Community Solar Gains Ground in New York

Community Solar Gains Ground in New York

November 12, 2015

By Todd Alexander, Christopher Vale and John Marciano III

New community solar rules that took effect in New York in late October should help jump start community solar development in that state. The rules make it possible to build projects at utility-scale costs and sell electricity directly to customers at higher rates than utilities pay for utility-scale power.

New Playbook

The new rules provide incentives for projects with capacities of up to two megawatts and require participation by at least 10 customers in each project. Projects larger than two megawatts can be still be built, but only the first two megawatts are eligible for credits and incentives. Projects must serve customers located within the same utility service area and NY independent system operator load zone as the facility.

Projects generate net-metering credits based on the amount of net electricity generated. Customers whose electricity consumption is 25 kilowatts or more cannot as a group receive more than 40% of the net-metering credits generated by the project. An electrical load of 25 KW is usually the breakpoint between commercial and industrial customers versus residential customers. Thus, residential customers need to receive at least 60% of the net-metering credits generated by the project. The percentages refer to the facility’s aggregate output allocated to each type of customer. Thus, an array that has one commercial customer receiving 40% of output and hundreds of residential customers receiving 60% of output would qualify.

Each customer must be allocated at least 1,000 kilowatt hours annually of output, but a customer cannot be allocated more than its historic average annual consumption. The rules limit customers to receiving net-metering credits from a single source. Thus, a customer could not have an interest in output from more than one community solar array or have rooftop solar panels plus an interest in a community solar array. For master-metered customers, like co-op boards and apartment buildings, the rules look through to the underlying participants for customer minimums and demand sizing.

Community solar participants can be nominal members, meaning they do not have to own an interest in the array itself as opposed to the electricity.

The electricity generated by a community solar array is fed into the grid. The project sponsor holds a “host meter account” at the facility under a demand rate or non-demand rate classification. The sponsor determines each customer’s generation every month and reports net-metering credit allocations to the utility. The utility then applies a net-metering credit directly to the customer’s bill.

If the host meter account for the project is classified as a “non-demand host meter,” then the utility applies volumetric crediting that essentially runs the customer’s meter backwards to reduce the amount of electricity for which it is charged. It still takes its electricity from the utility. The customer pays for the net electricity it uses, after the credits, at the retail rate.

In contrast, if the host meter account is classified as a “demand host meter,” then the utility bill sent to the customer each month will show the actual electricity it used, but also show monetary credit for the customer’s share of electricity from community array. The credit will be subtracted from the final bill. The credit in this case will be calculated at the retail rate for the project. In the case where customer meter runs backwards, the credit is at the customer’s — not the project’s — retail rate.

If a customer defaults on its obligations to the project sponsor, then the net-metering credits may be temporarily held by the sponsor. The sponsor must distribute any such credits it is holding at year end to the other customers.

The New York Public Service Commission has been introducing community solar in phases.

During the introductory period or phase one, lasting through April 30, 2016, the most well-managed projects will proceed as test cases. Phase one is limited to areas identified by the utilities as “opportunity zones” and projects with a minimum of 20% of low-income customers. Phase two will open community solar to all locations and types of customers, but not until the state PSC has made decisions in a related “Reforming the Energy Vision” proceeding. Interconnection applications for community solar projects that do not qualify under phase one can be filed now, but the projects will not be interconnected until phase two.

Why Community Solar?

One of the most appealing aspects of community solar is the ability to realize economies of scale by building utility-scale solar arrays with lots of individual customers. Developers can essentially build at wholesale at significantly lower costs than for rooftop installations. Projects are classified as distributed energy resource providers under New York law, and the Public Service Commission regulatory body has confirmed that these providers will not be subject to the same rate regulation as utilities. These providers will still be subject to some form of quasi-regulation, including consumer protections.

Another positive aspect of community solar is ownership of the facility can remain with the project developer, free and clear of potential ownership issues associated with rooftop solar systems. Solar panels installed on customer roofs face unresolved issues with security interests, including whether the solar panels are attached to the real property. Most mortgages that homeowners take out to finance their homes have after-acquired property clauses that give the mortgage lender a security interest in anything attached to the house. Moreover, if a customer defaults on its obligations to the solar company, there is no need with a community solar array to spend money removing and reinstalling the solar panels somewhere else. Developers need only find another individual to replace the customer who defaulted, usually at only a modest cost.

Another benefit to community solar is the array can be put in a location with the best access to sunlight. Early adopters of community solar will find themselves in a prime position to select the best locations to reduce the levelized cost of energy.

Remote net metering regulations have existed in New York for years, but the new community solar rules open access to the untapped residential market, including customers behind master-metered accounts. Existing net-metering regulations did not permit residential customers effectively to participate in remote net-metering. Residential customers were only allowed to participate in remote net metering if the project account and residential account were held by the same customer.

One of the goals of the pending “Reforming the Energy Vision” proceeding before the New York PSC is to make renewables more accessible to the masses. The existing solar third-party ownership model focuses on customers with above-average credit scores to limit credit risk exposure and improve borrowing rates. Community solar projects are a form of pooling of customer revenue streams. The portfolio diversification can increase the creditworthiness of the project. Lenders will still focus on the risk that individual customers will default, but the fact that a customer can be replaced easily without great cost will help. The developer retains the ability to pursue payment from the individual customer even after the customer has been replaced.