Community solar is winning U.S. market share, but will it last?


Community solar at Mount Hope, N.Y.

Community solar is currently winning an increasing market share in the United States, according to Wood Mackenzie. State-level programs and incentives fueled a record-breaking year of growth in 2020, accounting for 37% of annual non-residential solar capacity – up from just 13% in 2016. Now, with new programs emerging and mature markets facing challenges, can the sector maintain its growth? 

“As it stands now, the community solar market will experience a peak in installations over the next few years,” said Rachel Goldstein, an analyst with Wood Mackenzie’s US solar research team. “As current incentives become fully allocated and those projects come online over the next two years, the market will see a decline starting in 2023 without an expansion of programs and incentives.”

Annual U.S. community solar capacity

According to Wood Mackenzie’s US community solar market outlook 2021, created in collaboration with the Coalition for Community Solar Access (CCSA), much of the growth over the next five years will come from new markets like New Jersey, Illinois, and Maine.

Goldstein said: “These state markets will account for 1,500 MW of direct current (MWdc) in that timeframe. In addition, market leaders New York and Massachusetts are projected to bring over 2,000 MWdc online during the same time span. “Meanwhile, without policy reforms that remove constraints on the market, longstanding markets like Colorado and Minnesota will shrink. Siting restrictions, interconnection challenges, and grid upgrade costs all continue to suppress some state markets.”

Goldstein and the CCSA said that community solar programs are unique to each state and can be more complex than other solar market segments. Historically, programs with less restrictive caps, simple siting allocation rules, and favorable compensation for the subscriber have been more successful. New state programs and expansions to existing programs can reflect on past successes and failures to build more effective programs and incentive structures.

Incentive structures that last

As we’ve noted before, ensuring that the customer will see a financial benefit to obtaining a subscription is key to a program’s success.

“Fair, stable rates that are easily communicable tend to result in more successful customer engagement, and clear compensation structures help to establish trust,” Goldstein said. “Programs like that in Minnesota provide long-term certainty for customers due to a permanent value of solar tariff (VOST) that isn’t capped and experiences a slight average annual decline of 3%.

“On the other hand, states with temporary incentive programs typically see a surge of capacity additions that eventually drop off. Even when states with temporary programs establish successor programs, developers and advocates find that changes can lead to rate structure uncertainty, confusion for customers, and massive investments in time and resources to create favorable new programs.”

She said reasonable siting and zoning rules, along with clear processes for grid upgrades to enable interconnection, are also crucial for a successful market. Both mature and emerging markets are facing issues related to siting restrictions.

Interconnection and income hurdles

Interconnection of community solar projects is often dependent on grid upgrades. For developers to bring projects to fruition, they need clarity on interconnection and upgrade requirements and costs. Community solar can help low- and moderate-income (LMI) customers reduce their electricity bills, and LMI carveouts have become common within state-level community solar programs.

Advocates and developers say that arduous income verification requirements are a major pitfall of acquiring LMI customers. Each state program has its own rules and requirements, and both customers and developers struggle under programs that require multi-year customer-supplied income verification, such as tax returns or salary statements. These time-consuming processes can also be uncomfortable for potential customers – many would rather not share sensitive personal information.

Preferable program requirements involve automatic qualification via census tract regions or enrolment in other state or federal programs such as the Low Income Home Energy Assistance Program (LIHEAP).

Goldstein said: “Community solar is shaping up to become a more significant part of non-residential solar capacity over the next five years. As a unique market segment with a diverse customer base and varying state programs, recognizing best practices will be key to replicating successful models. There is considerable upside if programs and incentives are expanded.”

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