State Policies for Shared Renewable Energy

Renewable energy is increasingly cost-competitive with traditional electricity sources leading more customers to install renewable energy systems, including rooftop solar, to meet their energy needs. However, large numbers of customers either cannot or choose not to install renewable energy systems at their homes or businesses.

The National Renewable Energy Laboratory (NREL) found that 49 percent of households and 48 percent of businesses are unable to host a solar photovoltaic (PV) system, for a number of reasons, including a lack of sun exposure, occupying a rental property, homeowner’s association barriers or a lack of access to capital or financing.

Shared renewable energy programs offer energy users an alternative to on-site systems by allowing multiple customers to invest in a renewable energy facility that is located either on-site or off-site. These programs are voluntary for customers and use utility, joint or third-party-owned systems to generate electricity and offset the consumption of the multiple customers participating in the shared renewables program.

In a typical program, participating customers (“subscribers”) either lease panels in a medium-sized solar PV facility or purchase a share of the output. This facility may be owned by a utility, a third party or participating customers. As the grid-connected facility generates electricity, participants receive a utility bill credit or direct payment based on the electricity produced by their share of the facility.

Shared renewables programs, such as shared solar, represent a small, but rapidly growing sector. In 2010, only two shared solar projects operated in the U.S. As of 2016, that number has grown to at least 100 projects operating in 26 states. Of the 32 gigawatts of installed solar capacity, approximately 100 megawatts (MW)—or less than half a percent—are considered shared solar.

Program Characteristics

Terminology
Shared renewables programs can have a variety of names, such as “community solar gardens,” “shared clean energy,” “roofless solar,” “community-based renewable energy” and “community solar.” Virtual net metering is a form of shared renewables and the distinction between shared renewables programs like community solar gardens and virtual net metering will be explained in the section “Legislative Paths to Shared Renewables.”

Eligible Technologies
While the majority of shared renewables programs are solar projects, a small number of community wind projects are operating, and at least 10 states with shared renewables legislation include provisions to allow a variety of renewable energy technologies. For example, Delaware allows for community-owned generating facilities that use solar, wind, ocean, geothermal, biogas and small hydroelectric resources. Similarly, Hawaii’s Community-Based Renewable Energy Pilot Program incorporates wind, solar, hydroelectric, biogas, geothermal, tidal, wave, ocean thermal, biomass and biofuel resources. 

Benefits of Shared Renewables

Shared renewables expand access to new renewable generation sources. Through shared renewables programs, those unable or unwilling to install distributed generation systems on-site, have the opportunity to participate directly in acquiring renewable energy. Since shared renewables systems are larger and less costly to build than smaller rooftop systems, participating in shared renewables programs is often cheaper than building individual rooftop systems.

Shared renewables programs may increase access for low- and moderate-income (LMI) customers, who may be prevented from having their own distributed generation systems due to home rental, lack of credit, or limited access to capital or financing. Policymakers can further increase access for LMI customers by establishing carve-outs or specifically designed programs for this customer class.

Shared renewable policies can be designed to address equity and cost-shift concerns related to compensation rates for rooftop solar. If properly designed, all program costs are covered by participating customers, and few, if any, program costs are transferred to non-participating customers. Additionally, shared renewable systems benefit from better economies of scale than individual distributed generation, helping reduce the cost for participants.

Shared renewables programs provide flexibility in ownership and siting. Since they are not limited to rooftops or by property lines, shared renewables projects can be placed in locations with optimal grid integration or close to load centers or in areas unsuitable for larger utility-scale systems. Shared renewables projects can also take advantage of unused lands, such as brownfields, which are properties that may have hazardous substances or contaminants present—for example an abandoned gas station or a capped landfill. Finally, shared renewables projects have flexible ownership and can be owned by utilities, third-parties or the communities themselves, offering distinct benefits to each type of owner.

Challenges of Shared Renewables

Although shared renewables offer many benefits, several challenges also exist. As a nascent market, shared renewables may not be well understood by the general public or policymakers, potentially creating challenges and costs to develop and launch projects. Although at least 17 states and Washington, D.C. have authorized shared renewables programs, there is a lack of market research and data on project success.

Determining a value for compensating generation from shared renewables facilities can be challenging, whether it is through virtual net metering or another credit mechanism. Many agree that the benefits of generation costs should be included in bill credits, as shared renewable facilities substitute utility generation. However, there are varying opinions on including transmission and distribution costs in bill credits. In general, if shared renewables programs are not intentionally designed to have participants recover all the costs, there may still be cost-shift concerns.

Determining the value of energy produced from shared renewables projects can also be challenging because compensation rates and the perceived value of the renewable energy produced are specific to the communities in which shared renewables projects are located. Also, shared renewables programs also offer benefits—such as environmental attributes, improved grid security and increased resiliency—that are difficult to assign monetary value to.

Some shared renewables programs require an upfront investment on the part of the subscriber, potentially restricting certain customer demographics from participating. In some cases, it may take customers a significant amount of time to recuperate the total cost of the system through offsetting their electricity bills—as long as 10 years or more for some customers. Programs that have high upfront investment without a guarantee of immediate cost savings may only attract customers willing to pay a premium for renewable energy and may exclude low- and moderate-income customers.

States must also determine ownership of the renewable energy credits that are generated by shared renewables programs. Renewable energy credits, or RECs, which are given to renewable energy producers in states with renewable portfolio standards, can be valuable in offsetting the costs of renewable energy systems. Specifying the ownership of RECs from shared renewable energy facilities is important because ownership of these credits determines which entity receives recognition for renewable generation, and the value of the credit.

 

A strength of shared renewable policies is their ability to be tailored to the needs of customers, utilities, third party entities, policymakers and regulators. There are numerous approaches to adapting shared renewables programs to fit stakeholder needs and preferences.

Program Administration

There are three types of administration for shared renewables programs: utility, third party and group. Depending on the ownership structure chosen, there can be differing access to capital, financing and tax incentives.

Utility-administered programs are the predominant model for shared renewables programs: IREC estimates that approximately 79 percent of all shared renewables programs are utility-administered. In this model, a utility uses its expertise in administering complex energy programs and is responsible for program design, marketing and customer sign-up, facility maintenance and participant charges.

In third party-administered programs, a utility and a third party organization partner together to develop a shared renewables program. The third party contracts with the utility to deliver and sell electricity, in addition to handling the program’s recruitment, administration, construction, and operation and maintenance. Third party administration allows groups to employ the expertise of another entity to navigate the legal and financial hurdles of setting up a program and to ensure compliance with securities regulations. One example of a third party organization that administers shared renewables programs is the Clean Energy Collective.

The least-common type of program administration is the group model, under which customers in the same utility service territory elect to combine their meters and offset their bills using a single renewable energy facility. The utility bills and credits each participant individually, while the customer group is responsible for program design and management. One example of this model is Vermont’s group billing program. While this approach may work well for some groups, others may find it difficult to administer this type of program on a larger scale with a large number of participating customers.

Allocation of Benefits

Shared renewables programs vary in their methods of allocating economic benefits to customers, and there are two primary methods of allocation—direct payment and bill credits. While direct payment to participants is a simpler option, this method also faces several challenges, one of which is that direct payment may create taxable income, effectively reducing the benefits that participants receive from investing in a program. Additionally, direct payment may result in complex securities issues. To avoid the complications stemming from direct payment, shared renewables programs can use a bill credit mechanism (virtual net metering or otherwise). As many customers prefer to offset as much of their electricity bill as possible with renewable energy, bill credits may be a more favorable option. Additionally, bill credits preserve the direct link between customers’ investments in renewable energy and decreases in their utility bills.

Valuation

Determining the appropriate economic value to assign to the energy produced by shared renewable energy systems and understanding the costs and benefits of the systems presents a major challenge to policymakers and regulators. There are two primary valuation approaches: the embedded cost-based approach and the value-based approach.

The embedded cost approach grants compensation to each participant at the retail rate. According to IREC, the embedded cost-based approach has two distinct benefits: it preserves the ability of renewable energy to serve as a price hedge for participants against utility rate increases and it allows energy customers who have demand charge components included in their retail rates to realize the grid benefits created by their participation in shared renewables programs.

The value-based approach is based on the value of shared renewable energy generation to the utility and the utility ratepayers, the value of the new generation source to the utility and the value of avoided transmission and distribution costs, including system infrastructure costs and avoided line losses. Only a handful of shared renewables programs have implemented a value-based approach to bill credits. One example is the Holy Cross Energy shared solar program in Glenwood Springs, Colo. where participating customers receive bill-credits that are approximately 30 percent higher than the retail rate. 

Facility Size and Location

States have taken a variety of approaches to setting system cap sizes. Larger size caps allow systems to maintain economies of scale and keep installation, participation and interconnection costs low, while smaller systems may be able to take advantage of locations closer to load, provide environmental and grid benefits and allow for faster interconnection. California’s Green Tariff Shared Renewables Program allows for systems up to 20 MW capacity, while Colorado, Maryland, Massachusetts and New York allow for renewable energy systems up to 2 MW.

Shared renewables facilities can be placed in areas that take advantage of unused land or brownfields, hosted at locations with on-site load or they can be stand-alone facilities. Additionally, shared renewables facilities can be placed in locations that provide distinct benefits to the grid, utilities and customers through location-specific deployment, or “locational deployment.” Locational deployment strategies can be used to help to site shared renewables facilities at sites that have adequate grid capacity and resiliency to accommodate new installations, ease constrained areas of the grid and that require minimal grid system updates. Placing renewable energy facilities in these areas could support greater renewable energy build-out and potentially reduce costs associated with distribution system upgrades or new generation.

Program Participation Terms

States have taken several approaches to setting the minimum number of participants required for each shared renewables project. For example, Colorado requires each community solar garden to have at least 10 subscribers, while California, Connecticut, Vermont and Washington, D.C. require shared renewables projects to have only two subscribers.

Some states have set maximum single subscriber participation levels to limit any one participant from holding too large of a share in one project and to ensure the ability of other customers to participate in projects. For example, Delaware allows community-owned systems to provide up to 110 percent of participating customers’ aggregate electricity consumption. In Minnesota a participant in a community solar garden cannot have more than a 40 percent interest in a garden.

In order to discourage selective participation and reduce the cost-recovery risks for program administrators, programs can set participation term requirements or minimums. For example, the Orlando Utility Commission’s shared solar project has a two-year minimum participation requirement. In contrast, PG&E’s Solar Choice Program—under California’s Green Tariff Shared Renewables Program—allows participants to leave at any time, however they are not eligible to re-enroll for one year.

Additionally, participation can also be limited to certain customer types, such as residential or commercial customers.

Transferability and Mobility

Depending on the program, participants may be allowed to continue with the program if they move or sell back their shares in the program, while others may be able to transfer their shares to another utility customer. For example, the Florida Keys Electric Cooperative Association’s Simple Solar Program allows customers moving within the cooperative’s service territory to continue with the program, while those moving outside the service territory are allowed to transfer solar panel production credits to another individual within the cooperative’s service territory.

Increasing Low- and Moderate-Income Customer Participation

While shared renewables programs may be more accessible to LMI customers, unless they are intentionally designed, LMI customers can still encounter barriers to participation. Policymakers can further increase access for LMI customers by establishing carve-outs or specifically designed programs for this customer class. Several states—California, Colorado, Maryland, New York, Oregon and Rhode Island—have legislatively-established shared renewables programs that include various provisions to address LMI barriers to participation. 

Provisions for LMI Customer

California:
One approach is to design shared renewables programs to include specific LMI carve-outs. For example, California enacted legislation in 2013 authorizing the Green Tariff Shared Renewables Program. California requires at least 100 MW of the program’s 600 MW cap to be located in “disadvantaged communities” and program participants must be “reasonably proximate” to the community solar facility that they subscribe to.

Colorado:
In 2010, Colorado enacted legislation authorizing community solar gardens. At least five percent of an investor-owned utility’s Community Solar Garden (CSG) purchases are reserved for LMI subscribers. Utilities can satisfy this requirement either through set asides for individual CSGs or through creating dedicated low-income CSGs. For example, one planned installation by Grand Valley Power will exclusively serve low-income customers, and eligible participants must be at 80 percent or less of the area median income.

Oregon:
Authorized through 2016 legislation, Oregon’s community solar program requires that 10 percent of the program’s total generating capacity must be reserved for LMI customers. In 2015, New York established a two-phased community net metering program. Phase One, running from October 2015 through April 2016, required that at least 20 percent of community net metering facility subscribers be LMI customers or that projects were located in a utility-designated Community Distributed Generation Opportunity Zone. Although these requirements currently do not apply to Phase Two, the New York Public Service Commission is considering policies to increase LMI participation in community renewables programs.

Maryland:
In 2015, Maryland legislation created a three-year community solar pilot program. The final community solar regulations were approved by the Maryland Public Service Commission in 2016 and include specific carve-outs for LMI customers. The program allocates 30 percent of annual community solar program capacity to projects serving more than 30 percent of output to LMI customers, of which at least 10 percent is specifically dedicated to low-income customers. Additionally, the program allocates 30 percent of annual capacity to “small projects” (500 kW or less) including projects on rooftops, roadways or parking lots, brownfield projects and projects serving more than 51 percent LMI customers.

Rhode Island:
Another approach to increasing LMI access to shared renewable energy is to include LMI customers in the number of required participants. For example, Rhode Island enacted legislation in 2016 authorizing community net metering and requiring participating systems to have at least three participants or at least one low- or moderate-income participant.

States have taken one of two legislative paths to authorize shared renewables—through virtual net metering or community renewables programs—or they have employed a hybrid approach. At least 18 states and Washington, D.C. have authorized shared renewables legislation in some capacity.

Additionally, not all shared renewable energy projects operate in states with legislative authorization. Depending on utility type and authority, certain utilities, such as cooperatives, can voluntarily adopt shared renewables programs. 

States with Shared Renewables Legislation
States with Active Shared Renewables Programs
States with Shared Renewables Legislation and Active Programs

Virtual Net Metering

For more information on net metering, visit NCSL’s net metering web page.

States can authorize virtual net metering (VNEM) as a method of compensation, allowing shared renewables projects to develop under this credit framework.

Virtual net metering allows multiple customers to offset their energy use with electricity generated from a single shared renewables system. Embedded in the existing net metering framework, virtual net metering allows participating customers to receive credit on their individual electricity bills. Additionally, through VNEM, property owners with multiple meters are allowed to distribute net metering credits to different individual accounts, such as to tenants in a multi-family property.

States have implemented virtual net metering using a range of terminology and definitions. For example, Massachusetts enacted legislation authorizing “neighborhood net metering,” which functions like virtual net metering, however all customers served by the participating facility must be located in the same “neighborhood” (defined as a geographic area within a municipality that falls within the service territory of a single distribution company and is recognized as “including a unique community of interests”). New Hampshire authorized “group net metering” allowing groups of customers who are not customer-generators to share in the generation of a net-metered system.

State legislation on virtual net metering is included in the table under the Legislative Activity tab.

Program-Specific Legislation

States can enact legislation authorizing shared renewables programs or projects, and allow the state utility commission to determine the compensation customers receive for generation. Shared renewables programs may be a part of the existing net metering framework or they may rely instead on a different bill credit mechanism. State variations on terminology include shared renewables, community renewables, shared clean-energy, shared solar, community solar or community solar gardens.

State legislative activity is included in the table under the Legislative Activity tab.

Hybrid Approach

Finally, several states have taken a hybrid approach and have enacted legislation authorizing virtual net metering for shared or community renewables and have also established shared community renewables programs or pilots.

State legislative activity is included in the table under the Legislative Activity tab.

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