Beyond Sharing: Communities Taking Ownership of Renewable Power

H O W C O M M U N I T I E S C A N TA K E O W N E R S H I P O F R E N E W A B L E P O W E R

B E Y O N D S H A R I N G

John Farrell May 11, 2016

A Q U E S T I O N

1%

What portion of U.S. renewable energy is community-based?

???

3%

20%

40% ?5%

< 3%

P E R C E N T C O M M U N I T Y- B A S E D W I N D A N D S O L A R I N T H E U . S .

1.1%

COMMUNITY -OWNED

SHARED RENEWABLES

GROUP PURCHASING

C O L L E C T I V E O W N E R S H I P

N O O W N E R S H I P

O V E R L A P P I N G D E F I N I T I O N S O F

C O M M U N I T Y R E N E W A B L E

E N E R G Y

I N D I V I D U A L O W N E R S H I P

COMMUNITY -OWNED

SHARED RENEWABLES

GROUP PURCHASING

C O L L E C T I V E O W N E R S H I P

N O O W N E R S H I P

I N D I V I D U A L O W N E R S H I P

COMMUNITY -OWNED

SHARED RENEWABLES

GROUP PURCHASING

C O L L E C T I V E O W N E R S H I P

N O O W N E R S H I P

I N D I V I D U A L O W N E R S H I P

COMMUNITY -OWNED

SHARED RENEWABLES

GROUP PURCHASING

C O L L E C T I V E O W N E R S H I P

N O O W N E R S H I P

I N D I V I D U A L O W N E R S H I P

How University Park busted the barriers:

Formed a small LLC of related members, no outside advertising, project cost under $1 million

State regulation Pass-through to individualsLLC passed tax credits on to individuals, many of whom had enough tax liability to use it against passive income.

Sold to third partyElectricity was sold via a power purchase agreement to the host church, with revenue shared among the LLC members.

How Clean Energy Collective busted the barriers:

Participants in Clean Energy Collective projects collect only credits on their bill for their share of solar production.

Bill credits only For-profit companyAs a private, for-profit company, Clean Energy Collective can capture the federal tax credits on behalf of participants.

Sold to the utilityElectricity was sold via a power purchase agreement to the utility, with bill credits passed on to subscribers.

W H Y C O M M U N I T Y ?

30%

23%

47%

34%

40%

32%

50%

31%

25%35%

57%

26%

32%

39%

47%

35%

23%74%40%

34%

31%

27%

34%26%

28%

14%

34%44%

34%

44%

24%

39%

34%

42%

39%

36%

40%

33%

30%

37%

46%

30% 35%

37%

60%

53%60%

All buildings Source: http://www.nrel.gov/docs/fy16osti/65298.pdf

R O O F T O P S O L A R P O T E N T I A L 2 0 1 6

43%

43%

POTENTIAL PERCENT OF POWER FROM LOCAL

ROOFTOP SOLAROver 50% 40 to 50% 25 to 40% 11 to 25%

49%2008 data

23%

A Q U E S T I O N

50%

What portion of U.S. households can’t host solar?

???

5%

20%

40%

75%

?

P E R C E N T O F U . S . H O U S E H O L D S T H AT C A N H O S T S O L A R

100% 63%

35%

2%

51%

All households

Renters

Owners in bldg. > 4 stories

12%Insufficient

space

…with roof

access

…and space for

solar

Source: http://1.usa.gov/1QPn1NF

B I G B E N E F I T S

R E N E WA B L E B E N E F I T S

0

3

6

9

12

15

Jan-2002 Jan-2004 Jan-2006 Jan-2008 Jan-2010 Jan-2012 Jan-2014

Natural Gas Price

Wind and Sun Price

D I S T R I B U T E D B E N E F I T S

Solar on Littlestown Hospital

D I S P E R S I N G 1 - M W S O L A R P L A N T S R E D U C E S I N T E G R AT I O N C O S T S

0

1

2

3

4

1 solar project 5 solar projects 25 solar projects

0.3¢

1.1¢

3.9¢

cents per kilowatt-hour

Credit: USDA

C O M M U N I T Y- B A S E D

Shade tree49%

S O L A R C O S T FA L L S A S S I Z E G R O W S

Inst

alle

d C

ost

$2.00

$2.60

$3.20

$3.80

$4.40

Residential 10-20 50-100 250-500 5 MW

A Q U E S T I O N

2 times

How many times more jobs are created by locally owned projects

than non-locally owned ones?

???

10 times

1.5 times

1.2 times

5 times

?

C O M M U N I T Y-O W N E D

How Green Energy Farmers busted the barriers:

Formed several, unrelated LLCs with only Iowa owners.

State regulation Pass-through to individualsFor a limited time, the Production Tax Credit was available as a cash grant, more easily used by ordinary investors.

Sold to the utilityElectricity was sold via a power purchase agreement to the utility.

B I G B A R R I E R S

0¢

5¢

10¢

15¢

20¢

Lease A Lease B PPA*0¢

5¢

10¢

15¢

20¢

SOLAR COSTS MORE FOR NON-TAXABLE ORGANIZATIONS

Incentives do not apply

to tax-exempt entities

Depreciation only Tax credit only

Tax credit and

depreciation

Transaction costs

Tax credit and

depreciation

Transaction costs

Transaction costs

15.5¢14.1¢ 13.7¢

12.3¢11.2¢

Federal tax credit = 30% off Depreciation = ~24% off *PPA not legal in 25 states

Solar cost per kilowatt-hour

Purchase via third partySelf-ownership Private sector

E S T I M AT E D F E D E R A L S E C U R I T I E S C O M P L I A N C E C O S T S

Annual Compliance 9%

Upfront Compliance 3%

Annual Compliance 59%

Upfront Compliance 19%

1,000 kW solar 25 kW solar

S H A R I N G O U T P U T

Prohibited in 34 states

B A R R I E R B U S T I N G : TA X I N C E N T I V E S

A D O P T E D D E C . 2 0 1 5

F E D E R A L R E N E W A B L E E N E R G Y TA X C R E D I T P H A S E O U T

0.075

0.225

0

0.75

1.5

2.25

3

2016 2017 2018 2019 2020 2021 2022

Wind tax credit (per kilowatt-hour)

Solar tax credit (% of installed cost)

10%

22%

26%

30%30%30%30%

0.0¢

0.9¢

1.4¢

1.8¢

2.3¢

I N C L U D E S G E O T H E R M A L A N D B I O M A S S

F O R 2 0 1 6

How South Dakota Wind Partners busted the barriers:

Investment available only to South Dakota residents.

State regulation Pass-through to individualsFor a limited time, the Production Tax Credit was available as a cash grant, more easily used by ordinary investors.

Sold to the utilityElectricity was sold via a power purchase agreement to a utility subsidiary.

• Over 600 owners • Used expired cash grant

What if these went away?

S P E N D Y TA X E Q U I T Y F I N A N C I N G …

0¢

2¢

4¢

6¢

8¢

10¢

12¢

14¢

16¢

12.1¢11.8¢

• NO tax credit • 5% cost of capital/

debt • 20 year debt

LOSS OF 30% TAX CREDIT ONLY RAISES

COST BY 2.5%

Cost of solar electricity in Tucson (cents per kilowatt-hour)

• 30% tax credit • 10% cost of capital/debt for

tax equity partner • 10 year debt

… R E P L A C E D B Y L O W C O S T L O A N S

0¢

2¢

4¢

6¢

8¢

10¢

12¢

14¢

16¢

12.1¢11.8¢

Cost of solar electricity in Tucson (cents per kilowatt-hour)

• 30% tax credit • 10% cost of capital/debt for

tax equity partner • 10 year debt

• NO tax credit • 5% cost of capital/debt • 20 year debt

LOSS OF 30% TAX CREDIT ONLY RAISES

COST OF SOLAR BY 2.5%

B A R R I E R B U S T I N G : S E C U R I T I E S

S TAT E S W I T H C R O W D F U N D I N G L A W S

2014

2015

2015

2015

2011

2012

2015*

*awaiting governor’s signature

2011

2014

2015

2015

2015

2015

2015

2013

20142015

2015

2015

2015

2014

2014

2015

2014

2014

DC2014

Source: North American Securities Administrators Association

July 17, 2015

S TAT E C R O W D F U N D I N G L A W S

$1 millionordinary investors

online

reduced compliance

in-state only

only 95 successful offersNY Times, June 2015Credit: Flickr user barnyz

B A R R I E R B U S T I N G : E L E C T R I C I T Y S H A R I N G

C O M M U N I T Y S O L A R P R O J E C T S A I D E D B Y V I R T U A L N E T M E T E R I N G

Utility Type

- Cooperative

- Investor-Owned Utility

- Public Power

Available

Limited by tech or customer type

Utility option to offer

Virtual Net Metering Policy

How “shared solar” busted the barriers:

Participants in shared solar projects collect only credits on their bill for their share of solar production.

Bill credits only Developer captures tax creditThe project developer (often a utility) can capture the tax credit and pass on the savings.

Sharing requiredParticipants receive their financial reward in the form of a electricity bill credit, proportionate to their subscription size.

S TAT E S A L L O W I N G C O M M U N I T Y C H O I C E A G G R E G AT I O N

3 650

39

Number of participating municipalities

225037

250

2

April 2016

How Community Power Network busted the barriers:

Participants were buying solar for their own property, not investing in projects elsewhere.

Not a security Individual tax creditsParticipants were responsible for filing for a personal tax credit, which applies to ordinary earned income.

Net meteringParticipants reduced their energy bills on a per-kilowatt-hour basis, with no electricity sharing required.

A G O L D S TA N D A R D ?

4 P R I N C I P L E S F O R C O M M U N I T Y R E N E WA B L E E N E R G Y

1. Tangible benefits

2. Flexible in forms of ownership

3. Increase Renewables

4. Access to all

Q U E S T I O N : W H I C H PAY S B E T T E R ?

?or

COMPARING COMMUNITY SOLAR VALUE

Colorado

Minnesota

Arizona

Wisconsin

Kentucky

Florida

$0 $2,500 $5,000 $7,500 $10,000

$1,100

-$1,350

$380

$5,400

$2,200

$4,700

Community solar subscription

Individual ownership

*zero upfront cost

$270*

$34,900

$600

$22,900

$14,700

$230

$40,000$20,000

20-year net present value

Clean Energy Collective

NRG Home Solar

Tucson Electric Power

River Falls

Berea

Orlando

Owner Investor Member Subscriber Donor Resident

S E C U R I T I E S L AW

C H A L L E N G E S

MinWind

C O M M U N I T Y S H A R E D S O L A R

THE COMMUNITY RENEWABLE ENERGY SPECTRUMState

Region

City

Neighbor -hood

Home/ business

ARE

A O

F C

OM

MU

NIT

Y

L E V E L O F I N V O LV E M E N T

Clean Energy

Collective

John Q. Solar

University Park Solar,

LLC

Mosaic

SD Wind Partners Green

Energy Farmers

Shiloh Temple

RE-VOLV

Solarize/ DCSUN

Municipal utilities, e.g. Georgetown,

TX

Greater economic benefit

Gre

ater

po

litic

al c

apita

l

Local choice aggregation

aka CCA

Consumer

Producer

O N - B I L L R E PAY M E N T

The utility adds a monthly assessment to the customer’s bill to pay for energy savings improvements, with the savings greater than the monthly cost.

A utility customer signs up for better insulation, a rooftop solar array, or a share of solar on a nearby building.

Net savings e.g. $10/mo.

12

3

M O R E T H A N S O L A R

COMMUNITY -OWNED

SHARED RENEWABLES

GROUP PURCHASING

C O L L E C T I V E O W N E R S H I P

N O O W N E R S H I P

O V E R L A P P I N G D E F I N I T I O N S O F

C O M M U N I T Y R E N E W A B L E

E N E R G Y

I N D I V I D U A L O W N E R S H I P

Georgetown, TX

Farmer’s Electric Co-op

Sunshare

Clean Energy Collective

DC SUNSolarize

University Park Solar

Green Energy Farmers

Cooperative Energy Futures

Forecast

Existing

I N C R E D I B L E G R O W T H

0

2,500

5,000

7,500

10,000

2015 2016 2017 2018 2019 2020

megawatts

Growth forecast for community renewable energy anticipates sharp growth in shared solar

www.ilsr.org

C H A N G I N G T H E R U L E S

P R O V I D I N G T O O L S

1 0 0 % R E N E WA B L E L O C A L E C O N O M Y

H U M A N S C A L E

L O C A L O W N E R S H I P

D E M O C R AT I C A U T H O R I T Y

I L L U S T R AT I N G T H E V I S I O N

BeyondSharing:HowCommunitiesCanTakeOwnershipofRenewablePowerThe electric utility monopoly is breaking up, but will new companies make renewable energy become another form of wealth extraction or can community renewable energy enable communities to capture their renewable power?

John FarrellApril 2016

www.ilsr.org

D O W N L O A D O U R F U L L R E P O R T

R E A D M O R E

@johnffarrell