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SOLAR CROWDSOURCING A New Way to Build Community By Adam Byrnes

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MBA/MS 2012 Erb Renewable Energy Scholar


The Erb Renewable Energy Scholars Program is supported by the Koch Family, U.S. Renewables Group, Peter Mertz and the Erb family to encourage Erb Institute MBA/MS students to explore and develop early-stage ideas and insights in the renewable energy field.

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Solar Crowdsourcing:  A  New  Way  to  Build  Community   By  Adam  Byrnes     Let’s  play  a  quick  game  of  word  association.  Say  the  first  word  that  comes  to  mind  when   you  read  the  words  “solar  power.”  I  bet  the  first  word  was  “Solyndra”  or  “market   failure”  or  “the  solar  industry  is  a  bust.”  While  you  wouldn’t  be  forgiven  for  breaking  the   one-­‐word-­‐rule,  you  would  be  forgiven  for  the  general  sentiment.  The  media’s  repeated   and  sustained  coverage  of  Solyndra’s  fantastic  failure  has  fueled  the  public  perception   that  the  solar  industry  is  dead.       The  reality,  however,  is  a  bit  different:  last  year  the  solar  industry  grew  a  whopping   109%,  venture  capital  firms  invested  over  $1.9  billion  in  solar  start-­‐ups  (higher  than   investments  in  2009  or  2010),  and  the  all-­‐in  cost  of  solar  power  dropped  to  historic   lows,  making  it  increasingly  competitive  with  other  sources  of  electricity.    The  reports   of  the  solar  industry’s  death  are  greatly  exaggerated.     Problems  do  persist  however,  particularly  in  the  residential  market.  Despite  industry   growth  overall,  residential  installations  grew  only  11%  in  2011.  In  addition,  a  recent   National  Renewable  Energy  Laboratory  report  found  that  roughly  75%  of  homes  in  the   United  States  are  inhospitable  to  solar  panels  due  to  excess  “shading,  rooftop   obstructions,  and  other  constraints.”  The  report  didn’t  even  mention  the  millions  of   Americans  interested  in  installing  solar  arrays  who  are  unable  to  because  they  rent   their  home,  live  in  an  apartment,  or  don’t  have  strong  enough  credit  to  install  panels  of   their  own.       What  we  need  is  a  new  model.  The  old  model  of  installing  solar  panels  house-­‐by-­‐house   isn’t  enough  to  reach  solar’s  full  promise  of  lower  bills  and  a  cleaner,  more  secure   energy  source.  As  VoteSolar’s  community  solar  maven  Hannah  Masterjohn  put  it  in  a   recent  op-­‐ed,  “By  limiting  ourselves  to  the  traditional  ‘panels  on  your  roof’  approach  to   PV,  we  are  leaving  a  tremendous  amount  of  solar  potential  on  the  table.”  To  reach  that   full  potential,  the  industry  has  come  up  with  a  creative  new  solution  called  “community   solar.”  The  concept  is  simple:  a  third  party  installs  a  small  utility-­‐scale  solar  array   between  200  KW  and  20  MW.  The  third  party  then  sells  “shares”  of  the  array  to   “shareholders”  who  are  credited  on  their  utility  bill  for  the  amount  of  energy  produced   by  their  part  of  the  array.  This  arrangement  takes  advantage  of  the  economies  of  scale   of  a  large  solar  array,  overcomes  the  limitations  of  a  specific  geography  or  roof,  allows   anyone  and  everyone  to  participate,  and  provides  a  win  for  consumers,  utilities,  and   third  party-­‐installers.  Though  nascent  –  a  quick  accounting  suggests  that  only  a  dozen   or  so  projects  have  been  installed  around  the  country  –  the  idea  has  been  adopted  by   state  legislatures  in  eight  states  and  is  close  to  adoption  in  two  others  and  the  District  of   Columbia.  In  fact,  the  Solar  Power  Electric  Association,  a  consortium  of  utilities,  solar   power  installers,  and  industry  players,  has  reportedly  called  this  the  year  of  community   solar.     The  projects  currently  operating  around  the  country  use  one  of  the  following  three   operating  models:  


The utility  model:  A  utility  hires  a  third-­‐party  installer  to  construct  the  array   and  then  enters  into  a  long-­‐term  contract  guaranteeing  to  buy  the  array’s  power.   The  utility  then  sells  the  energy  produced  by  the  array  to  customers  for  a  fixed   fee.  The  first  and  best  example  of  this  model  is  Sacramento  Municipal  Utility   District’s  SolarShare  program.  Third  party  installer  enXco  built  the  1  MW  array  –   enough  to  power  500  average  American  homes  –  and  was  fully  subscribed   within  6  months.  A  consumer  that  buys  a  2  KW  share  of  the  system  pays  $53  a   month  for  20  years.     Special  purpose  entity  model:  A  group  of  individuals  forms  a  business,  also   known  as  a  special  purpose  entity,  to  install  and  manage  the  project  and  then   distributes  the  benefits  of  the  project  back  to  the  consumer.  A  project  in   Maryland  is  the  perfect  example  of  this  model.  Volunteers  formed  University   Park  Community  Solar,  LLC  to  install  panels  on  a  local  church.  The  church   benefits  financially  from  tax  incentives,  write-­‐offs,  lower  energy  bills,  selling   excess  electricity  to  the  grid,  and  auctioning  off  its  RECs.  The  church  then  passes   surplus  financial  benefits  on  to  its  investors  who  anticipate  a  return  in  five  to  six   years.     Non-­‐profit  model:  A  non-­‐profit  recruits  donors  to  help  pay  for  the  cost  of  a   solar  array  through  tax-­‐deductible  contributions.  This  approach  has  created   interesting  business  models,  most  notably  Solar  Mosaic,  which  has  recruited  400   people  to  invest  more  than  $350,000  in  five  projects,  including  on  the  roofs  of   two  community  centers  and  a  non-­‐profit  grocery  store.  

Each  model  has  its  challenges.  The  current  utility  model  is  structured  so  that  the   benefits  of  the  program  aren’t  fully  realized  until  the  end  of  the  20-­‐year  commitment.   Given  the  fact  that  Americans  move  an  average  of  once  every  seven  years,  the  likelihood   of  participants  earning  a  return  on  their  SolarShare  investment  is  small.  The  SPE  model   is  legally  and  financially  complex.  The  University  Park,  LLC  founders  noted  that   accounting  and  legal  fees  could  negate  any  return  on  investment  from  the  project.  And   the  non-­‐profit  model  forgoes  a  financial  return  in  favor  of  a  social  one  by  helping  a  non-­‐ profit  show  environmental  leadership.  In  addition,  all  three  models  ask  participants  to   make  a  bet  that  energy  prices  will  continue  to  rise.  While  that  may  seem  like  easy   money,  the  recent  shale  gas  boom  highlights  the  uncertainty  of  that  bet.     Fixes  are  in  the  works  for  each  of  the  problems  listed  above,  but  despite  the  current   financial  and  legal  risk,  I  believe  community  solar’s  true  value  lies  in  its  social  return.   For  the  past  25  years,  America’s  communal  ties  have  weakened  to  the  point  of  decay.  As   Robert  Putnam  wrote  in  Bowling  Alone,  “Americans  are  right  that  the  bonds  of  our   communities  have  withered,  and  we  are  right  to  fear  that  this  transformation  has  a  very   real  cost.”  Community  solar  alone  won’t  solve  this  problem,  but  it  can  be  a  powerful  tool   to  build  stronger  communal  bonds  around  a  common  purpose.  Imagine  quarterly  or  bi-­‐ yearly  shareholder  meetings  at  which  members  picnic  together  around  their  solar   array.  Imagine  a  school,  church  or  non-­‐profit  strengthening  community  bonds  by  using  


its solar  array  to  teach  local  children  and  community  members  about  the  benefits  of   solar  power.  In  the  process,  we’ll  increase  the  number  of  solar  powered  homes,   businesses,  and  non-­‐profits,  expand  the  PV  pie  to  include  renters  and  other  solar-­‐ deprived  individuals,  and  produce  homegrown  energy,  investment,  and  jobs.       What  makes  solar  different,  you  ask?  How  will  solar  build  communities  when  countless   other  community  groups  have  failed?  Community  solar’s  main  advantage  over  other   efforts  is  that  it  aligns  the  interests  of  multiple  groups:  for  utilities  and  solar  companies   community  solar  expands  their  business  and  increases  sales;  for  local  and  state   governments  it  provides  more  tax  revenue  and  renewable  generation;  and  for   residents,  churches,  or  non-­‐profits  it  lowers  energy  bills  and  saves  money.  As  a  founder   of  the  University  Park  Community  Solar,  LLC  put  it,  “It’s  more  than  the  panels,  it’s   people  working  together.”       Perhaps  the  next  time  you  hear  the  words  “solar  power”  the  first  word  you’ll  think  of  is   “community.”       Adam  Byrnes  is  an  MBA  and  MS  candidate  at  the  University  of  Michigan’s  Erb  Institute  for   Global  Sustainable  Enterprise.  Adam  has  industry  experience  at  California’s  largest  and   greenest  utility,  a  pioneering  start-­‐up  revolutionizing  clean-­‐tech  finance,  and  a  Michigan-­‐ based  start-­‐up  working  to  disrupt  the  LED  lighting  market.  Adam  writes  on  the  topics  of   clean  energy  entrepreneurship,  renewable  energy  finance,  and  energy  innovation  in   emerging  markets.  

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