At the beginning of October, Renewable Energy Vermont held their annual conference. There were a number of amazing presentations and some struck me more then others. For the ones I really enjoyed, I decided to follow up with the presenters to get more color on the topics they presented about. I learned a lot at the conference and there was a lot of activity around what needed to be done to push the industry to the next level. If you’re working in the renewable energy industry in Vermont, you should join REV.
Community solar, which is also called group net metering, or virtual net metering is a rather simple concept. It means that power generated from a single renewable energy project can be applied against the utility bill of many meters, as long as all of the meters (the production and end use meters) are in the same utility service territory.
It’s a great concept and it has received support from the industry because many peoples’ roofs won’t work with solar, but they want to buy solar power. Community solar solves this problem. It also solves some issues around monetizing tax credits. Massachusetts also has community solar, but it’s referred to as virtual net metering. This allows (insert huge bank name here) that is based in downtown Boston to buy 10 acres of land outside of Boston and put a huge solar array on this land. They can then apply the power production to reduce their bills in the Boston location, and also monetize all the tax credits directly.
Back to Jeff
Jeff Forward was looking for an investment that provided a reasonable return and helped the environment. He decided to build a community solar project on his farm. He then recruited 3 of his neighbors to join his group and they now pay him for the solar credits they receive from their utility. He figures his $30,000 net investment returns him about $3,000 in revenue for a 10% return on his investment. Not bad considering bank CD’s are returning less than 1% and his retirement investments seemed to always lose money.
Jeff’s presentation materials provide a very complete story and I encourage everyone to read through it.
I decided to follow up with Jeff to get some color on a few of the points he discussed.
What were your huge lessons learned around group net metering? It sounds like billing was an issue.
▪ Setting up a simple and transparent billing process has been frustrating. The whole model is based on a revenue stream from the group members and for it to work, group members need to be able to see on their bill how much they are being credited. It seems like such a simple thing, but it’s unbelievably difficult. So far I have spent an entire year working with my utility to get a summary of the solar credits that were attributed to each members bill and we have still not completely resolved it. To be fair, this requires the utility to make changes to their billing software and that apparently is more difficult than it would seem. And utilities have been reluctant to go too far down the path of changing their billing system until the state has signed off on all the standards and procedures for net meter billing. It will be easier once the state said “this is how you do it” and then require all the utilities do it the same way.
What would be the ideal billing situation?
▪ On every bill it should say: 1) how much power a member consumed; 2) what was the output of the array; 3) what was their share of the solar production; 4) how much they were credited for the solar production; 5) and then how much they now owe for power. Each members bill would then be the net of what they used minus what they were credited. The solar credit should be a line item on the front of the bill so that each member knows exactly how much is being credited each month. It needs to be transparent.
▪ Where we ran into problems is that initially the only thing the utility was reporting was the net usage, but they would not show the methodology. So, nobody could figure out how much of their bill was supposed to go to me (as the owner of the community solar project). The group members also could not figure out how much power they used. It has been terribly confusing and frustrating.
You mentioned large groups might be a problem. Why?
▪ For my scale system, the output is still quite small. The total cost of the project was $85,000, but with tax credits, incentives and depreciation deductions the net cost was about $30,000. However, the revenue is only worth about $3,000 per year. With that small a revenue stream, there is not a lot of room for administrative costs. You couldn’t for example hire someone to do the billing or it would eat up a good portion of the revenue. Perhaps the easiest way to set up a group would be to get one or two large members. Then perhaps the billing would be easier.
▪ The margins are pretty low. While I like the rate of return I am getting, it is still pretty small in absolute terms. Small things like a customer service charge can have a measurable impact on the return. For example, I am required to have an additional meter at the site to record the solar output. The meter charge is $16.75 per month. This is nearly 7% of the revenue of the system over a year. Clearly I am not going to get rich off this investment.
After doing it, do you think community solar could be a business model by itself? i.e. could a business just do community solar in Vermont or will installers start offering as part of their service?
▪ Absolutely there is a business model and potential for it. I like the idea a lot. There are a lot of folks that just don’t have a good solar resource at their home and would like to be in the game. There are other folks who don’t have the resources to invest, but would much rather their power came from a clean renewable source. Consider the Vermont Cow Power program. It was introduced about 10 years ago. In this program you can pay more for your electricity, up to $.04/kWh more. The utility then uses that money to pay farmers $.04/kWh over the wholesale power rate for electricity they produce from an on-farm anaerobic digester. It is very, very successful. Before launching the program, they did a survey of their customer base and found that between 2% and 5% of their customer base would be interested in such a program. That estimate has proven to be true. My community solar project is similar except that my group members don’t pay anything more for their electricity at all. Sure, I get all of the financial benefit, but I took all of the risk too. I am sure other models could be developed whereby members could share in the risk and the financial benefit.
▪ Finally, there are a lot of people that would like to invest in something that they believe in, rather than handing their savings over to Wall Street. Community solar, or community wind for that matter, offers a vehicle for folks to make a moral investment and make a reasonable return on that investment. In Europe, there are places where average folks can invest in shares of a local renewable energy project and then receive a return based on the project’s production. Folks sink their retirement savings into these projects and then receive a predictable dividend for life. What better place to put your retirement investments? Renewable energy projects can generate a highly reliable and predictable income over a long period of time. I would much rather invest in a specific project than I would in a company producing a product. Companies come and go. But the sun always shines and the wind always blows. Where else can you get such a great dividend?
Are you thinking about doing it again?
Absolutely! In fact, we are breaking ground in the next phase of this project next week. It will be completed before Christmas. We are essentially doubling the size of our array. When I installed the first phase, I buried an extra conduit so that I could expand without a lot more trenching. By the first of the year our system will be 25 kW and we will be completely powering five households.