There’s a tense dynamic accompanying the rapid growth of solar in the United States—in which traditional utility companies, nervous about the spread of rooftop solar panels, are seeking ways to limit the revenues made by solar customers who earn credit for the extra electricity they provide to the grid.
This battle over so-called “net metering” has been often depicted as a zero sum conflict between an upstart and an incumbent — but new research out of the University of Texas at Austin suggests there could be a kind of “middle ground” in the conflict between some utilities and solar installers.
The potential “win-win,” as the researchers put it, involves so-called community solar — solar energy projects or panels that are in effect shared by a group of people, such as the inhabitants of an apartment building, rather than sitting on a single residential rooftop. The study, recently published in Energy Research & Social Science and led by Erik Funkhouser of the LBJ School of Public Affairs at the University of Texas at Austin and three university colleagues, found that at least some utility companies seem to like community solar programs, are already offering them, and plan to expand them.
One key reason? Customers clearly want access to solar, and some utility industry representatives find community solar to be a great way to give it to them — in a manner that allows the utility to continue to service these customers’ full electricity demand, that is.
“If you are a utility that is concerned with the rapid growth of residential solar — which means that a lot of the demand is moving away from your direct control — in that case you can imagine developing a competitive community solar program that is priced around what a residential system or residential lease might look like, and you might actually price it lower,” says Varun Rai, a professor of mechanical engineering at the University of Texas, Austin and one of the authors of the study.
The research also suggests yet another way — beyond getting directly into the business of installing rooftop solar, as Southern Company subsidiary Georgia Power is now doing — that traditional power companies seem to be finding their way into the hot solar market.
Community solar has certainly been getting a lot of attention lately — largely because of its vast potential to expand solar access.
Last month, the Obama administration announced an array of new initiatives to broaden access to solar energy to more Americans — since so far, solar has generally been the province of relatively wealthy homeowners. Solar City, the top U.S. solar installer, recently announced a massive project to install some 100 “solar gardens” in the Minneapolis-St. Paul area, with a particular focus on allowing renters to participate in solar energy. And GTM Research, which studies the clean energy industry, projects that community solar will be “the most significant solar growth market for the United States.”
The new study adds to the theme, reporting on the results of seven utility industry interviews about community solar, as well as the responses to 57 surveys on the subject distributed to investor owned utilities, municipal utilities, and rural electric cooperatives. The researchers also analyzed 61 community solar projects. And they concluded that community solar has the potential for “stabilizing the customer-utility relationship with deeper solar penetration.”
In effect, this is happening because some utilities seem to realize that they’ve got to get involved in the solar wave, the sooner the better. Or as the study put it:
One utility reported that, even without significant penetration of residential solar PV in its territory, staving off potential attrition of its customer base partly drove its adoption of a [community solar] program. Another utility, a large [investor-owned utility], reported that it was motivated to pursue [community solar] for the same reason. The organization anticipates increases in the popularity of solar [distributed generation] going forward. By investing in [community solar] it hopes to satisfy customer demand for solar [distributed generation] as cost-effectively as possible.
The state of California has even mandated that its three main utilities — Pacific Gas and Electric, Southern California Edison, and San Diego Gas & Electric — begin to offer community solar programs, and on a large scale. The utilities are slated to set up 600 megawatts of community solar capacity by 2019.
PG&E’s community solar program, for instance, will allow customers to sign up to get either half or all of their electricity from solar projects that PG&E will “contract with,” or separately make an agreement with an outside solar installer to purchase some of that installer’s electricity generation. Either way, the customers get billing credit from PG&E for not needing to use as much traditional electricity any longer. Initially there will be a premium to be in the program, but PG&E says that will “likely diminish over time if PG&E’s overall generation costs increase and solar costs fall.”
Other community solar programs offered by utilities include the Bright Tucson Community Solar program, offered by Tucson Electric Power, and the Sacramento Municipal Utility District’s SolarShares program.
Granted, for now only a relatively “small fraction” of utilities appear to be moving into the community solar space, according to lead study author Erik Funkhouser. And of course, not all community solar programs are offered by utilities. A group of individuals might start one of their own, of their own volition. A project might also be carried out on a nonprofit basis.
One major difference, notes Rai, is that when individuals set up a community solar program, they often do so with so-called “virtual net metering,” which allows participants in the program to get credit for the electricity generated and thereby reduce their electricity bills, in much the same way that residential solar owners do under current net metering schemes. The only difference is that they don’t actually own the equipment or have it on their own roofs — rather, their credit is divided up virtually among participants in the community solar program.
Rai thinks utilities won’t go for this arrangement, for the same reason that they’ve been so resistant to net metering in general. “For all practical purposes, the only difference between virtual net metering and net metering is, you don’t have the system on your roof,” he says. “But for the utility, you are exactly the same on your bill.”
The power company is still losing out on a portion of the individual’s electricity demand in this case — what has been termed “load defection” — so Rai thinks that utilities will try to offer community solar customers cost savings in a different way: through economies of scale. As prices for solar get lower and lower, community solar plans offered by utilities might simply become a good deal. “It just comes down to what the rate plan is,” Rai says. “If you give me a solar plan that has a benefit, then sure.”
Whether those in the solar camp will agree this is a “win-win” is not so clear, of course — virtual net metering could be the new sticking point.
So in sum, it’s far too early to know yet how this is going to play out — but it’s just another sign that we can expect major dynamism in the solar space, not only due to growth overall but as incumbent utilities try to compete with the upstart solar industry. For now, utility-offered community solar is just the latest indication of that.
“It’s a very early phase of a very interesting business model,” says Rai.
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