Why this new solar market could be set to explode

Source: By Chris Mooney, Washington Post • Posted: Tuesday, March 29, 2016

A rooftop solar power project is shown in 2014 in Berlin-Lichtenberg’s “Yellow Quarter” district in Germany. Hundreds of tenants are supplied with power from the roof. (Jorg Carstensen/AFP/Getty Images)

Right now, there’s an odd thing about solar in the United States (and elsewhere). It’s either really big — at the scale of massive solar farms with the capacity to generate tens or hundreds of millions of watts of electricity — or pretty small: on your rooftop, with maybe as little as 5 kilowatts, or thousand watts, of capacity.

Solar has been growing extremely fast in these existing markets. But more and more, analysts say, there’s a middle-range market whose large potential is just becoming clear. It’s bigger than individual rooftop installations but smaller than vast solar farms. And it’s for a much broader and diverse range of people than fairly wealthy, suburban homeowners.

It’s called community or “shared” solar, meaning that multiple people get electricity from a mid-sized solar array on the top of, say, a condo building, or in a lot centered in a community, or perhaps an array or resource designated by their power company. This means people living in more densely populated cities, who may not own the roofs over their heads or who may not have the best credit, could also participate in the solar wave — without having to purchase or finance panels themselves.

[Power companies may have found a new way to crack into the booming solar business

As of 2015, only a tiny sliver of all solar capacity in the United States fit into this category. But according to a new report from the energy think tank the Rocky Mountain Institute, the potential for community solar to expand is vast. The group said that as much as 30 gigawatts (or billion watts) of solar capacity, at the extreme upper end, could be added in this space by the year 2020, which would more than double all currently installed solar capacity in the United States.

Granted, that also requires a redefinition of what community solar is — the group calls it “community-scale” solar to denote mid-sized arrays, whether owned by a group of individuals or by a power company.

By this definition, “community-scale solar reaches millions of U.S. customers that so far rooftop solar has not or cannot,” notes the report. It found that almost half of all U.S. homes and businesses cannot have solar even if residents want it “because they rent their home, live in dwellings such as a multi-unit apartment building or high-rise condo, or have a roof unsuitable for solar.”

Hence the size of this market: The Rocky Mountain Institute says it is larger than prior estimates for three main reasons. One, solar tax credits have again been extended; second, the price of the technology keeps falling; and third, the institute defines the market more broadly, to include offerings by different types of power companies, including rural electric cooperatives and municipal utilities.

“Community-scale solar is at a sweet spot between utility-scale and behind-the-meter solar,” says the document. “It is neither too big nor too small; it is just the right size to capture community and distributed energy benefits on the one hand and utility-scale solar’s economies of scale on the other.”

Another report on the subject, released by the Deloitte Center for Energy Solutions, details why it is likely going to be good business for more utility companies of all types — ranging from large, investor owned utilities to rural electric cooperatives — to offer more shared solar programs to customers. Like the Rocky Mountain Institute, then, Deloitte is focused in particular on the kind of community or at least community-scale solar that would be offered by power companies, rather than set up by a group of individuals (like, say, a condo building).

This follows on research published last year, which suggested that utility companies are getting quite interested in these types of programs — in part because they could allow them to give their customers a taste of solar without the risk of losing some of their business because they start generating their own rooftop electricity.

The Deloitte report suggests interesting ways that power companies can integrate shared solar into their businesses. For instance, power companies can bundle together the option of joining a shared solar plan with other services — such as the installation of new, more efficient electric water heaters. Then, solar could be used to power those heaters at peak times for electricity demand, afternoon and early evening hours when electricity is most expensive on the grid. The Deloitte report notes that at least one utility, Steele-Waseca Cooperative Electric in Minnesota, is doing just that.

In another example, if a utility installs an array of solar panels and lets customers opt to receive part of their electricity from them, the Deloitte report notes that these panels could be faced west to capture sunlight late in the day. Again, that’s the period of high demand and so could offset the utility’s costs.

“As innovation takes its course, shared solar business models are continuing to evolve, and the opportunity is becoming more evident,” the report observes.

Granted, community solar also needs policy to help it along. Some states have passed laws allowing for “virtual net metering,” an extension of standard “net metering,” in which rooftop solar owners get credited for extra power that they generate and send back to the grid, and thus lower their utility bills.  Virtual net metering goes a step further by allowing the participant in a community solar arrangement to do the same, even if he or she does not individually own the actual solar panels in question.

This can make community solar more financially advantageous to those who participate. But according to the Rocky Mountain Institute, while changes to net metering policies can greatly alter the financial picture for individual rooftop solar owners, it’s not as crucial with all forms of community solar. “Unlike most behind-the-meter solar, community-scale solar can be cost-competitive even in the absence of net metering,” the report says.

Indeed, if it’s utilities offering community-scale solar programs, then it’s not at all clear that virtual net metering will be involved. Net metering itself has been a key point of contention between power companies and rooftop solar users: According to Varun Rai, a professor at the University of Texas who co-authored the aforementioned study on utility interest in community solar last year, utilities won’t want to go there.

“For all practical purposes, the only difference between virtual net metering and net metering is, you don’t have the system on your roof,” Rai said last year. “But for the utility, you are exactly the same on your bill.”

So in sum, solar is certainly booming at the moment — but it may not yet be anywhere near its full potential.