a solar photovoltaic project that delivers energy and/or economic benefit to multiple customers. These customers subscribe to the solar project by purchasing a share of its energy output. A community solar project, then, allows subscribers to benefit from a central commercial-scale solar plant through virtual net energy metering. Virtual net energy metering refers to an arrangement through which multiple customers are credited for a share of energy generated by a renewable energy facility that is not physically connected to their property.
Community solar may be a more appealing concept for cities than traditional rooftop solar, since it allows greater access to solar energy (i.e., for renters, those with shaded roofs, and households that cannot afford the upfront costs of a solar system). While community solar is rapidly gaining traction throughout the country, there are a number of barriers that need to be assessed and addressed before developing a new community solar program.
- Project economics: The biggest barrier to community solar is simply poor project economics. In cities with low electricity rates, without additional incentives, the project may not be viable. Before starting a program, therefore, cities should assess the business case for the program from the perspectives of both the project sponsor and the subscriber. If a project sponsor is willing to subsidize subscribers or if subscribers are willing to pay a premium for solar energy, it may be possible to overcome poor project economics. A robust stakeholder engagement process and close collaboration with the electric utility are, therefore, critical.
- Customer acquisition: When starting a new community solar program, the project sponsor should ensure that there is a robust stakeholder engagement process. To the extent that there is low penetration of solar energy resources currently in the area, the sponsor must focus more on outreach and education of potential subscribers. Along with education and outreach efforts, marketing of the program will be crucial to secure adequate participation.
- Financing challenges: Currently, an important component of solar economics is taking advantage of tax incentives (specifically, the renewable energy Investment Tax Credit and accelerated depreciation). Because municipalities and regulated utilities tend not to have tax liability, in order to benefit from the tax benefits, a sponsoring municipality would often have to contract with a third-party developer with access to tax equity. The scale of projects, then, must justify the diligence and legal costs required to develop the tax arrangements to finance such a project. Often, tax equity investors are looking for projects that are 10-100 times larger than a typical community solar project.
- IT/OT system barriers: Prior to initiating a community solar program, a city should assess the system changes that would be required in order to implement such a program. From on-bill crediting to subscribers, to creating real-time tracking of system generation, to management systems for subscriber contracts, new software solutions and adjustments to existing systems will be necessary. The cost of the build-out and implementation of these changes should be assessed prior to program deployment.
- Policybarriers: In many states enabling policy for community solar is in flux. Specifically, there is ongoing debate on rate design as it relates to residential solar and capturing the true cost/value of solar. Public power entities—that is, municipal utilities and electric cooperatives—have greater flexibility to create community solar programs. However, key policy parameters should be assessed prior to developing a multi-decade community solar program.
Community shared solar represents a unique opportunity for cities to engage citizens in greening their electricity fuel mix. While potential barriers should be properly assessed, the benefits of community solar could be great in accomplishing multiple goals of a smart city.
Paul Augustine is a manager in the Energy & Utilities practice at West Monroe Partners, a Smart Cities Council Associate Partner a recognized leader and industry expert with a decade of experience in U.S. energy and environmental markets as well as management, financial negotiation, policy-making and project management experience.