Community Solar 101

This article was originally published in the March 14, 2019, issue of Texas Lawyer.

Texas Lawyer
March 14, 2019
By Rodrigo Figueroa

According to ERCOT, the entity that oversees 90 percent of the State’s grid, as of January 2019 there was nearly 1,500 megawatts of installed utility-scale solar capacity in the ERCOT region, with that number expected to almost triple to 4,300 megawatts by the end of 2020 (one megawatt is enough to power about 200 homes in Texas during times of high-peak demand). As the demand and desire for solar energy continues to increase, utilities and solar companies in the ERCOT region are finding creative ways to deploy solar generating facilities and expand customer participation. One creative method used by utilities and solar companies is community solar.

A common structure for a community solar program involves the following: the construction of a solar farm by a solar company; the solar company and the participating utility enter into a long term power purchase agreement for the participating utility’s purchase of the electric output from the community solar farm; and the solar company sells ownership of the individual solar panels that comprise the solar farm to customers of the participating utility. Customers who purchase panels receive bill credits from the participating utility based on the electric output of the facility and the percentage ownership of the facility by the customer. For example, if a particular community solar farm has 100 solar panels and customer “x” purchases 10 panels, then customer “x” is entitled to receive a credit on his or her monthly electric bill in the amount of 10 percent (10/100) of the total price the participating utility is required to pay for the monthly electric output of the solar farm.

One of the appealing benefits of community solar programs is that they provide an opportunity for direct participation by customers who may not have the means to participate in traditional rooftop solar. Although the customers who participate in community solar programs own the individual panels comprising the community solar farm, the panels remain at the solar farm. Thus, customers can participate in community solar programs without having to: own a home; own a structurally sound roof capable of supporting solar panels; or spend thousands of dollars to install solar panels on their roof. Typically, the cost per panel of a community solar program is a few hundred dollars.

Community solar programs require participation from utilities, solar companies and customers, and implicate several complex issues for consideration by each participant. From a customer’s standpoint, one of the threshold considerations is the cost of participating in the community solar program in relation to the projected benefits. The cost/benefit analysis requires customers to consider: the price per panel; the size and projected electric output of the community solar farm; the amount the participating utility has agreed to pay for the electricity generated by the solar farm; the amount of time the customer plans on living in the participating utility’s service territory or purchasing electricity from the participating utility (since the obligation to issue the bill credit rests with the participating utility); the tax benefits and potential tax liability from owning the panel; and the intangible benefit of participating in a ‘green’ initiative.

From a utility’s standpoint, in addition to the price for the electric output of the community solar farm, there are several logistical issues that must be considered and properly documented in the power purchase agreement with the solar company. Community solar programs require extensive cooperation between the solar company and the participating utility because utilities need a lot of information in order to apply the bill credits to the proper customer account and in the proper amount on a monthly basis. The participating utility and the solar company must also agree on how to handle nuanced bill credit issues such as credits corresponding to customers who stop receiving electric service from the participating utility, credits attributed to panels that haven’t been purchased by customers (if all panels aren’t sold prior to the solar facility being operational), and monthly credits that exceed a customer’s monthly bill amount. Additionally, because the exchange of customer information between utilities and solar companies necessary to properly apply bill credits is typically accomplished through electronic means, power purchase agreements should contain appropriate cyber security requirements to protect the participating utility’s systems and confidentiality requirements to protect customer information.

Lastly, community solar programs also present complex issues for solar companies. Solar companies must carefully consider the structure of the community solar program and the potential applicability of State or Federal securities laws to such structure. Additionally, as outlined above, solar companies build the solar farm with the goal of selling all of the panels to the participating utility’s customers. Once the solar company sells all of the panels (which some solar companies are able to do prior to finishing construction of the solar farm or a few months thereafter), the majority of the solar company’s financial benefit from the program has been realized despite the company typically having lengthy on-going obligations to the participating utility and the customers to maintain the solar facility and to provide bill credit related customer and facility information to the participating utility on a monthly basis. Typically the power purchase agreement between the solar company and the utility will contain appropriate provisions for the manner in which the solar company’s maintenance obligations will be funded. Solar companies must also consider the interest of the participating utility’s customers in community solar programs since the success of the program depends in large part on the solar company’s ability to sell all of the panels.

Not all community solar programs are created equal. This article is intended to provide a high-level overview of a common community solar program structure used in the ERCOT region. There are many creative variations of the community solar program structure discussed in this article.

Rodrigo Figueroa is the director of Dykema’s alternative and renewable energy practice group in the firm’s San Antonio office. He has negotiated and drafted power purchase agreements and ancillary contracts in connection with several community solar programs for the firm’s utility and electric cooperative clients.

Article Link: https://www.law.com/texaslawyer/2019/03/14/community-solar-101/