Community solar gives electric customers the opportunity to buy a portion of the output from an off-site solar facility. The beauty of community solar lies in how it encourages large, low-cost, solar projects to be sited where utilities need them most, while giving access to the environmental and financial benefits of solar power to those who cannot put solar panels on their roofs. In several states, renters can now subscribe to a community solar facility and save money on their electric bill because solar is cheaper than utility power. Community solar was pioneered by Sacramento Municipal Utility District’s Solar Shares program, and is now being expanded to PG&E, Southern California Edison, and San Diego Gas & Electric.
Last Thursday, after years of rulemaking in the wake of SB43, the California Public Utilities Commission approved the final rules for community solar programs at California’s three largest utilities. One would expect screams of joy followed by a gaggle of renewable energy developers lining up to submit project applications. Given the high cost of electricity in California, abundant sunshine, a robust solar industry, historically low cost of solar panels, a 600 MW program launch, and provisions that allow solar developers to contract directly with customers, this seems like a huge win. It’s community solar party time in California, right? Unfortunately, the program rules are so cumbersome, it’s doubtful that any solar developers will be able to build projects under the program.
Here are three reasons why guests aren’t RSVPing for California’s community solar party:
First: The customer bill credits are too low. In community solar, customers buy power from a solar developer and are credited by their utility on their monthly bill for the equivalent amount of power they are replacing. If the bill credit is greater than the cost of solar, the customer saves money. Unlike many successful community solar programs, the California rules only credit customers for the wholesale generation value of the power (which is about 1/3 of your electric bill) and then the utilities add in layers of program fees. For solar power developers to provide savings to residential PG&E customers, the developers would need to be able to build, market, and sell solar at below 6 cents/kWh. At Southern California Edison, the net bill credit for community solar is below 5 cents/kWh. By comparison, residential community solar bill credits in Minnesota are 14.74 cents/kWh, and are even higher in Massachusetts; those are two of the largest markets for community solar. Meanwhile, for community solar projects, PG&E is charging 1.37 cents/kWh for program fees and another 2.3 cents/kWh for Power Charge Indifference Adjustment (a “departing load” charge).
Second: The complexity of the bill credit system for the program destroys the value proposition for the customer. The program involves numerous floating charges to be adjusted annually by the utility, which removes the stable-price financial benefits that solar provides. It makes it extremely difficult for developers to explain the program benefits to potential customers. Customers installing solar on their homes can lock into fixed, affordable rates for the long term without being subject to the same fees. The price stability benefit of solar simply isn’t possible to convey to customers under the overly complex community solar program rules in California.
Third: The program is overly burdensome for solar developers and creates a level of risk that will keep them out of the market. The program includes two primary areas of risk for solar developers: unsubscribed power and off-take requirements. For solar projects that are not fully subscribed by customers, the unsubscribed power from the facility would receive a wholesale payment from the utility that is so low that the project could not be financed. Investors who pay for project development may not want to take on the risk of customers cancelling or not enrolling. To make matters worse, the program rules require that solar developers enroll “At least 50% (by number of customers) and at least 1/6th (by load)” from residential customers. For developers, that’s bad news. The bill credits for residential customers are lower than for non-residential customers, so by creating a residential carve-out, it makes already bad project economics worse for developers. Requiring a specific amount of residential customer participation may result in a program that is completely unworkable for all customer classes.
In sum, the program will not have a sufficiently meaningful value proposition to attract customers, and it will be difficult or impossible for solar developers to make projects pencil out. Therefore, developers will likely not be willing to take on the risk of building projects.
So what’s next for community solar in California? Developers have the opportunity to identify potential projects, market those projects to prospective off-takers, and apply into the program supply auction at the end of the summer. Time will tell whether there are any takers.
They sent the invitations out for a community solar party here in California, but I doubt that anyone will show up.