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COMMUNITY SHARED SOLARPOLICY AND REGULATORYCONSIDERATIONSABSTRACTShared solar, also called community solar, is anincreasingly popular business model for deployingdistributed solar technology. Shared solar projects allowcustomers that do not have sufficient solar resource, thatrent their homes, or that are otherwise unable or unwillingto install solar on their residences, to buy or lease a portionof a shared solar system. The participant’s share of theelectricity generated is credited to their electricity bill, as ifthe solar system were located at their home.The shared solar model expands the availability ofdistributed solar to a broader customer base, offerseconomies of scale to project developers, and may reducethe cost of incentive programs and address concerns ofcross-subsidization across utility ratepayers. Increasingnumbers of utilities, cities, and community groups acrossthe United States are hosting shared solar projects. Insome cases, however, policy or regulatory barriers presentchallenges to program implementation.This paper explores the ways in which the sharedsolar business model interacts with existing policy andregulations, including net metering, tax credits, andsecurities regulation. It presents some of the barriers thatshared solar projects may face, and provides options forcreating a supportive policy environment.BACKGROUNDSeveral business models have recently arisen that bringcommunity stakeholders together to deploy distributedsolar projects. These community solar models includeaggregated/group purchasing, crowd-funding, and sharedPhoto by Western Area Power Administration, NREL 08822solar projects. Aggregated or group purchasing refersto multiple stakeholders coming together to purchaseindividual solar systems in order to take advantage ofbulk pricing. Crowd funding solar projects (e.g., Mosaic)allow investors to finance a solar project and benefit fromthe return on their investment. In shared solar projects,1participants buy or lease a portion of a large distributedsolar system and are able to use that solar generationagainst their demand on their electricity bill, just as if theyhad a solar system on their own rooftop.2This paper focuses solely on shared solar projects. Sharedsolar projects give customers who cannot or do not wantto install a PV system on their rooftop the opportunity tobenefit from a solar installation. Given that approximatelythree-quarters of residential rooftops are not suitablefor solar systems, shared solar significantly expands thedistributed solar market.3Banner photos (from left to right): Photo from iStock 13737597; by DennisSchroeder, NREL 19893; Photo from iStock 12123595; Photo by ToyotaMotor Sales, USA, NREL 16933; by Debra Lew, NREL 20528, Photo byDennis Schroeder, NREL 19163NREL is a national laboratory of the U.S. Department of Energy,Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.1

Compared to other utility incentive types, shared solarprojects may result in fewer costs to non-participatingratepayers, depending on the pricing structure used.6 Thecosts of traditional utility incentive programs are oftenspread across all ratepayers. For shared solar, all of theprogram costs may be covered through the customerparticipation payment, or deducted from the participant billcredits. The cost of electricity integration and delivery mayalso be deducted from bill credits.Photo by iStock, 18306736HOSTS OF COMMUNITY SHARED SOLARUtilities, businesses, local governments, and communitygroups can host shared solar projects. The shared solarsystems may be located on public buildings, privateland, brownfield sites, or any location with suitablesolar resources. Various program designs and contractterms can be used.4 Program design elements includeownership structure, product offering, length of contract,eligibility rules, subscription pricing, and how bill creditsare calculated. Different program designs offer their ownbenefits and balance of risks between stakeholders. For thisreason, program design elements should be consciouslydecided upon, based on the particular situation.5Drivers for public sector entities to offer shared solarprojects include meeting local sustainability goals andsupporting community members that face barriers toparticipating in traditional rooftop solar.Compared to other utility incentive types, sharedsolar projects may result in fewer costs to nonparticipating ratepayers. All of the program costsmay be covered by participating customers.For utilities, the shared solar model may contribute tocustomer engagement and satisfaction. Utilities in stateswith renewable energy mandates may also be able to applythe renewable energy credits from shared solar projectstoward their requirement. In addition, there is increasinginterest and research to understand how to locate solarsystems in order to provide distribution system benefits,such as reducing congestion or providing ancillaryservices.2Colorado, Minnesota, and California have passedrequirements that certain regulated utilities develop sharedsolar projects, and there is similar movement in otherstates, including New York.7,8,9 The state-level policiesinclude direction regarding various program elements,such as customer eligibility and how bill credits willbe calculated.One consideration is the potential impact of proposedpolicy on the existing solar market and associated solardevelopers. In addition, providing for ownership structuresthat allow hosts to make use of tax credits or otherincentives should also be considered. The interplay ofshared solar and tax incentives is discussed more below.PARTICIPANTS IN COMMUNITY SHAREDSOLARShared solar projects can offer a variety of benefits toparticipants, including increased electricity rate stabilityand potential bill savings.10 Homeowners with shadedroofs or historic buildings, residents of multi-tenantbuildings, and those who rent apartments may be unable toinstall rooftop solar systems, but can participate in sharedsolar projects. Shared solar can also expand access forlower-income energy customers, who are prevented fromhaving their own systems due to lack of credit. Decisionmakers may choose to set aside portions of shared solarprojects for particular customer classes, or facilitate theparticipation of customers that otherwise would not haveaccess to solar.Colorado has supported the availability of shared solar forlow-income customers as part of the Community SolarGarden Act. By regulation, eligible utilities must reservefive percent of new shared solar projects for low-incomeparticipants and waive the minimum level of participationfor these customers.11 By providing all customers, despitetheir circumstances, the opportunity to participate in adistributed solar project, shared solar can address some of

the concern about cross-subsidization between customerswho can and cannot have rooftop solar.In order to ensure that more customers can participate ina shared solar project, maximum single subscriber levelsmay be set to limit any one participant from holdinga majority of the interest in the project. Minimum ormaximum participant limits and limits to administrationfees may also be defined through state ntparticipants in shared solar projects to subtract theirportion of the off-site generation from the load at theirown residences.13The ability to develop shared solar projects may beinhibited or prohibited if state regulations do not allowfor virtual net metering. Some net metering policies donot specify whether shared solar projects are eligible,and some implicitly exclude them by specifying thatnet-metered generation must serve on-site load. Somestates, including California, Delaware, Minnesota, Maine,Massachusetts, New Hampshire, and Vermont havespecifically allowed for virtual net metering throughlegislation.14Net Metering CapsOf the 44 states with net metering policies, 24 set a cap onthe total capacity eligible for net metering. In some cases,there are separate caps for public and private facilities.Making sure that policies clarify to which cap sharedsolar projects apply provides more certainty to projectdevelopers.15Shared solar projects allow customers to buy or lease a portionof a shared solar system. Photo by iStock, 28099878INTERACTIONS WITH OTHER POLICIESAND REGULATIONSThis section describes how existing state and federal policymay impact the development of shared solar projects, andprovides policy options for decision makers who want tosupport the shared solar business model.Net Metering PolicyNet metering is a primary state-level policy that supportsthe development of distributed solar systems for theexcess power they feed onto the electricity grid. Forty-fourstates have net metering policies.12 Certain elements ofthese policies that are relevant to shared solar projects arediscussed below.Virtual Net MeteringA distinguishing characteristic of shared solar is thatthe solar system is not at the same location as the loadof the project participants. Virtual net metering allowsAlthough the majority of states with net metering caps arecurrently substantially below their existing caps, five statescould reach their program limit in the 2015-2018 timeframe, if development predictions are correct and the capsare not increased.16 In these states, there is a possibility thatnet metering will not be available by the time a proposedproject is completed. This increased risk may significantlyslow or halt solar project development, as the net meteringlimits are approached.17To reduce this risk to the developer, Massachusettshas developed a system of assurance for net meteringeligibility. The application process is a mandatoryrequirement for mature projects, and provides a limitedtime guarantee that the project will be eligible fornet metering once it is interconnected. This reducesuncertainty for developers, informs investment decisions,and creates more stability in the market as net meteringcaps are approached.Limits to Project Size or Participant ClassMost net metering rules include eligibility criteria thatdefine individual system capacity limits and eligiblecustomer classes. For example, residential customersmay be allowed to have net-metered systems up to10kW, while commercial customers may be allowed3

to have larger systems. Rules that limit project size orprohibit residential customers from obtaining credits fromcommercial-scale projects can create significant barriers toshared solar projects. One benefit of shared solar is that thelarger capacities offer economies of scale, which can makethe projects more economically attractive for residentialcustomers. It may be necessary to review and adjust statenet metering language in order to ensure that shared solarprojects can be efficiently designed and that all relevantcustomers are eligible to obtain net metering fromthe project.18Interconnection PolicyThe time and effort required to obtain utility approval fornet metering and interconnection varies widely acrossthe states. Some states have implemented simplifiedapplication processes for small-scale solar projects orfor projects that use certified equipment.19 Ensuring thatshared solar projects are not subject to unnecessarilycomplex application processes or interconnection approvaltimelines will help open the market to these projects andreduce the risk that participants will become impatient anddrop out of the project during the development phase.It may be necessary to review and adjust state netmetering language in order to ensure that sharedsolar projects can be efficiently designed and thatall relevant customers are eligible to obtain netmetering from the project.18Federal Tax CreditThe federal government provides a 30% residentialinvestment tax credit for qualifying solar projects throughSection 25D of the Internal Revenue Code (IRC).20 Inorder to be eligible for the credit, the solar system must“generate electricity for use in a dwelling used as aresidence by the taxpayer.” This language led some tobelieve that the tax credit was not available to shared solarprojects or their participants since the solar system in thesecases is not located at the taxpayer residence. However,in 2013, the IRS issued a clarification (Notice 2013-70),stating that shared solar projects that satisfy all otherrequirements in the IRC do, in fact, qualify for thetax credit.21If a shared solar project offers participants actualownership of the solar panels (rather than offering the4Photo by Dennis Schroeder, NREL 26962output of the system), the participant claims the tax creditsin proportion to their percentage of the system. Undermodels in which participants lease panels or have a powerpurchase agreement for the generation output, the host ordeveloper of the solar project claims the tax credits and theeconomic benefit is passed through to individuals in thecost of participation.State regulators have a role to play in assuring that hosts,developers or participants in shared solar projects canobtain these federal tax credits. The IRC requires that solarsystems have manufacturer certification. The criteria forthis certification are defined at the state level. Defining andsupporting the manufacturer certification process at thestate level provides important backing for sharedsolar projects.State IncentivesIf a state tax credit, rebate, or other incentive is providedfor solar generation projects, clarification may benecessary to ensure that shared solar projects are eligible toreceive the benefits. Doing so ensures a level playing fieldfor all customers, whether or not they are able to installsolar on their own property.The way in which state incentives are distributed canpotentially impact the economic viability of shared solarprojects. Depending on their design, state-level incentivesmay or may not be considered taxable income underfederal and state tax laws. Some states have designedincentives to avoid the tax issue by avoiding the issuanceof government payments directly to residential solarcustomers.22 State guidance may be necessary to clarify

whether state-level incentives are considered taxableincome under state code and the relevance to sharedsolar projects.Renewable Energy Credits/Certificates (REC)In states that have strong REC markets, the generationof RECs by shared solar projects can contribute to theeconomic viability of the project. The RECs can behandled in a variety of ways, with different benefits forhosts and participants. Some considerations are whetherthe host or the participant retains the RECs generatedby the project, and whether or not the RECs are retired.Individual customers may not understand how to cash inRECs, preferring that the host pass through the value ofthe RECs in the participation cost.State guidance may be necessary to clarifywhether state-level incentives are consideredtaxable income under state code and the relevanceto shared solar projects.Securities ComplianceCaution must be taken in the design of shared solarprojects in order to avoid structures that make the projectsubject to securities regulation under the SecuritiesExchange Commission (SEC). Potential shared solar hostscan submit a request to the SEC describing the businessmodel being used and presenting a technical and legalanalysis of why the host believes the business model isnot a security. In the past, the SEC has issued a No-ActionLetter to one developer,23 but since there are a variety ofbusiness models for shared solar projects, the issuance maynot be applicable to other projects.Preparing a No-Action Letter Request is a significant costand time burden on project developers. Projects initiatedby community groups, for example, may not have theresources to overcome this barrier. Work is underway,sponsored by the Department of Energy’s SunShotInitiative, to bring clarity to the securities issue for sharedsolar projects at the federal level. However, the SecuritiesExchange Act of 1934 preserves much of the states’actions with regards to securities.24 For this reason, stateregulators will need to provide similar clarity at thestate level.Winthrop Community Solar Project. Photo by Ellen Lamiman,Energy SolutionsCONCLUSIONSCommunity shared solar provides increased public accessto solar technology and helps expand the distributed solarmarket. The shared solar model may offer economies ofscale, reduce the cost of solar incentive programs, andaddress some of the concerns of cross-subsidization amongutility ratepayers. State-level policymakers and regulatorswanting to support shared solar projects may need torevise state policy and regulation to remove barriers thatare specific to this business model. These include issuesrelated to net metering and interconnection policy, andthe ability of project hosts and participants to benefit fromfederal or state incentives. Decision makers may alsoconsider the option of requiring regulated utilities to offershared solar projects to customers or otherwise includingshared solar within renewable energy mandates.Community shared solar provides increased publicaccess to solar technology and helps expand thedistributed solar market.5

ACKNOWLEDGMENTSThis paper was funded through the Department ofEnergy’s SunShot initiative. Special thanks go to themany colleagues who provided useful feedback duringits development, and in particular the efforts of AnnaBrockway (U.S. DOE), Jim Burns (CommunitySun), JasonCoughlin, Lori Bird, and Jeff Logan (NREL).For additional information and questions, please contactJoyce McLaren (NREL) at [email protected], REFERENCES, AND RESOURCES(1) Often, the term “community solar” is used to describethis business model. This document uses the Departmentof Energy (DOE) preferred term: shared solar. In Colorado,the term “solar gardens” has been adopted to represent theshared solar business model.(2) While the focus here is on homeowners participatingin shared solar, businesses, non-profits and any otherorganization with a utility account can participate as well.(3) Denholm, P. and Margolis, R. “Supply Curves forRooftop Solar PV-Generated Electricity for the UnitedStates.” NREL/TP- 6A0-44073. Golden, CO: NationalRenewable Energy Laboratory, 2008. Accessed 2014:www.nrel.gov/docs/fy09osti/44073.pdf(4) A model contract between hosts and participants isprovided in: “Community Shared Solar: ImplementationGuidelines for Massachusetts Communities.” Boston, MA:Massachusetts Department of Energy Resources, 2013.Accessed 2014: tracts-032913.pdf(5) This report does not aim to provide a complete listor discussion of the many program design elements. Formore information on shared solar program design, see thefollowing resources:Community Solar Scenario Tool (CSST), Version 1.Golden, CO: National Renewable Energy Laboratory,2014. www.nrel.gov/tech deployment/toolscommunity solar.html (This tool provides a first-cutanalysis of the economics and program design optionsfor a potential shared solar project.)6Barth, B.; Campbell, B.; Krishnamoorthy, B.; Siegrist,C.R.; Taylor, M. “Utility Community Solar Handbook:Understanding and Supporting Utility ProgramDevelopment,” Version 1. Washington, D.C.: SolarElectric Power Association (SEPA), 2013. Accessed2014: mmunity-solar-handbook.pdfBarth, B.; Campbell, B.; Krishnamoorthy, B.;Siegrist, C.R.; Taylor, M. “Utility CommunitySolar Handbook: A Development Guide for UtilityManaged Community Solar Programs,” Version 1.Washington, D.C.: SEPA, 2013. Accessed ilitycommunity-solar-handbook final-1-.pdfCoughlin, J.; Grove, J.; Irvine, L.; Jacobs, J.F.;Johnson Phillips, S.; Sawyer, A.; Wiedman, J. A Guideto Community Shared Solar: Utility, Private, andNon-Profit Project Development. NREL/BK-520054570; DOE/GO-102012-3569. Golden, CO: NationalRenewable Energy Laboratory, 2012. Accessed sing Community Access to Solar: Designingand Developing a Shared Solar Photovoltaic System.”NREL/FS-7A20-55319/GO-102012-3644. Golden,CO: National Renewable Energy Laboratory, 2012.Accessed 2014: www.nrel.gov/docs/fy12osti/55319.pdf(6) Barth, B.; Campbell, B.; Krishnamoorthy, B.;Siegrist, C.R.; Taylor, M. “Utility Community SolarHandbook: Understanding and Supporting Utility ProgramDevelopment,” Version 1. Washington, D.C.: SEPA, 2013.Accessed 2014: mmunity-solar-handbook.pdf(7) Colorado Community Solar Gardens Act. H.B. 101342. Second regular session, Sixty-seventh GeneralAssembly.Colorado Public Utilities Commission Solar Gardens RuleMaking Notice. Decision No. C10-1061Minnesota Solar Energy Jobs Act. H.F. 729. 88thLegislature.California Green Tariff Shared Renewables Program.S.B. 43.

(8) In June 2014, the Assembly passed A.9931 to establisha shared solar program in New York. The same day, theNew York senate introduced the same bill as S.7727.(9) An interactive map of existing shared solar projects andstate actions to support the business model is available atwww.sharedrenewables.org/.(10) The cost of electricity in a solar garden is usually fixedfor the life of a subscriber’s participation. However, highadministration fees currently reduce the level of benefit forparticipants in some projects.(11) Colorado Community Solar Gardens Act. H.B. 101342. Second regular session, Sixty-seventhGeneral Assembly.(12) Barnes, J.; Culley, T.; Haynes, R.; Jackson, R.;Passera, L.; Wiedman, J.“Freeing the Grid: Best Practices in State Net Metering andInterconnection Practices.” Latham: New York: InterstateRenewable Energy Council, 2013. Accessed /FTG 2013.pdf(13) Other common terms for virtual net metering arecommunity net metering and shared net metering. They alltypically refer to the provision for a participant in a sharedsolar project to net meter their portion of the generation ofthe system against their load.(14) Summaries of state legislation relevant to shared solarare available at www.sharedrenewables.org. The details ofCalifornia Public Utility Commission’s virtual net meteringregulations and program are summarized in: “Virtual NetEnergy Metering at Multitenant Buildings.” San Francisco,CA: SF Environment, 2013. Accessed 2014: iles/virtual netenergy metering at multitenant buildings 0.pdf(15) In Massachusetts, shared solar projects are countedunder the public cap for net metering only if: (a) they areowned or operated by a municipality or other governmententity, or (b) if a government entity is assigned all of theoutput from the project and is the host customer and onlyallocates credits to other government entities.(16) According to an analysis by Bird, L.; Heeter,J. “Assessing the Potential to Reach Net MeteringProgram Caps,” (forthcoming), California, Delaware,Massachusetts, Nevada, and New York may reach theexisting net metering caps in the 2015-2018 time frame.Hawaii has already restricted net metering availability anddetermines eligibility on a case-by-case basis. New Jerseyhas passed the trigger point for state review of net meteringeligibility limits, although it has not taken action to restrictavailability.(17) For more details on the Massachusetts System ofAssurance of Net Metering Eligibility, see www.massaca.org.(18) For example, in Massachusetts, any net meteredproject greater than 60 kWAC and owned by a public entityis in the Public Net Metering category. However, creditsfrom publicly net metered projects cannot be credited tonon-public accounts. As a result, shared solar projectscannot be more than 60kW in capacity. See Beavers,D.; McGuckin, J.; Sweet, E. “Community Shared Solar:Review and Recommendations for Massachusetts Models.”Boston, MA: Massachusetts Department of EnergyResources, 2013. Accessed 2014: ity-shared-solar-modelframeworks-032813.pdf(19) The Interstate Renewable Energy Council points toemerging best practice of breaking the application processat 25 kW, 2 M, 10 MW, and 20 MW of system capacity.Barnes, J.; Culley, T.; Haynes, R.; Jackson, R.; Passera, L.;Wiedman, J. “Freeing the Grid: Best Practices in StateNet Metering and Interconnection Practices.” Latham:New York: Interstate Renewable Energy Council,2013. Accessed 2014: freeingthegrid.org/wp-content/uploads/2013/11/FTG 2013.pdf(20) Internal Revenue Code Section 48 provides for afederal investment tax credit for commercial enterprisesthat install distributed solar systems.(21) Internal Revenue Service Notice 2013-70. (November18, 2013). www.irs.gov/irb/2013-47 IRB/ar09.html7

(22) Gillette, L.; Gouchoe, S.; Herig, C. “Are solar rebatesand grants for homeowners and business taxable?” AmericanSolar Energy Society Conference Proceedings. 2004,Portland, OR. Accessed 2014: www.lambentenergy.com/Taxability ASES 2004.pdf(23) Office of the Chief Counsel Division of CorporationFinance Securities and Exchange Commission. “Re:CommunitySun, LLC .” Washington, DC, August 29,2011. munitysun082911-2a1.htm(24) The Securities Exchange Act of 1934, 15 U.S.C. §78bb(a) states, “[n]othing in this chapter shall affect thejurisdiction of the securities commissioner (or any agencyor officer performing like functions) of any State over anysecurity or any person insofar as it does not conflict withthe provisions of this chapter or the rules and regulationsthereunder.”National Renewable Energy Laboratory15013 Denver West ParkwayGolden, CO 80401303-275-3000 www.nrel.gov8NREL is a national laboratory of the U.S. Department of EnergyOffice of Energy Efficiency and Renewable EnergyOperated by the Alliance for Sustainable Energy, LLCNREL prints on paper that contains recycled content.NREL/BR-6A20-62367 September 2014

COMMUNITY SHARED SOLAR POLICY AND REGULATORY CONSIDERATIONS ABSTRACT Shared solar, also called community solar, is an increasingly popular business model for deploying . Massachusetts, New Hampshire, and Vermont have specifically all