Contributed by Aaron Halimi, founder and CEO of Renewable Properties
California just passed AB 2316 (Ward), a new community solar plus storage law that sets the stage for creating a viable community solar program for all Californians. But passing the law is only the first step. The next step is for the California Public Utilities Commission (CPUC) to design a program that attracts both community solar developers and subscribers.
Before we delve into our suggestions for a successful program, let’s review California’s current solar programs for off-site generation for residential customers and businesses.
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The difference between California CCAs and community solar
Some people confuse Community Choice Aggregators (CCAs) with community solar, but CCAs differ from community solar in several ways.
To be clear, community solar programs allow for a direct consumer relationship with a community solar provider. The details of each program vary, but they all allow home renters, homeowners, condo owners, and apartment renters to offset their utility bills with solar.
While CCAs serve the same off-site solar customers, they are essentially local retail energy providers. They procure mostly clean energy on behalf of a specific community, typically a city or county, and deliver that energy to customers in their service territory. The area’s citizens are automatically opted into the CCA program by default, helping to secure subscribers and steady revenue.
- CCAs procure their local energy through solar developers and renewable asset owners like Renewable Properties. After securing power purchase agreements (PPAs), the CCA charges their residents a competitive utility rate, often with a mix of renewable energy.
- However, the CCA’s local investor-owned utility (IOU) partner is also allowed to bill separate transmission and distribution charges, which can reduce or eliminate the resident’s clean energy savings.
- In California, the CCA’s IOU partner is responsible for combining the CCA’s energy charges and the IOU transmission and distribution charges into a single bill, simplifying bill payment for the consumer.
- Like the utility, the CCA takes on all financial risk for a consumer not paying their bill, once again reducing the financial risk of a solar developer.
- CCAs are nonprofit entities that do not have the ability to monetize the tax credits that are generated with solar projects, so instead they purchase renewables through PPAs with solar developers.
With the above in mind, CCAs are ideal customers for solar asset investors who can execute long-term PPAs with the CCA, efficiently develop solar projects, and receive all of the federal and local incentives. However, under the new Inflation Reduction Act (IRA), nonprofits can now monetize the tax credits, so the CCA-developer-PPA business model may change and/or evolve into a build-own-transfer arrangement, where the CCA will own and operate the solar project.
For community solar, the programs vary state-to-state, but typically:
- Community solar programs are completely opt-in, making project development more challenging for solar project financiers and asset owners in that they must go out and subscribe customers for the project.
- Depending on the program, subscribers can also easily drop out of the program or cancel their contracts, which creates additional risk for the project owner.
- The community solar project is typically owned and managed by a private entity that can directly benefit from Investment Tax Credit (ITC) and other local incentives.
- Because the developer receives its revenue from hundreds or thousands of subscribers, there are more touchpoints in the process. Consequently, there tends to be a flight to quality from a credit perspective, decreasing participation from low-and middle-income communities.
Renewable Properties has developed, owns, and now operates several solar projects for MCE, the first CCA in California, as well as other CCAs. We’ve also developed and acquired solar projects in 15 states, acquiring and managing subscribers through subscriber partners.
With our experience working with both CCAs and various community solar programs across the U.S., we have a unique perspective on what might make California’s new community solar law successful for developers and for subscribers.
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AB 2316: A new beginning for community solar plus storage in California
After many years, California passed a new community solar plus storage law known as AB 2316. While AB 2316 was signed into law by Gov. Gavin Newsom, it is not an actual community solar program. It’s only a framework for a program that must now be designed by the CPUC.
The framework is essentially a set of goals and mandates. They include:
- Mandating that at least 51% of subscribers are low-income customers, which enables developers to qualify for a bonus 10% ITC under the IRA, for a total 40% tax credit.
- Requiring prevailing wages for solar construction workers—a provision in line with the IRA.
- The goal of “avoiding cost transfers to non-participants” (More about what this means below).
- Pairing solar with energy storage, helping with California’s overall grid reliability.
On the surface, the above framework is a big win for community solar in California. However, past initiatives, such as California’s Enhanced Community Renewables component of the Green Tariff Shared Renewables Program (GTSR), have been unsuccessful at scale due to poor tariff rates that make projects hard to pencil out.
AB 2316 gives the CPUC authority to fix GTSR’s mistakes with the above framework. Somehow, the Commission must create a program that will please three main stakeholders:
Subscribers. The CPUC must design community solar rates that are attractive enough for subscribers—51% of which must qualify as low-income. But just as rooftop solar reduces utility costs for homeowners, community solar must also give all subscribers significant savings. Additionally, the sign-up process, billing, and monthly savings need to be clear and simple.
Solar developers. The CPUC must offer sufficient incentives for solar developers. The IRA’s tax provisions will help, but solar developers and their finance partners must be confident of receiving steady, long-term revenue with an attractive ROI. They must be able to charge a rate that is less than the utility and worthwhile for the customer to make the switch.
IOUs. The framework has a goal of “avoiding utility cost transfers to non-participants.” In other words, the state’s IOUs would be restricted from passing the costs of a successful program onto ratepayers, which could cause the IOUs to petition the CPUC to raise rates and affect customers that aren’t participating in community solar. Typically, the solution is charging community solar subscribers with a significant transmission charge. But if the combined energy rates, transmission charges, and/or flat access fees are too high, then potential subscribers won’t sign up, or they might unsubscribe. Low subscriber uptake and the possibility of losing subscribers increase the financial risk for solar developers, potentially hindering the development of projects and undermining the success of the program.What could a successful California community solar program look like?
The CPUC has a huge task ahead, but the good news is that they don’t have to reinvent the community solar wheel, slowing down California’s climate goals, good-paying jobs, and benefiting the low-to-medium income residents that AB 2316 is trying to include. Instead, adopting tried and true program designs from other states will expedite the launch of California’s program sooner than the expected 2024 implementation.
The CPUC can pick from existing best practices and at the same time craft regulations, incentives, and policies that are unique to small-scale solar development in California. New York, Maine, Illinois, Colorado, and Minnesota all have vibrant program elements that strive to address the needs of customers, developers, and utilities. In our experience developing projects in these states, the best practices would include:
- Defining a fair and accurate community solar $/kWh value for solar and storage. A fair value of distributed energy must provide enough steady revenue for solar developers and significant energy bill savings for subscribers. Unsuccessful programs typically include poison pill adders, fees, or regulations that discourage subscribers, developers, or both.
- Eliminating any artificial caps on program capacity. One of AB 2316’s main goals is to provide community solar access to non-homeowner residents of all income levels, who comprise the majority of California residents. The CPUC should avoid imposing a too-conservative overall megawatt cap on program capacity, which would create a solar gold rush, followed by a boom and bust cycle. Scarcity and uncertainty are problems for any industry, but especially for solar and its developing workforce. Under an appropriately-sized or even uncapped program, the state can create a trained, robust, steady solar and storage labor force with the prevailing wages set in the IRA. An arbitrarily low cap will attract few new workers and simply exacerbate California’s existing solar labor shortage.
- Consolidated billing. Consolidated billing is part of the successful community solar programs in New York and other states. With consolidated billing, the community solar program’s billing and accounting are taken care of by the participating utility. Having one electric bill that includes the community solar discounts helps the subscriber by keeping their electric bill streamlined and simple. For the developer, consolidated billing lets the utility take the risk of collecting subscriber payments, which reduces the cost of capital to build and maintain our projects. The solar developer’s accounting and subscriber management are also simplified, further reducing O&M costs and revenue risks. For utilities, consolidated billing also streamlines their customer relationship and billing.
- Creating project incentives from existing funding. California’s Clean Energy Commission (CEC) is currently working on a Clean Energy Reliability Investment Plan, which will come with $1 billion in funding over three years. The community solar program envisioned by AB 2316 would be an ideal recipient of some of these funds, as the distributed generation and storage the program will facilitate would help the state achieve its reliability goals.
As it prepares a draft community solar program design for comments, the CPUC holds the keys to whether California will have the tools to become a leading community solar state. We urge the CPUC to make the most of this opportunity and unlock solar savings for Californians throughout the state regardless if they have access to their rooftop!
If you’re a California community solar advocate, add your community solar views and comments to the CPUC’s public comment site here: https://www.cpuc.ca.gov/about-cpuc/divisions/news-and-public-information-office/public-advisors-office/providing-public-comments-at-the-cpuc.
Aaron Halimi is the founder and CEO of Renewable Properties, a San Francisco-based developer and investor in community solar and small-scale utility projects.