Let’s play a quick game of word association. Say the first word that comes to mind when you read the words “solar power.” I bet the first word was “Solyndra” or “market failure” or “the solar industry is a bust.” While you wouldn’t be forgiven for breaking the one-word-rule, you would be forgiven for the general sentiment. The media’s repeated and sustained coverage of Solyndra’s fantastic failure has fueled the public perception that the solar industry is dead.
The reality, however, is a bit different: last year the solar industry grew a whopping 109%, venture capital firms invested over $1.9 billion in solar start-ups (higher than investments in 2009 or 2010), and the all-in cost of solar power dropped to historic lows, making it increasingly competitive with other sources of electricity. The reports of the solar industry’s death are greatly exaggerated.
Problems do persist however, particularly in the residential market. Despite industry growth overall, residential installations grew only 11% in 2011. In addition, a recent National Renewable Energy Laboratory report found that roughly 75% of homes in the United States are inhospitable to solar panels due to excess “shading, rooftop obstructions, and other constraints.” The report didn’t even mention the millions of Americans interested in installing solar arrays who are unable to because they rent their home, live in an apartment, or don’t have strong enough credit to install panels of their own.
What we need is a new model. The old model of installing solar panels houseÃ¢Â€Âby-house isn’t enough to reach solar’s full promise of lower bills and a cleaner, more secure energy source. As VoteSolar’s community solar maven Hannah Masterjohn put it in a recent op-ed, “By limiting ourselves to the traditional ‘panels on your roof’ approach to PV, we are leaving a tremendous amount of solar potential on the table.” To reach that full potential, the industry has come up with a creative new solution called “community solar.” The concept is simple: a third party installs a microgrid and sells “shares” of that grid to local “shareholders” who are credited on their utility bill for the amount of energy produced by their part of the array. This arrangement takes advantage of the economies of scale of a large solar array, overcomes the limitations of a specific geography or roof, allows anyone and everyone to participate, and provides a win for consumers, utilities, and third party-Ã¢Â€Âinstallers. The concept has is so popular that the Solar Power Electric Association has reportedly called this the year of community solar.
The projects currently operating around the country use one of the following three operating models:
The utility model: A utility hires a third-party installer to construct the array and then enters into a longÃ¢Â€Âterm contract guaranteeing to buy the array’s power. The utility then sells the energy produced by the array to customers for a fixed fee. The first and best example of this model is Sacramento Municipal Utility District’s SolarShare program. Third party installer enXco built the 1 MW array – enough to power 500 average American homes – and was fully subscribed within 6 months. A consumer who buys a 2 KW share of the system pays $53 a month for 20 years.
Special purpose entity model: A group of individuals forms a business, also known as a special purpose entity, to install and manage the project and then distributes the benefits of the project back to the consumer. A project in Maryland is the perfect example of this model. Volunteers formed University Park Community Solar, LLC to install panels on a local church. The church benefits financially from tax incentives, write-offs, lower energy bills, selling excess electricity to the grid, and auctioning off its RECs. The church then passes surplus financial benefits on to its investors who anticipate a return in five to six years.
Non-profit model: A non-profit recruits donors to help pay for the cost of a solar array through tax-deductible contributions. This approach has created interesting business models, most notably Solar Mosaic, which has recruited 400 people to invest more than $350,000 in five projects, including on the roofs of two community centers and a nonÃ¢Â€Âprofit grocery store.
Each model has its challenges. The current utility model is structured so that the benefits of the program may not be fully realized until the end of the 20-year commitment. Given the fact that Americans move an average of once every seven years, the likelihood of participants earning a return on their SolarShare investment could be small. The SPE model is legally and financially complex. The University Park, LLC founders noted that accounting and legal fees could negate any return on investment from the project. And the nonÃ¢Â€Âprofit model forgoes a financial return in favor of a social one by helping a non- profit show environmental leadership. In addition, all three models ask participants to make a bet that energy prices will continue to rise. While that may seem like easy money, the recent natural gas boom highlights the uncertainty of that bet.
Fixes are in the works for each of the problems listed above, but despite the current financial and legal risk, I believe community solar’s true value lies in its social return. For the past 25 years, America’s communal ties have weakened to the point of decay. As Robert Putnam wrote in Bowling Alone, “Americans are right that the bonds of our communities have withered, and we are right to fear that this transformation has a very real cost.”
Adam Byrnes is an MBA and MS candidate at the University of Michigan’s Erb Institute for Global Sustainable Enterprise. His industry experience includes working at California’s largest investor owned utility, a pioneering start-up revolutionizing cleanÃ¢Â€Âtech finance, and a Michigan-based start-up working to disrupt the LED lighting market. Currently, Adam works for Simpa Networks in Bangalore, India. He writes on the topics of clean energy entrepreneurship, renewable energy finance, and energy innovation in emerging markets.