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A Guide to Community Shared Solar: Utility, Private, and Non pro˜t Project Development
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
Section 1: Introduction
Section 2: Community Shared Solar Project Models
Section 3: Emerging State Policies to Support Community Shared Solar
Section 4: Tax Policies and Incentives
Section 5: Securities Compliance
Section 6: Getting Started
Section 7: Resources
- ORGANIZATIONS AND INSTITUTIONS
- PUBLICATIONS AND ONLINE TOOLS
Appendix A
- BUSINESS FORMATION AND TYPES: SPECIAL PROJECT ENTITIES FOR COMMUNITY SHARED SOLAR PROJECTS
Appendix B
- INTRODUCTION TO IREC’S COMMUNITY RENEWABLES MODEL PROGRAM RULES
- IREC’S COMMUNITY SHARED RENEWABLES MODEL PROGRAM RULES
For more information,

A Guide to

Community Shared Solar:

Utility, Private, and Nonprot Project Development

ACKNOWLEDGEMENTS

This guide is an updated version of the original Guide to Community Solar, published November 2010

(see www.nrel.gov/docs/fy11osti/49930.pdf), which was developed for the National Renewable Energy

Laboratory by Northwest Sustainable Energy for Economic Development, Keyes and Fox, Stoel Rives, and

the Bonneville Environmental Foundation. This guide builds on the research and writing from the Northwest

Community Solar Guide, published by Bonneville Environmental Foundation and Northwest SEED.

AUTHORS

Jason Coughlin, Jennifer Grove, Linda Irvine, Janet F. Jacobs, Sarah Johnson Phillips, Alexandra Sawyer,

Joseph Wiedman

REVIEWERS AND CONTRIBUTORS

Dick Wanderscheid, Bonneville Environmental Foundation; Stephen Frantz, Sacramento Municipal

Utility District; David Brosch, University Park Community Solar, LLC; Lauren Suhrbier, Clean Energy

Collective; Marc Romito, Tucson Electric Power; Ellen Lamiman, Energy Solutions

GRAPHIC DESIGN

Lynnae Burns, Bonneville Environmental Foundation

Available online at: www.osti.gov/bridge

Published May 2012

NOTICE

This report was prepared as an account of work sponsored by an agency of the United States government.

Neither the United States government nor any agency thereof, nor any of their employees, makes any

warranty, express or implied, or assumes any legal liability or responsibility for the accuracy,

completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents

that its use would not infringe privately owned rights. Reference herein to any specic commercial

product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily

constitute or imply its endorsement, recommendation, or favoring by the United States government or any

agency thereof. The views and opinions of authors expressed herein do not necessarily state or reect

those of the United States government or any agency thereof. As with the rst version of this guide, the

case studies have been provided by the program developers and have not been independently veried by

the authors or the U.S. Department of Energy (DOE).

sponsored project.

5 26 USC 136 states that subsidies from public utilities for energy conservation measures are not taxable. For example, Washington State’s

production incentive was ruled to be not income. See http://apps.leg.wa.gov/WAC/default.aspx?dispo=true&cite=458-20.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Sacramento Municipal Utility District (SMUD): SolarShares Program

SMUD’s SolarShares Program allows

customers who cannot or choose not to

acquire PV systems of their own to

purchase solar power directly from

SMUD while achieving net metering

benefits comparable to behind-the-meter

PV. SMUD buys the output of local,

community-scale photovoltaic systems

under 20-year PPAs and then resells the

solar power to participating customers.

Bill credits equivalent to the amount of

energy the customer buys from the

SolarShares system are credited to the

customer through virtual net metering

and are equivalent in value to the bill

credits received by a customer with behind-the-meter PV—i.e., full retail price per kWh. The program is

subsidized with SB16 surcharge funds, which allows SMUD to sell the power for less than the PPA

purchase price. SMUD retains the renewable energy credits and is able to count up to 25 MW of

SolarShares projects toward its 125-MW SB1 goal. SolarShares’ business goals are to make solar benefits

available to all SMUD ratepayers, to contribute to achieving SMUD’s 125-MW SB1 goal, and to gather

pricing and marketing experience that could lead to a sustainable solar enterprise for SMUD beyond the

current, mandated incentive program.

SolarShares began in mid-2008 with a 1-MW system constructed by enXco at a leased site in Wilton. The

system has thus far produced an average 1,745 MWh per year, of which about 86% has been sold to

SolarShares participants. Intensified marketing in Q4 2011 succeeded in moving the percentage sold

toward the program’s 95% goal. The program has maintained stable enrollment of around 600 customers

throughout its three-year life, with most dropouts attributable to customers moving out of the District.

Market research conducted in mid-2009 confirmed that most SolarShares customers are satisfied with the

program (75% positive responses) and would recommend it to others (85% positive responses).

6 SB1 is the California Solar Initiative, a state mandate requiring all California electric utilities to offer a 10-year program of declining incentives

for customer-sited PV. It expires at the end of 2016.

Photo from Stephen Frantz, Sacramento Municipal Utility District

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MODELS

Customers pay a fixed monthly fee, based on both their average electricity consumption and the amount

of PV to which they want to subscribe (from 0.5 to 4 kW). SMUD is exploring the marketing advantages

of changing this pricing structure to a flat fixed fee per kWh, allowing customers to purchase in packets

of 1,000 kWh/year. Once enrolled, customers are locked in at the fixed monthly fee, for as long as they

wish to participate. They receive monthly kWh credits for the estimated output of their solar subscription.

Although customers currently pay a premium for solar energy, the effective rate for solar is locked in

when they enroll, which maintains the ability of solar to act as a hedge against future price increases.

SMUD is making plans for expansion of up to 25 MW by the end of 2016. An RFP for a second

megawatt was released in Q3 2011, and the next 1-MW project is scheduled for completion in Q3 2012.

The PPA price for the second MW will be blended with the price for the original system to yield a lower

participation fee for both existing and new program subscribers. Depending on market response to the

second project, SMUD will probably seek to expand the program by larger increments in the future (the

enabling legislation caps projects at 5 MW each).

 Program Highlights

• System Owner: enXco, with SMUD purchasing 100% of the output under a 20-year PPA

• Installed Capacity: 1 MW

• Participant Agreement: Customers pay a fixed monthly fee in return for a kWh credit. Credit varies

monthly, as solar output varies, so a 12-month consecutive commitment is requested.

• Electricity: The estimated kWh generated by a customer’s share is netted against the customer’s

consumption at home, at the full retail rate.

• RECs: Retained by SMUD

• Number of Participants: Approximately 600

 Financial Details

• Installed Cost: NA

• Capital Financing: Handled by third party, enXco

• Tax Credits: 30% federal business investment tax credit taken by enXco, depreciation taken by enXco

• Estimated Annual Cost: Varies by customer size and array size. Output from a 0.5-kW share for the

small user will cost $129/year at 2012 prices. As the price for non-solar energy rises, a participant

could eventually realize monthly savings on their solar purchase.

For more information: Stephen Frantz, sfrantz@smud.org, (916) 732-5107, www.smud.org/

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Tucson Electric Power: Bright Tucson Community Solar Program

In 2011, Tucson Electric Power launched its Bright Tucson Community Solar Program to create

opportunities for customers unable to install traditional distributed solar power. Through the program,

customers have the opportunity to purchase solar power in “blocks” of 150 kWh per month. Program

participants can choose to purchase some or all of their energy through the program. Each purchased

block replaces the charges for an equivalent amount of conventional power. At current rates, the solar

block is more expensive by about two cents per kWh, but program blocks are exempt from two

surcharges applied to other electric usage. Both these surcharges are adjusted annually to reflect changing

energy costs, so the benefit of avoiding them could increase over time. The solar block rate is locked in

for 20 years under rules approved by the Arizona Corporation Commission (ACC), offering TEP

customers a way to hedge against future rate increases. While blocks purchased through the program will

still be subject to non-fuel rate changes, the blocks will not be affected by changes to the base energy rate

or renewable energy surcharges.

Tucson Electric Power offers an online solar calculator to help potential participants determine how many

blocks to purchase to offset the desired quantity of household electricity use. If the solar energy purchased

through the program exceeds actual usage during a monthly billing period, the excess is carried forward

to the next billing period as a credit. Any credit remaining after the September billing period will be paid

in full as a credit on the next bill.

Photo from Marc Romito, Tucson Electric Power

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MODELS

The first source of solar power for the Bright Tucson Community Solar Program is a 1.6-MW single-axis

tracking PV array located in The Solar Zone at the University of Arizona Science and Technology Park.

TEP is expanding the program as demand requires through utility-owned systems and power purchase

agreements. Currently, program participants have purchased 2.1 MW of community shared solar.

The following details pertain specifically to the first Bright Tucson Community Solar Program solar

source, a 1.6-MW single-axis tracking PV array, unless otherwise noted.

 Program Highlights

• System Owner: Tucson Electric Power

• System Host: University of Arizona Science and Technology Park

• Installed Capacity: 1.6-MW single-axis tracking PV array

• Participant Agreement: Customers pay a fixed monthly fee per solar block in return for a

150-kWh credit. Any credit remaining after the September billing period will be paid in full

as a credit on the next bill.

• Electricity: Each 150-kWh block replaces the charges for an equivalent amount of

conventional power at a rate that currently adds $3 per month to the customer’s electric bill.

• RECs: Retained by TEP

• Number of Participants: 564 (six are commercial; includes all program solar sources)

 Financial Details

• Installed Cost: $4/watt

• Capital Financing: Utility financed

• Tax Credits: For 1.6-MW single-axis tracking array, TEP used levelized ITC. For 2-MW

dual-axis tracking array, owner took the Treasury Grant (in lieu of ITC).

• Estimated Annual Cost: $36/year for a monthly 150-kWh block. As the price for non-solar

energy rises, participants could eventually realize monthly savings on their solar purchase.

For more information: Marc Romito, mromito@tep.com, www.tep.com/Renewable/Home/Bright

OTHER COMMUNITY SHARED SOLAR PROJECTS

United Power, CO; City of Ellensburg, WA; Florida Keys Electric Co-op, FL; Seattle City Light, WA;

St. George, UT; City of Ashland, OR; Coming Soon: San Diego Gas & Electric, CA

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

SPECIAL PURPOSE ENTITY (SPE) MODELS

To take advantage of the tax incentives available to commercial solar projects, organizers may choose to

structure a project as a business. In most states, there is a range of business entities that could be suitable

for a participant-owned community shared solar project. (Please see Appendix A for more in-depth

descriptions of these business entities.) The main challenges in adapting these commercial solar structures

for community shared projects include:

 Fully using available tax benefits when community investors have a limited tax appetite,

including a lack of passive income

 Maintaining the community project identity when engaging non-community-based

tax-motivated investors

 Working within limits on the number of unaccredited investors if the project is to be

exempt under securities laws.

OVERVIEW

When a group chooses to develop a community shared solar project as a special purpose entity, it assumes

the significant complexity of forming and running a business. The group must navigate the legal and

financial hurdles of setting up a business and raising capital, and comply with securities regulation. In

addition, it must negotiate contracts among the participant/owners, the site host and the utility; set up

legal and financial processes for sharing benefits; and manage business operations.

Given the complexity of forming a business, it is not surprising that many special purpose entities

pursuing community shared solar are organized by other existing business entities with legal and financial

savvy. Solar installation companies such as My Generation Energy in Massachusetts have successfully

created LLCs to purchase solar installations funded by groups of investors. Although this expands the

market for solar, the benefits are limited to a small group of tax-motivated investors. In an alternative

model, the Clean Energy Collective in Colorado has created a business structure under which

participation is offered to an unlimited number of utility customers.

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TAX AND FINANCE ISSUES FOR SPECIAL PURPOSE ENTITY PROJECTS

Federal income tax benefits offer significant value for solar projects, but can be challenging for

community shared projects to use effectively. Making use of tax credits or losses (from depreciation)

requires significant taxable income. Moreover, passive investors in a community shared solar project

(investors who do not take an active role in the company or its management) can only apply the ITC to

passive income tax liability. As discussed below, most investors in a community shared solar project will

likely be passive investors, and few will have passive income. As a result, most individuals cannot fully

use federal tax benefits. In this section, we describe the major limitations on using federal tax benefits and

outline potential financing structures that accommodate those limitations. However, the descriptions here

do not account for the many nuances that might apply to individual projects.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Passive Activity Rules

IRS “passive activity” rules are a major challenge for community-based renewable energy investors

trying to use federal tax benefits. In most cases, an individual’s investment in a community shared solar

project will be considered a passive investment. Passive activity rules allow tax credits or losses generated

from passive investment to be used to offset only passive income.7

Most individuals primarily have non-passive income, which includes salaries, wages, commissions, self-

employment income, taxable social security, and other retirement benefits. Non-passive income also

includes portfolio income, such as interest, dividends, annuities, or royalties not derived in the ordinary

course of a business. While portfolio income may seem passive, the IRS specifically excludes it from the

category of passive income.

Passive income can only be generated by a passive activity. There are only two sources for passive

income: a rental activity or a business in which the taxpayer does not materially participate.

“Participation” generally refers to work done in connection with an activity in which the taxpayer owns

an interest. To “materially” participate in the trade or business activity (in this case, operation of a solar

project) an individual must participate on a regular, continuous, and substantial basis in the operations of

the activity. This is a high standard that participants likely will not be able to meet. That means most

participants will be passive investors, limited to applying federal tax benefits to passive income. The

community shared solar project itself likely will not generate sufficient income to make full use of the

ITC or depreciation benefits, at least not in the early years of a project. Therefore, a project intending to

rely on federal tax benefits will have to seek participation of an investor with a larger tax appetite.

At-Risk Limitations

In addition to passive activity rules, at-risk rules limit the amount of losses one can claim from most

activities. Specifically, one can only claim losses equivalent to one’s amount of risk in the activity. The

“at-risk” amount generally is the amount of cash and property one contributes to the activity. In addition,

any amount borrowed for use in the activity is at-risk, as long as the borrower is personally liable for

repayment of the loan or the loan is secured with property not used for the activity. Money contributed

from a non-recourse loan is not considered “at-risk.”

7 For a list of IRS material participation tests and other details about passive activity and at-risk rules, see IRS Publication 925, available at:

www.irs.gov/pub/irs-pdf/p925.pdf.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT

MODELS

Securities Regulation

Securities regulations are a major factor in financing structures for the SPE model. To reduce the burden

of securities compliance, many small projects seek a private placement exemption to registration

requirements. Qualifying for such an exemption requires limiting who can invest in the project (based on

assets or income for individuals) and how such an offering can be conducted. The practical effect is to

limit the number of middle-income individuals who can invest in a community shared solar project. If a

project is designed to produce electricity proportional to the amount used by the participants, securities

issues will effectively limit the size of a project. For example, private placement exemption limits the

number of “unaccredited” investors to 35 or fewer.8 A 1-MW solar facility, in contrast, could serve far

more participants, perhaps 300 to 500. Therefore, project developers must carefully consider how to

reconcile their financing mechanism with the size of their project, the number of participants, and type of

participants.

Potential Financing Structures

Special purpose entities need to plan their financing structures carefully. Structures that effectively use

the ITC can be complex and tend to mimic the structures used by larger commercial solar projects. For a

community SPE, potential financing structures that maximize federal tax incentives include:

 Self-financing: This is the simplest option for a community SPE is to finance the project with equity

invested by community members. However, in order to fully use federal tax benefits, the SPE needs

to have enough community investors that have sufficient tax appetite to use federal tax incentives.

Given the passive loss rules and the at-risk limitations discussed above, this is not a realistic goal for

community groups consisting of individuals who lack other sources of passive income. That means

the project organizers will likely have to make the project economically viable without full use of

federal tax incentives (difficult without aid from a state or local incentive of similar value), or will

have to use one of the more complex structures such as a flip or a sale/leaseback (described below).

This need not take away from the community ownership, if the project can find even one community

member with the financial resources and tax appetite to participate as the primary tax investor.

 Flip Structure: In this scenario, the community SPE partners with a tax-motivated investor in a new

special purpose entity that owns and operates the project. Initially, most of the equity comes from the

tax investor and most of the benefit (as much as 99%) would flow to the tax investor. When the tax

investor has fully monetized the tax benefits and achieved an agreed-upon rate of return, the

allocation of benefits and majority ownership (95%) would “flip” to the community SPE (but not

within the first five years). After the flip, the community SPE has the option to buy out all or most of

the tax investor’s interest in the project at the fair market value of the tax investor’s remaining

interest. Note that the numbers provided here reflect IRS guidelines on flip structures issued for wind

projects claiming the federal production tax credit. Similar rules potentially could apply to solar

projects claiming the ITC.

8 To be considered an accredited investor, an individual must have either: 1) a net worth of more than $1 million or 2) an annual income of

$200,000 ($300,000 jointly with a spouse) in each of the most recent two years and a reasonable expectation of having the same income level

in the current year.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

 Sale/Leaseback: In this scenario, the community SPE (as the developer of the project, the site host,

or both) installs the PV system, sells it to a tax investor and then leases it back. As the lessee, the

community SPE is responsible for operating and maintaining the solar system and has the right to

sell or use the power. In exchange for use of the solar system, the community lessee makes lease

payments to the tax investor (the lessor). The tax investor has rights to federal tax benefits generated

by the project and the lease payments. The community SPE may have the option to buy back the

project at 100% fair market value after the tax benefits are exhausted.

There are numerous complex legal, financial, and tax issues associated with all of these financing

structures. These descriptions do not cover these issues completely. For more information on financing

structures, see Section 7, Resources.

EXAMPLES OF SPECIAL PURPOSE ENTITY PROJECTS

The following examples represent two possible approaches: a volunteer-led LLC and a business

enterprise that partners with utilities to deliver solar to customers. These special purpose entities are

structured as LLCs. Although there has been much interest in the possibility of structuring a community

shared solar enterprise as a cooperative (co-op), in fact, co-ops are not exempt from the complex

securities issues and project organizers have tended to choose to do business as LLCs.9 Several rural

electric co-ops that deliver electricity to customer/members have started community shared solar

programs, but the programs are peripheral to the function as consumer co-ops for the distribution of

electricity. As in the previous edition of this guide, the descriptions of the programs in the following

pages have been provided by the program sponsors or developers and have not been independently

verified by the authors or by DOE.

9 Tangerine Power, LLC, based in Washington State has created a business model for a solar power co-op and has launched the Edmonds

Community Solar Cooperative.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT

MODELS

University Park Community Solar LLC, Maryland

The volunteer founders of University Park

Community Solar spent more than two

years crafting the legal and financial

aspects of their business model. With

expert consultation, including help from a

state senator to change the Maryland net

metering law, the volunteers formed a

member-managed LLC that will return

their investment in five to six years. Within

the group, there are both active and passive

investors.

A 22-kW system was installed on the roof

of a local church in May 2010. The LLC

will pass benefits to its members based on

revenue from several sources: electricity

sold to the church and grid, the auction of RECs, federal tax incentives, and depreciation. The LLC and

the Church signed a 20-year agreement detailing the provision of electricity, access to the solar array,

maintenance, insurance, and other issues. The host has an option to purchase the system before the 20-

year term is up.

To assist in establishing the LLC, the group received pro bono help from the Maryland Intellectual

Property Legal Resource Center and paid approximately $12,000 for other legal and accounting expertise.

The founders note that initial accounting and legal fees could overwhelm any return to members. Going

forward, they plan to handle the accounting and tax paperwork in house as much as possible.

The LLC organizers were careful to obtain legal advice on how to gain an exemption from state and

federal SEC filing requirements. The organizers are not all “accredited” investors. In addition, the

organizers were required to create lengthy disclosure documents to ensure that investors were fully

informed of the risks. Their attorneys advised them to pursue an exemption that restricted them in several

aspects, including having fewer than 35 unaccredited investors, keeping the offering private, and limiting

membership within the state of Maryland. See Section 5, Securities Compliance, for information about

securities compliance and private placement exemptions.

Photo from David Brosch, University Park Community Solar, LLC

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Project founders are looking to expand the model beyond the first site. Additional host sites in Maryland

and other states are being explored, including schools, nonprofits, and places of worship. Furthermore, the

LLC has offered to share legal and accounting documents with groups around the nation to facilitate the

model’s replication. The first successful replication was completed in December 2011 by Greenbelt

Community Solar, LLC in Greenbelt, Maryland.

 Program Highlights

• System Owner: University Park Community Solar, LLC

• System Host: Church of the Brethren, University Park, MD

• Installed Capacity: 22 kW

• Participant Agreement: LLC passes net revenues (after expenses) and tax credits to members

• Electricity: LLC sells power to the church below retail rate; rate escalates approximately 3.5%/year;

church net meters and annual net excess generation is compensated by the utility

• RECs: LLC is working to auction RECs independently

• Number of Participants: 35 LLC Members

 Financial Details

• Installed Cost: $5.90/watt

• Capital Financing: Project financed with member investments

• Tax Credits: $39,000 ITC (taken as the 1603 Treasury Grant in lieu of a tax credit)

• Grants: $10,000 from state of MD

• MACRS: Will depreciate 85% of cost over six years

• Annual Income from Power Sales: $3,300 in the first year, rising 3.5%/year

• Estimated Annual Income from REC Sales: $7,000 (28 RECs at $250 per MWh)

For more information: David Brosch, davidcbrosch@comcast.net, (301) 779-3168,

www.universityparksolar.com

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MODELS

Clean Energy Collective, LLC, Colorado

The Clean Energy Collective (CEC) provides a member-owned model that enables individuals to directly

own panels in a community shared solar farm. The CEC works closely with local utilities to create

community-scale solar projects that combine the on-bill credits of a utility-owned project with the

equivalent tax benefits and rebates of an individually owned solar project. While the 30% investment tax

credit is not directly available to individuals who participate in the project, the cost to participate is

adjusted to reflect the value of the tax credits. For projects initiated in 2011 or earlier, the CEC took the

1603 Treasury Grant, instead of the ITC, as the initial owner of the array. Portions of the array were then

sold to customers at discounted costs (reducing the cost by the proportioned Treasury Grant amount).

Customers could not take a tax credit on their purchase because the grant had been taken by the CEC.

Both parties are subject to recapture over the first five years if the resulting system is then sold to a

disqualified or non-taxpaying entity. Creating this proprietary project model, with ownership, tax and

legal considerations, proved challenging.

When individuals purchase panels in the solar farm, the utility credits them for the electricity produced at

or above the retail rate using the CEC’s RemoteMeter™ software system. The purchase price is as low as

$535, depending on location, available rebates, and RECs. For example, in the first project, CEC sold the

rights to all future RECs up front on a per-watt basis, offsetting a portion of the installed cost. The

benefits of ownership are transferable. If an owner moves within the service territory, the bill credits

follow them; if an owner moves out of the territory, the owner can resell ownership to another utility

customer or back to the CEC at fair market value, or donate the property to a nonprofit.

Photo from Lauren Suhrbier, The Clean Energy Collective, LLC

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

The owners must be customers of the electric utility in which the community array is located and their

purchase is limited to the number of panels they need to offset 120% of their yearly electric use. These rules

ensure that benefits directly accrue to the local utility customers rather than outside investors. The CEC is

the management company representing the community owners and maintaining the solar arrays. In order to

provide “utility-grade” long-term power to the utility, a percentage of the monthly power credit value and

the initial sale price goes toward funding insurance, operations, and maintenance escrows.

The first CEC project is a 78-kW array in the Holy Cross Energy service territory. The CEC leased the

land, sold the project to customers, and negotiated a PPA with Holy Cross Energy. The PPA rate paid by

Holy Cross will escalate as regular utility rates increase. CEC’s RemoteMeter™ system automatically

calculates monthly bill credits for customer accounts and integrates directly with the utility’s billing

system to apply the credits.

In 2011, the CEC completed three more projects, bringing its installed project portfolio to 2.5 MW.

 Project Highlights – First Project: Mid Valley Metro Solar Array

• System Owner: Individuals and businesses in Holy Cross Energy utility territory

• System Host: CEC leases site from the Mid Valley Metropolitan District

• Installed Capacity: 78 kW

• Participant Agreement: Minimum $725 purchase (a single panel after rebates and incentives).

Panel owners receive monthly credits for the value of the electricity produced for 50 years.

• Electricity: CEC, as agent for its customers, has a PPA with Holy Cross Energy to purchase the

power produced. Customers receive the resulting monetary credit on their monthly electric bill.

• RECs: Holy Cross Energy purchased rights to RECs for $500/kW installed (paid up front).

• Number of Participants: 18 customers

 Financial Details – First Project

• Installed Cost: $466,000 or $6/watt (Cost to customers: $3.15/watt, includes all rebates, RECs and

credits taken by the CEC)

• Capital Financing: Project built with internal CEC private capital, which is paid back as individuals

buy in to the project

• Federal Tax Credit: CEC takes the 1603 Treasury Grant and passes the savings to the customer

• Rebates: $1/watt plus $0.50/watt for rights to the RECs from Holy Cross Energy

• Estimated Annual Income from Power Sales: $15,444 ($198/kW), rising as regular rates rise

• Simple Payback: 13.1 years

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MODELS

 Project Highlights – Subsequent Three Projects

• System Owner: Individuals, businesses, and educational institutions in various Colorado

utility territories

• System Host: CEC leases sites from government and private entities

• Installed Capacity: 858 kW, 1.1 MW, and 498 kW

• Participant Agreement: Minimum purchase ranges from $535 to $756 (a single panel after rebates

and incentives). Panel owners receive monthly credits for the value of the electricity produced.

• Electricity: CEC, as agent for its customers, has a PPA with the utility to purchase the power

produced, or has an established rate tariff. Customers receive the resulting monetary credit on their

monthly electric bill.

• RECs: Utilities purchased rights to RECs for $500/kW installed (paid up front).

• Number of Participants: 400, 500, and 200

 Financing Details – Subsequent Three Projects

• Installed Cost: $6/watt, $6/watt, $5.30/watt (cost to customers as low as $3/W includes all rebates,

RECs and credits taken by the CEC)

• Capital Financing: Projects built with bridge loan financing from JP Morgan Chase and internal

CEC private capital

• Federal Tax Credit: CEC takes the 1603 Treasury Grant and passes the savings to the customer

• Rebates: $1.25/watt to $1.58/watt, including up-front sale of RECs

• Estimated Annual Income from Power Sales: $172,000, $220,000 and $78,300. Rising as regular

rates rise

• Simple Payback: 12.5 to 15.5 years

For more information: Lauren Suhrbier, Lauren@easycleanenergy.com, (970) 319-3939,

www.easycleanenergy.com

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Island Community Solar, LLC, Washington

Inspired by the passage of Washington State’s

generous production incentive for community

shared solar projects (WAC 458-20-273), a group

of solar enthusiasts developed a project in their

community on Whidbey Island, Washington.

Working closely with the local Port District and

the utility, Puget Sound Energy, they developed a

one-acre “P-Patch” for solar farmers on Port

property at Greenbank Farm. The P-Patch consists

of six separately metered plots, each capable of

hosting approximately 25 kW of ground mounted

solar panels. The solar farmers pay rent to the Port

and sell power directly to the grid. When the acre

is fully built out, it will generate almost enough to

match the on-site annual consumption.

In order to capture the investment tax credit, the Whidbey Island group chose to form an LLC, Island

Community Solar (ICS). ICS obtained exemption from securities filing requirements under the Federal

Intrastate Offering Exemption (Rule 147) and a Washington Small Offering Exemption (WAC 460-44A-

504), which prohibits advertising and limits the number of unaccredited investors. After preparing

extensive disclosure documents, ICS raised $430,000 from 36 local members. ICS built 50 kW in two

phases, completing the installation in January 2012.

ICS projects a positive return on investment over the ten year lease period. The 1603 Treasury Grant

enabled the LLC to monetize the investment tax credit. Although most members do not have sufficient

tax appetite to use the passive losses from depreciation, they will earn a return from the state production

incentive and power sales to the utility.

It may be difficult to replicate or expand this project without policy changes. The expiration of the 1603

Treasury Grant makes it unlikely that the members will be able to monetize future tax credits, because

most lack the tax appetite. The sunset of the Washington State production incentive in June 2020 means

that every subsequent project has a shorter window of opportunity to earn incentives. Finally, the avoided

cost of the power generated is dropping. The utility’s PPA rates for 2012 are lower than in 2011, due to

many factors including downward pressure on electric prices from an abundance of natural gas, and the

discarding of an assumed future cost for carbon.

Photo from Linda Irvine, Island Community Solar LLC

SECTION 2: COMMUNITY SHARED SOLAR PROJECT

MODELS

 Project Highlights

• System Owner: Island Community Solar, LLC

• System Host: Port of Coupeville’s Greenbank Farm

• Installed Capacity: 50 kW; estimated Production: 52,930 kWh/year

• Participant Agreement: Members receive distributions, profits, and losses in proportion

to capital contributions; passive loss limitations apply.

• Electricity: Sold to the utility through a 10 year PPA, escalating 2.5% annually

• RECs: Retained by the owner; no market for solar RECs in WA

• Number of Participants: 36

 Financial Details

• Installed Cost: $410,000 installation; $8,000 legal; $5,400/year insurance

• Capital Financing: 100% owner equity

• Federal Tax Credit: $123,000 1603 Treasury Grant

• Incentives: Production Incentive of $1.08/kWh until June 30, 2020

• Estimated Annual Income: $56,840 (production incentive); $4,128 (power sales)

• Estimated Annual Expenses: $10,000

• Simple Payback: 7.2 years

For more information: Linda Irvine, linda@nwseed.org, www.nwseed.org

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

NONPROFIT MODEL

Nonprofits may engage with community

shared solar projects in at least two ways:

they may organize and administer a

community shared solar project that shares

benefits with participating members or they

may solicit donations for a solar project.

While this second option is not strictly

“community shared solar,” in that the donors

do not share directly in the benefits of the

solar installation, the donors do share indirectly, by lowering energy costs for their favored nonprofit and

demonstrating environmental leadership. In addition, with emerging state policies such as virtual net

metering and group billing, there may be possibilities for nonprofit project sponsors to share benefits with

their donor/members. In a variation on nonprofit ownership, a nonprofit may partner with a third-party

for-profit entity, which can own and install the system and take the tax benefits. This model has been

deployed successfully in the California Multifamily Affordable Housing program and at other nonprofit

locations throughout the country.10

OVERVIEW

Nonprofit organizations such as schools and churches are partnering with local citizens to develop

community shared solar projects. Under this model, supporters of the nonprofit organization help finance

the system through tax-deductible donations or direct investment in the project. The second option

requires that the nonprofit comply with state and federal securities regulations. While the nonprofit is not

eligible for the federal commercial ITC, it may be eligible for grants or other sources of foundation

funding that would not otherwise be available to a business. An example of this model is the “Solar for

Sakai” project on Bainbridge Island, Washington, in which a community nonprofit raised donations for a

solar installation, and in turn, donated the installation to a local school.

10 The Portland Habilitation Center Northwest, a nonprofit organization, partnered with U.S. Bancorp Community Development Corporation,

which will own and finance an 870 kW system to provide energy to the nonprofit.

If a nonprofit were to return some benefit

to donors, (for example, a portion of

production incentives or a share of

electric savings) this would constitute a

“quid pro quo” contribution and the donor

could not deduct their entire contribution.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT

MODELS

TAX AND FINANCE ISSUES FOR NONPROFIT PROJECTS

As non-taxpaying entities, nonprofit organizations typically are not eligible for tax incentives. However,

donors to a nonprofit project can receive a tax benefit in the form of a tax deduction. The IRS allows

taxpayers who itemize deductions to deduct verifiable charitable contributions made to qualified

organizations. Of course, a tax deduction is much less valuable than a tax credit. For example, a $100 tax

credit reduces taxes owed by $100 while a $100 tax deduction reduces taxes owed by $25 for a taxpayer

in the 25% federal bracket.

Donors can deduct their contributions to a community shared solar project if the project sponsor obtains tax-

exempt status as a charitable organization under the Internal Revenue Code (26 U.S.C. § 501(c)(3)). Section

501(c)(3) organizations must be organized and operated exclusively for exempt purposes such as charitable,

religious, educational, or scientific purposes. Section 501(c)(3) organizations may not be operated for the

benefit of private interests and are restricted in how much time they can devote to lobbying activities. The

Application for Recognition of Exemption under Section 501(c)(3) is IRS Form 1023.

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Winthrop Community Solar Project, Washington

Following the 2010 launch of Okanogan

County Electric Cooperative’s (OCEC)

first community shared solar project, co-

op members who had been unable to

participate were eager to develop another

community shared solar project.

Project design and management was

handled by Energy Solutions, who

solicited the Town of Winthrop as project

host and the Partnership for a Sustainable

Methow (PSM) as project administrator.

As a nonprofit with a mission to initiate,

encourage, and support activities that

foster long-term sustainability and

wellbeing in the Methow Valley

community, PSM was eligible for a Nonprofit Notification of Claim of Exemption from the Washington

State Division of Securities. This exemption allowed PSM to offer ownership in the community shared

solar project to members, contributors, or participants in the organization, or to relatives of community

members. In early 2011, the opportunity to participate was announced through local press, radio, and the

PSM website. Applications were processed on a first come, first served basis, ultimately attracting 49

investors to fully fund the community shared solar project in just six weeks. Investment levels ranged

from $500 to $15,000, with investors participating at all levels.

Participating investors were not eligible to claim the 30% federal investment tax credit, which is

unavailable to nonprofits and other entities that do not pay taxes. However, the high state production

incentive for community shared solar projects using Washington-made materials partially made up for the

loss of the tax credit. When the production incentive expires in June 2020, project ownership will be

transferred to the Town of Winthrop.

 Program Highlights

• System Owner: Participating OCEC members

• System Administrator: Partnership for a Sustainable Methow

• System Host: Town of Winthrop

• Installed Capacity: 22.8-kW ground mounted array

• Participant Agreement: Ownership purchased in $500 increments up to $15,000. Investors sign an

ownership contract with PSM, which receives owners’ investments, pays bills, and distributes

production incentive to owners through June 2020. System ownership will then transfer to the

project host, the Town of Winthrop.

Photo from Ellen Lamiman, Energy Solutions

SECTION 2: COMMUNITY SHARED SOLAR PROJECT

MODELS

• Electricity: Net metering benefits accrue to Town of Winthrop (host), production incentive benefits

accrue to participating OCEC members (owners)

• RECs: Remain with participating OCEC members

• Number of Participants: 49 investors

 Financial Details

• Installed Cost: $200,000 or $8.77/watt (cost to investors $9.64/watt, includes insurance,

bookkeeping, and administration costs)

• Capital Financing: Project financed with owner investments, secured prior to construction

• Tax Credits: None; federal tax credit cannot be claimed if project is not a business venture or is not

placed on an owner’s residential property.

• Grants: None

• Rebates: None

• Estimated Annual Payment to Participants: $72 per $500 of investment

• Estimated ROI: 30% by June 2020

For more information: Ellen Lamiman, elamiman@silicon-energy.com, (425) 320-6063,

www.sustainablemethow.net

SECTION 2: COMMUNITY SHARED SOLAR PROJECT MODELS

Photo from Joe Deets, Community Energy Solutions

Solar for Sakai, Bainbridge Island, Washington

Community Energy Solutions, a nonprofit organization on Bainbridge Island, Washington, led the effort

to raise funds for a solar installation at Sakai Intermediate School. Twenty-six community organizations

or individuals made tax-deductible donations to Community Energy Solutions. The school owns the PV

system and all of the resulting power and environmental attributes.

 Program Highlights

• System Owner: Sakai Intermediate School

• Installed Capacity: 5.1 kW

• Electricity: Net metered

 Financial Details

• Installed Cost: $50,000 or $9.80/watt (not including energy curriculum and monitoring)

• Grants: $25,000 from utility (Puget Sound Energy)

• Donations: $30,000 through Community Energy Solutions

• Production Incentive: $0.15/kWh from state of WA

SECTION 2: COMMUNITY SHARED SOLAR PROJECT

MODELS

SUMMARY OF BENEFIT ALLOCATION OPTIONS BY MODEL

As evidenced by the examples above, there are many options for allocating the benefits of community

shared solar within each sponsorship model. The following chart summarizes the most common options.

Utility Special Purpose Entity Nonprofit

Electricity from

Solar System

• Participants receive an

estimated or actual kWh

credit for their portion of

project (virtual net

metering)

• Participants receive a

monetary credit for the

value of production for

their portion of the project

• SPE sells the electricity to

the utility (PPA)

• SPE sells the electricity to

the system host (SSA)

• SPE assigns kWh to utility

accounts per agreement

with utility (virtual net

metering)

• Electricity from the system

is netted against SPE

members’ group bill

• Nonprofit owner uses

on-site and net meters

• Nonprofit owner assigns

to utility accounts per

agreement with utility

(virtual net metering)

• Electricity from the

system is netted against

a group bill

Renewable

Energy

Credits

• Assigned to participants

• Retired on participants’

behalf

• Retained by the utility

• Rights to RECs sold

up front

• RECs sold on an

ongoing basis

• Retained for participants

• Rights to RECs sold

up front

• RECs sold on an

ongoing basis

• Retained for nonprofit

Federal Tax

Credits and

Deductions

• Neither the commercial

ITC nor the residential

renewable energy tax

credit is available to

participants

• If the utility has a tax

appetite, it may use the

commercial ITC

• Normalization accounting

rules will impact the value

of the ITC for regulated

utilities

• SPE can pass benefits of

Commercial ITC through to

participants

• Only of use if participants

have a tax appetite for

passive income offsets

• Project donors can deduct

the donation on their taxes

• Nonprofits are not eligible

for federal tax credits

Accelerated

Depreciation

(MACRS)

• Not available to

participants

• An investor-owned utility

may be able to use

MACRS, provided they

own the system

• To qualify for MACRS,

regulated utilities must use

normalization accounting

• SPE passes depreciation

benefits through to the

participants, subject to

passive activity rules

• Not useful to nonprofits

State and

Utility Rebates

and Incentives

• Utility may qualify and use

rebates/incentives to buy

down the project costs;

benefits are indirectly

passed on to participants

• SPE may qualify and use

rebates/incentives to buy

down the project costs or

pass through to participants

• Nonprofit may qualify and

use rebates/incentives to

buy down the project costs

SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SHARED SOLAR

Over the last several years, a number of states have expanded their successful on-site solar programs by

instituting policies that encourage innovative community shared solar programs. While each of these state

programs varies considerably, a number of themes are emerging. For example, all of the current state-

level programs require the solar array and the group members to be located within the same utility service

territory. Other requirements to participate in “group” ownership benefits vary, but may include a cap on

system size, proof of partial ownership, or limits on the type of ratepayers that can participate. Billing

methods also vary; some programs offer one aggregate bill for the entire group, whereas others assign a

pro-rated monetary credit on each member’s bill.

State-level community shared solar policies can be grouped based on how the benefits of community

shared solar are distributed. In general, there are three broad categories: group billing, virtual net

metering, and joint ownership.

GROUP BILLING

Group billing arrangements operate much like master metering in a multi-unit residential or commercial

building. Under master metering, a landlord receives a single electric bill for all electricity usage within a

building, including tenant load. The landlord then determines how to assign energy costs to individual

tenants taking into account tenant leases. Group billing for community shared solar projects works in a

similar way, except that participants do not need to reside in a single building. First, a utility produces a

group bill showing all participants’ energy consumption and relevant charges. Then, output from a shared

PV system is netted against the group bill. The remaining costs are allocated to participants according to

an agreement between the participants. Under this framework, group billing allows multiple participants

to receive net metering credits from a single renewable energy facility.

LOCAL FLAVOR

In Vermont, two well-known residents, Ben and Jerry, (the ice cream guys) decided to

share the benefits of one solar installation on a shared electric bill. They hired

AllEarthRenewables to build a solar array on Ben’s guesthouse and informed their

electric utility that the output of the installation should be netted against the combined

consumption of both Ben’s and Jerry’s homes, in one bill. The solar panels offset all of

the energy consumption at the guesthouse, and the remainder of the energy is applied

toward offsetting the combined use of Ben and Jerry’s homes. They get one electric bill,

and split the offset 50/50. They don’t have a formal contract, but it works because they

are good pals with a long history of working together.

Emerging State Policies to Support Community Shared Solar

SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SHARED SOLAR

A drawback to group billing is that a customer representative must serve as a point of contact and an

intermediary between a group of participants and a utility. The customer representative takes on tasks,

such as billing and dispute resolution, that expose the representative to administrative burdens. This

framework may also raise concerns regarding the creditworthiness of a customer representative.

Vermont has expanded its net metering program to allow group billing for shared systems and this

expansion has proven very popular.11 In the service territories of Vermont’s two largest utilities, Green

Mountain Power and Central Vermont Public Service territory, over 22 groups have formed to share in

the output of a renewable energy system with system sizes ranging from 1.5 to 199 kW. Vermont’s

program is not limited to solar energy systems. Any eligible renewable energy resource within Vermont’s

net metering program, including wind, small hydro, and biomethane can be installed under a group billing

arrangement. In 2011, Vermont doubled the capacity limit for net metered systems, including group net

metered systems, to 500 kW.12

VIRTUAL NET METERING

Community shared renewables programs in Colorado, Delaware, Massachusetts, and California rely on

virtual net metering to distribute economic benefits from a shared solar energy system. Similar to group

billing, virtual net metering allows net metering credits generated by a single renewable system to offset

load at multiple retail electric accounts within a utility’s service territory. As with traditional net metering,

credits appear on each individual customer’s bill.

Colorado has implemented one of the most publicized and recognized community shared solar programs

using virtual net metering, which it calls Community Solar Gardens. Colorado has allowed jointly owned

systems (discussed below) for quite some time, although it has not formulated detailed program rules to

support joint ownership. In 2010, Colorado authorized the Community Solar Gardens program under a

subscription-based model.13 In 2011, the Colorado Public Utilities Commission implemented rules

governing the program.14 The rules allow for substantial flexibility with regard to the structure of the

Community Solar Garden entity. Regarding the virtual net metering component, the Community Solar

Gardens program values a solar garden subscriber’s bill credit according to the subscriber’s “total

aggregate retail rate,” less a “reasonable charge” to account for the delivery, integration, and

administration costs of the program. Stakeholders continue to discuss the calculation of the bill credit in

another docket at the Commission (11A-418E) as part of the Commission’s approval of Xcel Energy’s

2012 Renewable Energy Standard Compliance Plan.

Unlike Colorado’s program, Delaware’s community shared program is open to any eligible renewable

energy resource—solar, wind, ocean, geothermal, biogas, and small hydro—within Delaware’s net

metering program. Delaware passed the bill permitting the program in July 2010 and the Delaware Public

11 See Vermont Public Service Board Rule 5.100, available at:

www.psb.vermont.gov/sites/psb/files/rules/OfficialAdoptedRules/5100adoptedrule_2.pdf.

12 Vermont Energy Act of 2011, H. 56, 30 V.S.A. 219a(a)(3)(A), available at: www.leg.state.vt.us/docs/2012/bills/Passed/H-056.pdf.

13 See Colorado House Bill 10-1342, available at: www.leg.state.co.us/ .

14 4 C.C.R. 723-3 Rule 3664, available at: www.dora.state.co.us/puc/rules/723-3.pdf.

SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SHARED SOLAR

Service Commission followed up with rules in June 2011.15 Delaware’s community shared renewables

program allows community systems to be behind a customer’s meter or off site. The value of the virtual

net metering credit depends on whether or not a customer is on the same distribution feeder as the facility.

If the customer is on the same distribution feeder as the facility, the credit is essentially valued at the

customer’s full retail rate. If it is not, the credit is essentially a generation-only credit. In other respects,

Delaware’s program structure is identical to the Community Renewables Model Program Rules,

developed by the Interstate Renewable Energy Council (Appendix B).

Under Massachusetts’ virtual net metering program, there are two avenues of participation:

1. A “neighborhood net metering” program allows neighborhood facilities to serve the energy needs

of at least ten residential customers in a neighborhood group.

2. An alternative program allows participating net metered systems to allocate monthly excess

generation to one or more customers within a distribution company’s service territory.

Under Massachusetts’ neighborhood net metering program, a renewable energy system must be behind a

participating customer’s meter. However, only a minimal amount of load needs to be present on site. In

fact, even “parasitic” load needed to run a facility is allowed to count toward meeting on-site load

requirements. Kilowatt-hour credits generated by a renewable energy system are allocated to participating

customer accounts by the participating utility. Utilities are not required to include the distribution

component of participants’ applicable retail rate within neighborhood net metering credits.

Under an alternative program, and contrasting what is typically seen in net metering, Massachusetts

allows any customer with a net-metered system to allocate credits associated with monthly excess

generation from a system to other customers of the same distribution company. Customers designated by

the owner of the net-metered system receive a net metering credit that reflects the host customer’s fully

bundled retail rate. The net metering credit offered to designated customers is calculated using the retail

rate of the host customer (cents per kWh), multiplied by the allocation of kWh for the designated

customer. While on-site load must be present where the net-metered system is installed, as with

neighborhood net metering rules, parasitic load qualifies as on-site load. This alternative program is very

flexible in who can participate and offers a more financially attractive net metering credit than the

neighborhood net metering program.

15 S.B. 267, An Act to Amend Title 26 of the Delaware Code Relating to Net Energy Metering, July, 2010.

www.legis.delaware.gov/LIS/LIS145.NSF/db0bad0e2af0bf31852568a5005f0f58/f17ba623105f222b8525774500765d6e?OpenDocument;

DE PSC, Order No. 7984, June, 2011. www.depsc.delaware.gov/orders/7984.pdf.

SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SHARED SOLAR

The California Public Utilities Commission recently expanded the availability of virtual net metering in

California to all multitenant buildings in the state. Up until this expansion, under California’s Multifamily

Affordable Solar Housing (MASH) program, residents of multifamily, low-income complexes, such as

the SDCHC townhomes in San Diego, have been allowed to receive bill credits from a single on-site PV

system.16 The building owner allocates net metering credits to individual tenants and a building’s

common load. Virtual net metering allows the building owner to avoid building a separate solar energy

system with a separate inverter for each tenant, which saves considerable funds. According to a program

report issued in August 2011, 325 projects are eligible for participation in the MASH program

representing over 20 MW of capacity.17 In July 2011, the Commission expanded the types of customers

eligible for virtual net metering to tenants in any multi-tenant or multi-meter property—not just

affordable housing properties. In addition, the Commission allowed for virtual net metering credits to

be shared throughout an entire affordable housing property, as long as that property is on contiguous

parcels and under common ownership.18 This change opens virtual net metering to a much broader

group of customers and signals a significant expansion in California’s net metering program.

16 See Multifamily Affordable Solar Housing Semiannual Report, available at:

www.cpuc.ca.gov/NR/rdonlyres/B3644285-F573-428F-AA0A-A2497A30401B/0/MASHSemiAnnualReport.pdf.

17 See California Solar Initiative Low-Income Solar Program Evaluation, available at:

www.cpuc.ca.gov/NR/rdonlyres/13AAEDF8-BB7D-4FBD-AC05-3FC2B9CBF746/0/CSISASH_MASHImpact_and_Cost_Benefit_Report.pdf .

18 See California Solar Initiative Phase One Modifications, Decision 11-07-031, Rulemaking 10-05-004, available at:

www.docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/139683.pdf .

SOLAR FOR ALL

The nonprofit San Diego Community Housing Corporation (SDCHC) partnered with a third

party, Everyday Energy, to put a 20-kW system on its Hacienda Townhomes property.

Everyday Energy installed and owns the system on the 52-unit apartment building, taking

advantage of the tax benefits that are not available to the nonprofit Housing Corp. SDCHC

signed a 20-year solar services agreement with Everyday Energy under which they will

pay a flat fee to cover maintenance and electric services from the installation. An electric

meter measures the energy flow directly to the grid, and the utility (San Diego Gas &

Electric) credits the tenants and common areas as directed in the Virtual Net Metering

agreement. Residents will save a projected 30% on their electric bills.

SECTION 3: EMERGING STATE POLICIES TO SUPPORT COMMUNITY SHARED SOLAR

JOINT OWNERSHIP

Following the precedent set by successful community shared wind programs, a few states are exploring

options for distributing the benefits of participating in a community shared renewable energy program

through frameworks similar to wholesale power sale arrangements. The community shared wind

movement was motivated, in part, by a desire to promote rural development through expanded citizen

investment opportunities. By allowing citizens to “piggyback” their projects onto larger wind projects,

communities could benefit from economies of scale. This history led to a primary difference between the

emergence of community shared solar and wind: Community shared wind uses a technology that began as

utility-scale application and moved into smaller scale applications. In contrast, community shared solar

uses a technology that began with on-site systems and applies it to larger solutions.

Maine’s Community-Based Renewable Energy Pilot Program law19 allows “locally owned electricity

generating facilities” with at least 51% ownership by “qualifying local owners” to elect one of two

incentive mechanisms. Under the first, qualifying local owners can enter into a long-term contract to sell

output from a facility to a transmission and distribution utility. The contract price for energy may vary

over the course of a year, but the average price, weighted based on the expected output of a facility, may

not exceed $0.10 per kWh. This price only includes the value of a power sale and does not include a

purchase of RECs. A significant downside of this approach is that a payment for power sales to a

wholesale or retail purchaser results in taxable income at a federal level and possibly at a state level.

Depending on the tax bracket a particular customer faces, the taxation of payments for power sales can

significantly decrease the size of benefits available to participating customers.

Under Maine’s second incentive option, generation is virtually net metered to joint owners in proportion

to the owners’ stake in a system. For example, a 50% owner would receive 50% of the net metering

credits generated by a system though virtual net metering.

Washington’s community solar rules allow for ownership of community shared solar projects up to 75

kW that are either jointly owned by individuals, businesses, and nonprofits or owned by a utility and

voluntarily funded by the utility’s ratepayers. Participants receive production incentives based on their

proportional share of the output of a project. In addition, in the case of utility-owned projects, participants

receive the value of the electricity. Washington’s community solar incentives are among the most

generous in the world if projects use inverters and modules made in Washington. For such systems, the

production incentive is set at $1.08 per kWh through June 2020, but is subject to dilution if incentive

payments exceed 0.5% of utility gross revenue in a given year.

19 See An Act To Establish the Community-based Renewable Energy Pilot Program, available at:

www.mainelegislature.org/legis/bills/bills_124th/chapters/PUBLIC329.asp.

SECTION 4: TAX POLICIES AND INCENTIVES

Federal tax incentives for solar systems are

especially valuable and tend to be a primary

driver in the design of project structures and

financing strategies. This section introduces

some state and federal tax policies that

impact community shared solar projects, as

well as other federal financial incentives in

the form of grants, bonds, and loans. For

details on tax issues specific to each

ownership model, see Section 2,

Community Shared Solar Project Models.

Federal tax incentives provide significant support to solar projects, offsetting approximately 56% of the

installed cost of a commercially owned PV system and 30% of a residential installation.20 However,

community shared solar project designers should be aware that federal tax incentives were developed with

either individually owned residential installations or commercially owned projects in mind. Community-

scale projects do not fit squarely into either category, which makes it challenging to design projects that

can make use of either the residential or commercial tax credits. For example, the residential Renewable

Energy Tax Credit is not available to community shared solar projects because it only applies to taxpayers

who install a solar system on their own residences.

Proposed legislation at the federal level could make it easier to use tax credits for community shared

solar. Senator Mark Udall (CO) proposed the SUN Act 2011, which would allow individuals to claim the

residential tax credit when purchasing solar panels in a community shared solar project. For more

information and updates, see Senator Udall’s website: www.markudall.senate.gov/.

Tax incentives vary widely, depending on the status of the project sponsor. For example, investor-owned

utilities are eligible for tax incentives that are unavailable to municipal utilities or electric cooperatives.

Nonprofit projects cannot use solar tax benefits, but donations to them are tax-deductible. Special Purpose

Entity business projects have the greatest flexibility for taking advantage of federal tax incentives. As a

result, a host of project business structures—some of which are very complicated and require significant

legal expertise—have been created to maximize federal tax incentives. These structures are discussed in

greater detail in Section 2, Community Shared Solar Project Models.

20 Financing Non-Residential Photovoltaic Projects: Options and Implications, Lawrence Berkeley National Laboratory, Jan 2009.

http://eetd.lbl.gov/ea/emp/reports/lbnl-1410e.pdf.

Tax Policies and Incentives

Receiving any kind of financial benefit or loss

from participation in a community solar project

could have tax consequences for the

participant. In addition, tax incentives can

interact in complicated ways, and project

organizers should seek professional advice

before including tax incentives in a project plan.

SECTION 4: TAX POLICIES AND INCENTIVES

The following federal incentives may be applicable to a community shared solar installation, depending

on the details of each project. Additional detail on each of these federal incentives can be found on the

Database of State Incentives for Renewables & Efficiency (DSIRE) located at www.dsireusa.org/.

BUSINESS ENERGY INVESTMENT TAX CREDIT (“COMMERCIAL ITC”)

The Commercial ITC is one of the most valuable incentives available for solar energy. The Commercial

ITC allows commercial, industrial, and non-public utility owners of PV systems to take a one-time tax

credit equivalent to 30% of qualified installed costs. Under the Commercial ITC, the owner of the PV

system for tax purposes can be different from the owner of the host property. Therefore, the use of a third

party to finance systems has emerged as a leading trend in the solar industry. The tax credit can be used to

offset regular tax and alternative minimum tax (AMT). The Commercial ITC is currently available for

systems that are placed in service before the end of 2016. There is no cap on the amount of the

Commercial ITC. Unused credits can be carried forward for up to 20 years. Commercial entities will

likely pay income taxes on any up-front rebate or cash incentive the entities receive. In this case, entities

not have to reduce the “cost basis” by the amount of the rebate before calculating the Commercial ITC.

After January 1, 2017, owners of qualifying solar facilities will be eligible to claim a 10% ITC.

Eligibility and timing issues are complex. For a discussion of these issues, as well as the basis reduction

and allocation issues, see the DSIRE website: www.dsireusa.org/solar/incentives.

The American Recovery and Reinvestment Act of 2009

created a cash grant alternative to the Commercial ITC. The

owner of a qualified solar facility eligible for the ITC could

instead elect to receive a grant for approximately the same

value. This was especially valuable to taxpaying entities that

could not take full advantage of the ITC due to lack of tax

appetite. The Section 1603 Treasury Grant expired in 2011.

MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)

In addition to grants and tax credits, federal tax policy allows businesses (but not individuals) to

depreciate their investments in solar projects on an accelerated basis. “Depreciation” refers to the concept

that over time, assets such as equipment lose value and will eventually need to be replaced. To account

for this reduction in asset value, businesses record an expense over a set period of time. For qualified

solar projects, this period is five years. Subject to certain restrictions, an owner with other sources of

passive income can offset that income with losses generated by accelerated depreciation deductions under

the modified accelerated cost recovery system (MACRS).

For projects placed in service by the end of 2012, bonus depreciation is available. This allows the owner

to deduct 50% of the adjusted basis of an eligible solar system in the first year. For projects taking the

ITC, the depreciable basis must be reduced by half the value of the ITC. For example, if the ITC equals

30% of project costs, the depreciable basis is reduced by 15%.

The Commercial ITC is

available to private utilities and

SPEs owing federal taxes.

SECTION 4: TAX POLICIES AND INCENTIVES

The IRS publishes schedules that detail how different asset classes should be depreciated. For additional

information, please consult IRS Publication #946. A more detailed discussion of using tax benefits is

provided in Section 2, in the discussion of the Special Purpose Entity ownership model.

TAX CREDIT BONDS

Qualified tax credit bonds are a mechanism to lower the cost of debt financing for non-taxpaying entities

such as government agencies, municipal utilities and electric cooperatives. Two tax credit bonds in

particular—Clean Renewable Energy Bonds (CREBs) and Qualified Energy Conservation Bonds

(QECBs)—were created to finance renewable energy projects and programs. All available tax credits

have been awarded and no additional funding is expected. However, project organizers may find that

some awardees have unallocated funds that might be used for a community shared solar project.

CLEAN RENEWABLE ENERGY BONDS (CREBS):

CREBs are tax credit bonds that can be used by government entities, municipal utilities and electric

cooperatives to finance solar installations and other renewable energy projects. Ashland, Oregon used the

proceeds from a CREB to partially finance its Solar Pioneers II community shared solar project in 2008.

QUALIFIED ENERGY CONSERVATION BONDS (QECBS):

QECBs are tax credit bonds similar to CREBs. The advantage of QECBs is that in addition to using them

to finance renewable energy projects, QECBs can also be issued for energy efficiency projects and green

community programs, among other things. In addition, up to 30% of a QECB allocation can be used for

private sector activities. To date, the authors of this Guide are unaware of a community shared solar

project that has used QECBs.

SOLARSHARE COMMUNITY SOLAR BONDS

In Ontario, Canada, nonprofit cooperative SolarShare has introduced a new way to engage

communities in solar financing. Using their co-op model, SolarShare allows Ontario

residents and businesses to benefit from investing in bonds backed by large commercial

and smaller rural solar projects. Co-op membership costs $40, and each member is able to

invest $1000 in bonds. Bond investments are used to finance fully completed projects,

which shields bondholders from pre-development and construction risks. Each project is

backed with a 20-year PPA with Ontario Power Authority with fixed pricing for the power

produced, ensuring a steady and long-term revenue stream. Bond repayments are made

semiannually with 5% interest, and are fully repayable after completion of a five-year term.

Currently, the SolarShare project portfolio consists of 18 solar installations. For more

information, see www.solarbonds.ca.

SECTION 4: TAX POLICIES AND INCENTIVES

FEDERAL GRANTS

While not necessarily a source of long-term funding, federal grants can be used to reduce the cost of a

community shared solar project. Such grants could lower the cost of the PV system installation or

subsidize the cost of participation in a community shared solar project. In 2009 and 2010, enhanced

funding was provided for State Energy Programs and Energy Efficiency and Conservation Block Grant

Programs (EECBG). For rural communities, there may be USDA grants and loans available through the

Rural Energy for America Program (REAP).

Examples of projects benefiting from federal grant funding include Seattle City Light’s Community Solar

Initiative funded under DOE’s Solar Energy Technologies Program, the second phase of St. George,

Utah’s SunSmart Community Solar program using Recovery Act funding, and APS’s Community Power

Project using a High Penetration Solar Deployment grant from the DOE’s SunShot Initiative.

Photo from St. George SunSmart Program with temporary signs

STATE AND LOCAL TAX CONSIDERATIONS

Tax issues vary considerably from state to state and among localities. However, there are several common

issues that project developers should consider when planning and structuring their projects. Taxes in any

of the categories below could impose a significant cost on the project. Project developers should

determine which taxes will apply to their project and who will be responsible for the cost. Taxation issues

can become especially complex when a project involves both taxable and tax-exempt entities.

Considerations include the following:

Net Income Tax: Most states impose a net income tax modeled on the federal system. Thus, any revenue

generated by a project will likely be subject to both state and federal income taxes. Some states offer

investment tax credits that can be taken in addition to the federal Commercial ITC or other income tax

credits and deductions for renewable energy. In Utah, for example, the State’s residential income tax

credit is available to participants in community shared solar projects owned by qualifying entities

(municipalities, counties, etc.), such as the SunSmart program in St. George.21

21 See Utah Code 59-7-614.3, available at: http://www.le.state.ut.us/~code/TITLE59/htm/59_07_061403.htm.

SECTION 4: TAX POLICIES AND INCENTIVES

Sales and Use Taxes: Most states impose a sales tax on sales of tangible personal property. Some states

also impose a use tax on sales of certain services or a transfer tax on sales of real property. For solar

facilities, most state sales taxes will apply to the purchase of solar equipment, but usually not to the sale

and use of electricity. Many states offer sales tax incentives for solar facilities in the form of reduced

rates, exemptions or rebates.

Property Tax: Nearly all states impose a property tax that is assessed annually, based on the value of real

property. Most states also tax tangible personal property that is used for business purposes. For property

tax purposes, assessment values might be determined by a central state authority or by a local assessor’s

office. As with sales taxes, many states offer property tax incentives for solar facilities in the form of

exemptions or special assessments.

Excise Taxes: Some states and municipalities impose excise taxes that could potentially apply to a solar

facility. An excise tax is special tax imposed on particular goods or activities, such as a gasoline tax or

gambling tax.

SECTION 4: TAX POLICIES AND INCENTIVES

INTERACTIONS AMONG STATE AND FEDERAL INCENTIVES

The Commercial ITC is valued at 30% of the tax basis of the solar facility. The “basis” typically means

the cost of buying and installing the facility. But certain factors can reduce the basis from which the 30%

is taken. Other financial incentives (such as state rebates and grants) will reduce the taxpayer’s basis for

calculating the ITC, unless the incentives are considered taxable income to the taxpayer. If the incentive is

considered taxable income, it does not need to be subtracted from the cost basis. These rules prevent

“double-dipping” that would come from receiving both a tax-free incentive and a tax credit.

Photo from SMUD’s SolarShares Installation

SECTION 5: SECURITIES COMPLIANCE

Community shared solar projects can be structured to create ownership models that monetize financial

incentives, capitalize on favorable government and utility policies, and expand ownership opportunities.

When devising a creative business model, though, the project organizer should consider whether the

model involves the issuance of securities, and, if so, what federal and state securities laws may be

involved. A full review of state and federal securities requirements related to small offerings is beyond

the scope of this guide, but this discussion is intended to offer a foundation for project organizers to

research the issue.

Any entity, no matter how small, that attempts to raise capital may be deemed to be issuing securities if it

offers or sells stock, membership units, partnership interests or other types of participation interests. If the

project is deemed to be offering a security, the project will incur substantially more time and expense in

ensuring that it complies with the applicable state and federal securities laws. The consequences of failing

to comply can be severe and the project, its directors, officers, and employees involved in the offer and

sale of the security may be subject to liability for such failure.

The securities laws are intended to protect individuals who provide financial support for a project with an

expectation to receive profits from the efforts of others, or with the expectation to receive a valuable

benefit when the investor does not have control over the managerial decisions of the venture. Compliance

with securities laws requires registering the offering with the Securities Exchange Commission (SEC)

and the applicable state regulatory agency or finding a specifically-defined state and federal exemption

from the registration requirements. Most states’ securities laws have parallels to the federal requirements,

but many states require additional filings, even if their exemptions are similar in substance to the federal

exemptions.

Registration can be a time-consuming and expensive process that includes filing a formal registration

statement with the SEC and preparing extensive disclosure documents called an “offering memorandum.”

However, even with a registration exemption, filings and the preparation of offering documents may still

be required, depending on the participants in the project. Many projects will not be able to support the up-

front costs of securities compliance.

The definitions of a “security” under federal and state laws include a long list of financial instruments and

agreements. Federal and various state definitions are not identical, but commonly include, any note, stock,

bond, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, or

investment contract.

Securities Compliance

SECTION 5: SECURITIES COMPLIANCE

A common exemption used by smaller-scale non-utility-owned projects is the private placement

exemption, which allows a company to raise investment capital from a certain number of investors. All

private placement exemptions limit the number of individuals or entities to whom the securities can be

offered. The level of the disclosure requirements is determined according to the net worth or income level

of the investor and/or the relationship of the investor to the entity issuing the security (for example, if the

investor is acting as the executive officer or director of the entity).

The most relevant test for analyzing whether a contract or an investment is a security under federal law is

the “Investment Contract Test.” Many states have additional criteria for determining the existence of a

security, but the basic components are similar to the Investment Contract Test. A security exists if (1) a

person invests money or property, (2) in a common enterprise (i.e., an enterprise in which the benefit to

the investor is dependent on the participation of others), (3) with an expectation of profits or other

valuable benefits, (4) solely or primarily from the efforts of someone other than the person providing the

money or, in other words, without the right to exercise practical and actual control over the managerial

decisions of the enterprise.

It follows that the terminology used to describe participation in a community shared solar project should

avoid references to “shares” or “stock,” as those are the classic terms used to describe securities issued by

a corporation and might create an expectation of profits and other rights customarily associated with stock

or shares. All marketing and promotional materials used for the project should refrain from making any

statements suggesting that an investment or other opportunity to make money is being offered to

participants. However, regardless of the label applied by the project sponsors, there is always some risk

that the securities regulators or a court will deem the participation to be a security.

SOLAR CROWDFUNDING

Crowdfunding is a cooperative financing approach that occurs when many small

investments are aggregated to collectively finance a single initiative. In November 2011,

the House of Representatives overwhelmingly passed the Entrepreneur Access to

Capital Act (HR 2930), which would amend the current regulatory landscape by allowing

startups to offer and sell securities through crowdfunding and social networking

websites. This Act would allow groups of individuals to collectively invest in and own

solar systems without having to submit to the SEC’s lengthy registration and reporting

requirements. One example of solar crowdfunding in action can be found in Solar Mosaic

(www.solarmosaic.com), a Berkeley-based company that connects individual investors

with solar projects hosted on community sites. The site host leases the solar system

from the investors, and investors are paid back over time by monthly lease payments

(and other available incentives) processed through Solar Mosaic.

SECTION 5: SECURITIES COMPLIANCE

In a utility-owned model, in which the utility enters into a contract or arrangement with its retail customer

to provide electricity generated by a project, there is a risk that the contract or arrangement could be

deemed a security if the customer is required to finance a part of the project and if the customer has an

expectation of getting some kind of profit over and above the value of the electricity it receives.

To the extent that a retail customer agrees to purchase solar power from a utility and to pay a specified,

generally applicable rate for the solar power used and the customer is billed periodically based on recent

past use, just like the arrangements for purchasing other power, it is less likely that the customer would be

viewed as making an investment of money in the project. In contrast, if the customer is required to buy a

panel or make payments in excess of the retail market rate for the solar power, it is more likely that the

customer will be viewed as making an investment of money. Therefore, the utility must take care to

ensure that the rate charged for the solar power does not contain a charge for the customer’s acquisition of

an interest in the project or a panel. In addition, a payment is more likely to be an investment if the

customer pays an up-front amount in return for an undetermined amount of solar power over a period of

time that may also be undetermined.

In order to reduce the likelihood that the contract is a security, payments made under the contract could

be: (1) applicable to a specific, relatively short period of time (e.g., monthly, quarterly); (2) due after solar

power is provided; and (3) according to a specified, generally applicable market rate per unit that does not

include a component for the purchase by the customer of an interest in the project. To the extent possible,

the contract, pricing and billing arrangements, and related materials should resemble a customary

consumer purchase of non-solar electricity and should not be marketed to emphasize that the amount of

solar power sold to customers depends on the participation of other customers or the success of the utility

in obtaining subscribing customers or in operating the project. The corollary is that customer dollars

cannot be used up front to finance the project.

SECTION 6: GETTING STARTED

There are many legal, financial, and project design

considerations to address before launching a successful

community shared solar project. This section outlines a

general process to help community organizers and

project developers move concepts to completion

efficiently. In addition to consulting this guide, project

developers are encouraged to consult The Resource

Innovation Group’s online Community Solar Tool for help developing community-owned projects (see

http://communitysolar.dyndns.org). Although this decision support tool was developed for the University

of Oregon and contains state-specific information, it poses questions relevant to all community shared

solar projects and is undergoing customization on a state-by-state basis as funding permits.

Like many construction projects, community shared solar project development projects can be broken

down into phases including: feasibility, project development, construction, operations and

maintenance, and decommissioning. It is important to note that phases can often overlap and are not

necessarily completed in the order listed.

FEASIBILITY ANALYSIS PHASE

The first step is to conduct a comprehensive feasibility analysis. This analysis should determine if there is

a good project site with an adequate solar resource, identify a project team and supporters, prepare an

initial financing plan, confirm absence of major obstacles, and gauge the local community and utility’s

receptivity to a project.

PROJECT DEVELOPMENT PHASE

If the feasibility analysis is positive, the project can move to the development phase. At this point, it may

be helpful to document the project details in a business plan (which may be required to secure financing)

or project charter.

Site Selection and Resource Evaluation

Proper siting includes a site analysis for any potential shading, as well as determining optimal tilt of the

modules, location of inverters and other system components, wiring distances, foundation or structural

support, and security or public access requirements. Project owners must also obtain exclusive rights to

build the solar project if they are not the property owners. This is usually negotiated through a land lease

agreement with the property owner and site host. Careful consideration should be given to site selection to

minimize the environmental footprint and harmonize with existing land uses.

Getting Started

It took us over two years to

develop our project structure and

only two months to find our

members. –David Brosch,

University Park Community Solar

SECTION 6: GETTING STARTED

Understanding the amount of solar resource and the effects of climate and latitude on solar energy

production is critical to finalizing the system location and obtaining estimates for financial modeling.

Typically, project organizers will rely on solar resource maps or solar energy production calculators, such

as PV Watts or RETScreen, to get an initial assessment of the solar resource.

Financing

To obtain financing for a project, a financial pro forma must be created to model the proposed system’s

costs, revenue (from the production estimates), and the interaction of incentives and financing. This

document reveals the financial viability of the project, and is required for any project proposal. A very

basic sample budget is provided after this discussion to suggest the broad categories of expenses and

income that should be considered.

Ownership Structure

The ownership structure of the project will need to be finalized and the business model chosen. The

project owner(s) may also need to consult legal and tax professionals to ensure the entity is properly

structured to minimize risks to the site host, investors, and participants.

Permitting and Environmental Review

The permitting process for a community shared solar project depends on the location, size, and type of

project. At minimum, the project will require an electrical permit. A building permit is often necessary,

especially if the PV array is a stand-alone structure. The best course of action is to check with the local

planning department early on, as the permit and environmental compliance requirements may influence

the design and siting of the project.

Interconnection and Power Arrangement

The local utility will be involved in interconnecting the system to the electric grid. Utilities generally

follow a standard interconnection process and have agreements that must be completed prior to

construction. In addition to connecting the system to the distribution system, the agreement must account

for arrangements for transferring the power “benefits.” This is usually negotiated through a power sales

agreement between the project owner and the utility or host in the form of a PPA, SSA, net metering, or

other contractual arrangement.

Procurement and Contracting

For this type of project, it is common to issue a request for proposals (RFP). The RFP can be fairly broad,

allowing solar professionals to offer their recommended system design and specifications, or fairly

specific, to compare bids on pre-determined project specifications. After identifying solar professionals or

receiving proposals in response to an RFP, it is important for project owners to evaluate them as they

would evaluate other types of installers and contractors. Professional credentials are one indication of a

PV installer’s knowledge and qualifications. The North American Board of Certified Energy Practitioners

(NABCEP) offers a well-respected voluntary certification program for PV installers.

SECTION 6: GETTING STARTED

CONSTRUCTION PHASE

Choosing a solar contractor and construction manager is an important decision. In recent years, it has

become easier to locate and contact those in the solar field. Tools available to help identify local

professionals include www.findsolar.com and the national Solar Energy Industries Association

(SEIA.org).

OPERATIONS AND MAINTENANCE PHASE

Operating a community shared solar project requires ongoing record keeping and timely filing of

paperwork. Among other things, a project administrator may have to file tax forms and business license

renewals, distribute incentive payments, sell RECs, and keep the insurance, lease and other payments up

to date.

Maintenance, though fairly simple for PV systems, is essential to long-term management of a community

shared solar system. Modules may need to be cleaned, but more importantly, meters and inverters need to

be monitored to ensure that the system is operating as expected. Various monitoring systems are

available, offering options from instant email alerts when an inverter malfunctions to online daily

performance monitoring. A good monitoring system enables a system manager to minimize down time,

protecting the participants’ investment. The project budget should include funds for monitoring, ongoing

maintenance costs, and parts replacement. In particular, it is helpful to include a reserve fund for future

inverter replacement.

DECOMMISSIONING OR EXIT STRATEGY

Although solar panels could easily last 25 years or longer, every project must consider the ultimate

disposition of the solar installation. Whether the plan is to sell the project to the host, renew a lease, or

remove the panels, a solid project plan has defined the options for exiting from the community shared

solar project and potentially restoring the site to its original condition.

SECTION 6: GETTING STARTED

COMMUNITY SHARED SOLAR PROJECT: SAMPLE BUDGET

The following budget template provides sample categories for a typical community shared solar

project budget.

Note that the budget does not include the cost of labor to organize and develop the project, which could amount

to a one or more years of full-time work. Depending on how the project is developed (by a utility, an SPE or a

nonprofit), the developer role could be volunteer or paid.

SITE DEVELOPMENT COSTS

Design

Permits

Electrical/Meter Upgrades

Fencing/Security

Educational Kiosk

PROJECT DEVELOPMENT COSTS

Consulting

Legal

RFP

SYSTEM COSTS

PV Panels

Inverters

Ground Mount/Racking System

Balance of System Costs

TOTAL INSTALLED COST

MINUS GRANTS AND REBATES

1603 Treasury Grant

Commercial ITC

Other Grants and Rebates

NET INSTALLED COST

ANNUAL OPERATING EXPENSES

Bookkeeping

Accounting

Legal

System Monitoring

Insurance

Lease

Sinking Fund: Inverter Replacement

Taxes

TOTAL ANNUAL OPERATING EXPENSES

ANNUAL INCOME

Sale of Electricity

Sale of RECs

Production Incentive, if Available

SECTION 6: GETTING STARTED

COMMUNITY SHARED SOLAR PROJECT DEVELOPMENT WORKSHEET

The following worksheet suggests many steps involved in organizing a project, but it is not

comprehensive. Project organizers will need to create their own list of steps, based on their

unique circumstances.

FEASIBILITY ANALYSIS

Assess site for solar access

Secure control of property and/or site

Evaluate the solar resource

Understand participant motivation

Conduct market research/focus groups/surveys

Investigate interconnection options

Research financing mechanisms

Gauge community receptivity and support

PROJECT DEVELOPMENT

Prepare a financial plan

Determine ownership structure

Develop operating agreement between host and project owner (if different)

Develop participant agreement

Obtain legal and tax consultation for contracts

Define system and other technical specifications

Execute agreement for the sale of power

Complete permitting and environmental compliance requirements

Execute interconnection agreement

Conduct an RFP for design/build

CONSTRUCTION

Prepare the site for construction: grading, road improvements, other

Dig trenches, lay cables, install transformer(s)

Install fencing and site security features

Complete inspections and commissioning

Restore site/surrounding vegetation

Complete paperwork for incentives

OPERATIONS & MAINTENANCE

Schedule and perform panel cleaning

Save for inverter replacement

Monitor system output

Distribute benefits to participants (incentives, tax credits, etc.)

File tax returns, state production incentive paperwork

File annual business license requirements

SECTION 7: RESOURCES

Communities interested in implementing a solar project will need a more thorough understanding of

many of the topics in this guide. The resources listed in this section can provide much of that information.

ORGANIZATIONS AND INSTITUTIONS

 Through DOE’s SunShot Initiative, local governments are working to accelerate the adoption of

solar energy technologies for a cleaner, more secure energy future. The website offers case studies,

policy updates, and news of solar activities across the country.

www4.eere.energy.gov/solar/sunshot/resource_center/

 The Database of State Incentives for Renewables and Efficiency (DSIRE) is a comprehensive source

of information on state, local, utility, and federal incentives that promote renewable energy and

energy efficiency. www.dsireusa.org

 The Office of Energy Efficiency and Renewable Energy (EERE) works to strengthen the United

States’ energy security, environmental quality, and economic vitality in public-private partnerships.

www.eere.energy.gov

 USDA Rural Development provides funding for the development and commercialization of

renewable energy technologies in rural communities. The Rural Energy for America Program

(REAP) offers grants and loans to help small rural businesses deploy renewable energy projects.

www.rurdev.usda.gov/rd/energy

 The Bonneville Environmental Foundation (BEF) supports the development of renewable energy and

watershed restoration and empowers people to shrink their carbon footprints. BEF’s Project

Management Group assists with the funding and construction of solar installations in communities

throughout the Northwest. www.b-e-f.org

 Northwest Sustainable Energy for Economic Development (Northwest SEED) empowers

community-scale clean energy through targeted technical assistance, education and outreach.

Northwest SEED seeks to increase responsible use of clean, renewable energy with maximum local

control by providing on-the ground support to communities in planning and implementing clean

energy projects. www.nwseed.org/

 The American Solar Energy Society (ASES) is a nonprofit organization dedicated to increasing the

use of solar energy, energy efficiency, and other sustainable technologies in the United States. This

website is a good source for information about solar technology and professionals. www.ases.org/

Resources

SECTION 7: RESOURCES

 The Interstate Renewable Energy Council (IREC) is a nonprofit membership-based organization that

provides a national forum in which public and private organizations involved with renewable energy

may gather, disseminate and exchange information and engage in cooperative efforts. IREC’s

website offers the latest policy and practical solutions for tough renewable energy issues.

www.irecusa.org/

 The Vote Solar Initiative works at the state, federal and local level to implement programs and

policies that allow strong solar markets to grow. www.votesolar.org/

PUBLICATIONS AND ONLINE TOOLS

The Online Community Solar Tool, University of Oregon and The Resource innovation Group,

is an online decision tool that provides a framework for making program development and design

decisions. http://communitysolar.dyndns.org/

The Community Power Network offers examples and inspiration for community scale projects across

the United States. The site includes a wiki to learn and share from other projects.

www.communitypowernetwork.com/

Solar Resource Guide: An Overview for Congregations, California Interfaith Power & Light Network,

July 2011. http://interfaithpower.org/resources/solar-resource-guide

Solar Powering Your Community: A Guide for Local Governments, U.S. Department of Energy (DOE),

201, includes case studies and lessons learned from Solar America Communities.

www.solaramericacommunities.energy.gov/resources/guide_for_local_governments

Community Solar Power: Obstacles and Opportunities, Institute for Local Self-Reliance, September

2010, profiles community shared solar projects, the policies that enabled them, and the barriers that

remain. www.ilsr.org/

Financing Non-Residential Photovoltaic Projects: Options and Implications, Lawrence Berkeley

National Laboratory, January 2009, examines the role of financial innovation in PV market penetration.

This report looks at how financing structures currently being used to support nonresidential PV

deployment have emerged as a way to extract the most value from a patchwork of federal and state policy

initiatives. http://eetd.lbl.gov/ea/ems/reports/lbnl-1410e.pdf

Lex Helius: the Law of Solar Energy (3rd Edition), Stoel Rives, 2009 (See especially, Chapter 7:

Financing) www.stoel.com/showarticle.aspx?Show=2886

SECTION 7: RESOURCES

Photo from Installing Panels on the Church of the Bretheren, University Park, Maryland

SECTION 8: APPENDIX A

BUSINESS FORMATION AND TYPES: SPECIAL PROJECT ENTITIES

FOR COMMUNITY SHARED SOLAR PROJECTS

Below are descriptions of the primary business entities suitable for community shared solar projects, the

key characteristics, and the major advantages and disadvantages each entity might have. Note:

Characteristics commonly attributable to these business entities are discussed, but legal requirements can

vary from state to state. State law may also establish default rules that can be changed by agreement

among the business owners.

GENERAL PARTNERSHIPS

A general partnership is an association of two or more people working together in a common business

enterprise. There are few formal requirements for establishing a partnership and if the partners fail to

enter into a written partnership agreement, the default provisions of the state partnership laws will govern

the relationship of the partners. However, most partners choose to enter into a written agreement.

Advantages and Disadvantages of Forming as a General Partnership

The key advantage of organizing as a general partnership is the ease of formation and the flexibility in the

relationship between the partners. General partnerships require little, if any, paperwork for formation or

operation. General partnerships also allow for “pass-through” taxation, instead of the “double” taxation

that may be applied to corporations. Additionally, most general partnership interests will not be treated as

securities because all the partners contribute equally to the decision making processes and participate in

management of the business. General partnerships, however, have several key disadvantages. First, and

most important, each partner is individually liable for the partnership debts. This means that if the

partnership cannot pay its debts, the creditors can look to the individual partners to satisfy those debts.

Because of the lack of limited liability, general partnerships have fallen in popularity as a business entity

in recent years. Second, the preparation of a partnership agreement requires the assistance of legal counsel

and can be expensive, depending on the complexity of the partners’ relationships. Third, because of the

close personal relationships inherent in a general partnership, partnership interests cannot usually be

easily transferred or sold. Unless a partnership agreement so provides, it can be challenging to admit new

or substitute partners.

Appendix A

SECTION 8: APPENDIX A

Formalities

As discussed above, in theory there are few, if any, formal requirements for forming general partnerships.

Similarly, there usually are few requirements for operation, but states usually establish some default rules

to govern if partners do not enter their own agreements. For example, in the absence of an agreement

otherwise, the default rules usually provide that partners have equal control over businesses and equal

share in profits and losses. Partnerships are “pass-through” entities, which means that profits and losses

pass through to individual partners. The partnership is not a separate taxpaying entity; rather, the partners

report profits and losses from the partnership on their individual tax returns.

LIMITED PARTNERSHIPS

A limited partnership is a business entity comprised of two or more partners who operate or manage a

business together. In every limited partnership, there are two types of partners: general partners and

limited partners. The general partner usually invests significantly less capital than the limited partner(s)

and has a significantly smaller ownership stake. Unlike general partnerships, limited partnerships have the

ability to limit both the liability risk and the business involvement of certain partners known as “limited

partners,” but the general partner has unlimited liability. This feature is particularly useful for attracting

“passive” investment partners who would like to participate in the profits of the business, but not

necessarily take on its risks or daily operations.

General partners manage the company’s day-to-day operations and are liable for the debts of the

partnership. Because they are responsible for any debts or lawsuits incurred by the partnership, general

partners often form limited liability entities, such as corporations or LLCs (both discussed below), to

protect themselves from liability.

Limited partners contribute capital to the partnership but do not (and generally cannot) participate in the

daily operations of the company. As an added benefit, they are also shielded from company debts and

other liabilities. Limited partnerships are a popular choice for individuals who lack the time or expertise

to run a business, but would like to share in the profits.

Advantages and Disadvantages of Forming as a Limited Partnership

There are several advantages to the limited partnership entity. The limited partners have limited liability

and the limited partnership interests may be able to be sold easily without dissolving the limited

partnership as an entity. The option of being a limited partner can attract investors because the investors’

liability is limited. However, with certain exceptions, the limited partners have to refrain from dabbling in

management; if a limited partner becomes too involved in the partnership’s daily operations, the limited

partner’s status could be altered to that of a general partner, with the attendant loss of limited liability.

While limited partnerships are relatively easy to form, a limited partnership agreement is essential to

govern the relationships of the parties, especially the contribution of additional capital and the allocation

of profits and losses.

SECTION 8: APPENDIX A

The major disadvantages of the limited partnership are first, that the general partner of a partnership

assumes personal liability for the partnership’s obligations and debts, and second, the passive nature of

the limited partner’s involvement carries the likelihood that the limited partnership interest will be

deemed to be a security.

Formalities

Most states impose more requirements for forming a limited partnership than for a general partnership,

such as filing a certificate of formation.

LIMITED LIABILITY COMPANIES (LLCs)

A limited liability company, usually called an LLC, is a separate and distinct legal entity. An LLC

provides the limited liability protection for its owners (known as members) with the pass-through benefits

and flexibility of a partnership. The members of an LLC are not personally liable for its debts and

liabilities, and also have the benefit of being taxed only once on their profits.

Because LLCs have only been around for about 30 years, smaller banks may be reluctant to extend credit

to LLCs. Further, with such a short history, many legal issues that arise in connection with the LLC

format have not been settled.

An LLC may be managed by either (1) the members or (2) one or more managers. If a limited liability

company is managed by the members, then the owners are directly responsible for running the company

(a “member-managed” LLC). A “manager” is a person elected by the members to manage the LLC. In

this context, a manager is similar to a director of a corporation. A manager can be, but is not required to

be, a member. If an LLC is managed by managers, then its members are not directly responsible for

running the company and the passive nature of a non-managing member’s involvement makes it likely

that the membership interest will be deemed to be a security.

LLC ownership can be expressed in two ways: (1) by percentage; and (2) by membership units, which are

similar to shares of stock in a corporation. In either case, ownership usually confers the right to vote and

always confers the right to share in profits.

Advantages and Disadvantages of Forming as a Limited Liability Company

The primary advantage of an LLC is that the members are not personally liable for the debts and liabilities

of the LLC. The LLC allows individuals to organize with limited liability with fewer restrictions and

fewer formalities that were necessary to form “S” or “C” corporations. Also, most limited liability

companies can use the cash method of accounting, which means income is not generally taxed until it is

received.

SECTION 8: APPENDIX A

An LLC can be taxed either as a “pass-through” entity, like a partnership, or as a regular corporation. A

regular corporation pays a corporate tax on its net income (the first tax), and then the stockholders pay

income tax on dividends (the second tax) when the corporation distributes profits. With an LLC, the

profits “pass through” to the owners, who pay taxes at their individual tax rates. Also, the members can

deduct the business’s operating losses against the member’s regular income to the extent permitted by

law, which can be helpful if the project anticipates losses in the first few years.

A member may become liable for LLC debts if the member personally guarantees the debts, if personal

funds are intermingled with LLC funds, if the LLC has minimal insurance, or if the members do not

contribute enough money to the LLC when it is formed. In order to maintain the separate form of the LLC

and maintain the liability protection of its members, LLC owners must carefully maintain separate records

and keep personal affairs separate from the LLCs business. In particular, the LLCs money should never

be intermingled with personal money.

Formalities

Although an LLC requires fewer formalities than a corporation, there is still more paperwork involved in

an LLC than a sole proprietorship or partnership. Formation paperwork (which can usually be found on

the state’s website) must be filed. An LLC agreement is essential to govern the relationships of the

members, the financial arrangements and regulation of the transfer of membership interests, or admission

of a new member. In the absence of an LLC agreement, the state’s LLC laws will be applied to the LLC.

In general, the name of an LLC must clearly indicate that is an LLC and end with the words “Limited

Liability Company,” “LLC,” “L.L.C.,” or “Ltd. Liability Co.”

COOPERATIVE

A cooperative is a legal entity owned and democratically controlled by its members. Members often have

a close association with the enterprise as producers or consumers of its products or services, or as its

employees.

A consumers’ cooperative is a business owned by its customers. Employees can also generally become

members. Members vote on major decisions, and elect the board of directors from a candidate pool of

members.

Generally, cooperatives are organized as non-capital stock corporations under state-specific cooperative

laws. However, cooperatives may also be unincorporated associations or business corporations such as

limited liability companies or partnerships. Cooperatives often share earnings with the membership as

dividends, which are divided among the members according to the members’ participation in the

enterprise (such as patronage) instead of according to the value of their shares. However, regardless of the

amount of a member’s contribution to the co-op, each member has only one vote. For tax purposes, most

cooperatives are taxed as separate entities like corporations, though some are tax exempt.

SECTION 8: APPENDIX A

Advantages and Disadvantages of Forming as a Cooperative

The democratic nature of cooperatives might appeal to community shared solar project organizers, based

on compatible goals of creating a collaborative and accessible structure. But there are significant

limitations to cooperative structures that have made them an unpopular choice for renewable energy

projects. For example, the Clean Energy Collective started out as a cooperative and converted to an LLC.

Traditionally, members have little input into business operations and in certain states, members have to

personally benefit from the co-op’s products and services (example: REI). In those states, the co-op

structure is not designed to bring in outside investment from individuals that cannot partake of the co-op’s

products and services. However, in other states, outside investment is permitted and states are beginning

to recognize the value of the co-op structure in a community shared solar setting. The costs of the

documentation and filing requirements can be high.

Formalities

Usually, cooperatives are formed by filing articles of incorporation with the state. It is important to create

a comprehensive set of bylaws to govern the members’ relationship and the duties and obligations of the

board of directors that will operate the business without significant input from the members. If the co-op

is to be operated as a nonprofit entity, the co-op will need to comply with the formalities for forming such

an entity.

Note Regarding the Co-op Model

While solar power production co-ops are popular in Europe, they are rare in the United States. One

explanation for this discrepancy may be in the differing regulatory regimes. In the U.S., in order to reduce

costs from state and federal securities compliance, co-op members receive limited compensation on

capital subscribed as a condition of membership. This makes the co-op model less attractive to investors

looking for a monetary return.

FOR-PROFIT CORPORATIONS

A corporation is a separate and distinct legal entity, meaning the corporation does business under its own

name. A corporation issues/sells voting common stock and (sometimes) preferred stock, which can be

voting or non-voting. The owners of the stock are called “stockholders” or “shareholders.”

A corporation is managed by a board of directors elected by the shareholders, which is responsible for

making major business decisions and overseeing the general affairs of the corporation. The directors

appoint officers, who run the day-to-day operations of the corporation. Each corporation must have at

least one director. In a small (“close”) corporation, the shareholders, the directors and the officers are

usually the same three or four people, but in a larger corporation, the shareholders are passive investors

and, other than electing directors, have little control over the business operations of the corporation. In

this case, the stock issued to passive shareholders can constitute a security.

SECTION 8: APPENDIX A

Directors, officers, and in some cases, the majority shareholders of a corporation owe “duties of loyalty

and care” to the corporation. Generally, this means the directors must act in good faith, with reasonable

care, and in the best interest of the corporation. Directors, officers and majority shareholders must not use

their positions to gain personally from transactions with corporations without complying with certain

legal formalities.

Advantages and Disadvantages of Forming as a Corporation

The primary advantage of a corporation is that shareholders are not generally liable for corporate debts,

provided shareholders follow their particular states’ rules regarding formation of the corporate and

maintenance of the corporate identity. For example, a shareholder may be liable for corporate debts if the

shareholder personally guarantees the debts, if personal funds are intermingled with corporate funds, or if

the corporation is undercapitalized (i.e., shareholders do not contribute enough money to the corporation

when it is formed). Other actions may affect the liability of the shareholders, so anyone considering this

business entity should consult a legal professional to ensure that all the proper formalities are followed.

The other major disadvantage is that shares in a corporation are deemed to be securities.

A corporation can elect to be taxed either as a “C corporation” or as an “S corporation.” A “C” (or

regular) corporation pays a corporate tax on its net income (the first tax), and then the stockholders pay

income tax on dividends (the second tax) when the corporation distributes profits. An “S” corporation is

like a pass-through entity, but there are limitations on the number of shareholders and who may be a

shareholder.

FORMALITIES

A corporation is required to hold annual meetings of shareholders to elect directors. In most jurisdictions,

meetings can be held in person or by electronic means that allow all persons to hear the proceedings. It is

important to maintain the corporation’s records scrupulously to prevent creditors making claims against

the shareholders. The corporation also must obtain a separate tax identification and separate bank account.

The name of a corporation must contain words that identify the company as a limited liability entity, such

as “Inc.,” “Ltd.,” or “Corporation.”

NONPROFIT ENTITIES

A nonprofit entity can be a corporation, or other form of business entity that is organized to meet specific

tax-exempt purposes. Common examples of nonprofits include: religious, charitable and political

organizations, credit unions, and membership clubs such as the Elk’s Club. To qualify for nonprofit

status, the entity must be formed to benefit (1) the public, (2) a specific group of individuals, or (3) the

membership of the nonprofit. If the nonprofit has members, it may be able to elect directors and approve a

sale or merger; however, many smaller nonprofits do not have members, due to the additional paperwork

and required formalities. Even without members, donors may participate as advisors, patrons, or

contributors, but do not have a vote in the nonprofit’s operations.

SECTION 8: APPENDIX A

Being a nonprofit does not mean the entity cannot make a profit. Nonprofits can sell goods or services for

money and can pay competitive salaries to officers and employees. The primary limitation is that any

profits generated by the nonprofit’s business operations cannot be distributed to members, but must be

retained by the nonprofit and used to further its purposes and run its business. Nonprofits are exempt from

income, sales, and property taxes and allow donors to deduct their donations from their taxes. Absent

misuse of the nonprofit’s resources, directors, officers, and members are not liable for the debts of the

nonprofit.

Although tax-exempt entities such as nonprofits are not usually eligible for tax credits, the entities may be

eligible for other grants or other sources of foundation funding that would not otherwise be available to a

for profit entity.

(Note: The discussion pertains to nonprofit entities that pursue solar projects as part of their core

missions. For a discussion of how an existing nonprofit may fund a solar project through donations,

see Section 2, Community Shared Solar Project Models: Nonprofit Model.)

Advantages and Disadvantages of Forming as a Nonprofit Corporation

The largest advantage of organizing as a nonprofit is that the entity is exempt from paying taxes on its

profits, provided the activities of the entity continue to meet the requirements for exemption. It is

important to note that simply forming a nonprofit does not automatically qualify the entity for federal and

state tax exemption—only an officially recognized nonprofit entity can apply for federal and state tax

exemption. This application is often referred to as the 501(c)(3) application, which is the IRS code section

most commonly applicable to nonprofits. In fact, there are more than 20 code sections for nonprofit

qualification. Another common one is 501(c)(7), which applies to social and recreational clubs.

Formalities

Unless a nonprofit corporation files a 501(c)(3) application with the IRS, it will not be exempt from

paying federal income taxes. If the nonprofit’s purpose qualifies under 501(c)(3), then a legal professional

can help the nonprofit prepare the application. Each state also requires a tax exempt application; however,

most states accept the federal tax exempt application in place of the state’s tax exemption.

The process for forming the nonprofit can take several months. Generally, the IRS takes three to five

months to examine and approve the 501(c)(3) application.

Like any business entity, it is critical to maintain the separate corporate identity of the nonprofit. This

entails setting up a separate bank account, maintaining good corporate records, and holding regular board

meetings.

SECTION 8: APPENDIX A

SUMMARY TABLE OF BUSINESS TYPES

Entity Type Liability

for Owners Taxation Primary

Advantages

Primary

Disadvantages

General

Partnerships

Personal

liability

Pass-through

Ease of formation;

pass-through taxation

Personal liability

of partners

Limited

Partnerships

Personal

liability for

general

partners;

limited liability

for limited

partners

Pass-through

Pass-through taxation;

limited liability for

limited partners

No liability shield

for general

partner

Limited

Liability

Companies

Limited liability

Usually

pass-through

Pass-through taxation;

fewer formalities to

maintain the LLC

structure than

corporations

Relatively new

structure; may be

harder to get

financing

Cooperatives

Limited Liability

Separate

tax entity

Cooperative principles

Inflexible

Structure

“S”

Corporations

Limited

Liability

Limited Liability

Pass-through

Liability shield;

ease of investment;

ease of transfer of

shares in larger,

non-close corporations

Limitations on

number and

identity of

members

“C”

Corporation

Limited Liability

Separate

tax entity

Liability shield;

ease of investment;

ease of transfer of

shares in larger

non-close corporations

Complexity;

double taxation

Non- Profit

Entities

Limited Liability

Separate

tax identity;

tax exempt

Tax-exempt;

tax deduction

for donors

No return for

donors; business

purposes are

limited; no voting

rights for donors

SECTION 9: APPENDIX B

INTRODUCTION TO IREC’S COMMUNITY RENEWABLES MODEL

PROGRAM RULES

Taking into account the various community shared renewables approaches that have been implemented,

the Interstate Renewable Energy Council (IREC) worked closely with The Vote Solar Initiative to

develop its Community Renewables Model Program Rules. IREC designed the Model Program Rules as a

starting point to assist stakeholders in developing programs that meet the diverse needs of the

communities. The Model Program Rules address issues such as renewable system size, interconnection,

eligibility for participation, allocation of the benefits flowing from participation, net metering of system

production, and other essential features of a community shared renewable energy program.

The first part of this process was the development of a Community Renewable Power Proposal (Proposal)

to generate stakeholder input on best practices in this emerging policy area. As part of the development of

the Proposal, IREC collaborated with a diverse set of stakeholders and reviewed current community

shared renewables efforts taking place at the municipal and state levels, including efforts in

Massachusetts, Colorado, California, Washington, and Utah.

Two key principles greatly influenced the development of the Proposal, and ultimately, the Model

Program Rules.

First, as a foundational matter, IREC believes that participants in a community shared renewables

program should have an experience that is as similar as possible to that of customers investing in on-site

renewable energy. The reason for this is simple: on-site programs in many states have been very

successful in motivating energy consumers to invest in renewable energy, so replicating the program

elements that spurred this motivation is logical and builds off of foundations already in place. In

particular, many customers appear to be highly motivated to zero out their monthly energy bill through

net metering. In addition, customers participating in existing programs have been shown to install more

energy efficiency measures than nonparticipants, because the customers are highly motivated to reduce

their energy bills. On-bill net metering for community shared renewables systems can maintain a

participating customer’s motivation to reduce his or her energy bill and adopt energy efficiency measures.

Second, community shared renewables should be additive to successful on-site renewable energy programs

and not undermine on-site renewable energy programs. Over the previous decades, renewable energy

companies have invested considerable resources in building their businesses. This private investment in time

and resources has helped expand markets for renewable energy in partnership with ratepayer-funded

incentive programs. For this reason, it makes little sense to undermine successful on-site programs, and the

businesses based upon these programs, when seeking to expand options for participation.

Appendix B

SECTION 9: APPENDIX B

IREC’s proposal generated significant feedback from utilities, industry participants, and other

stakeholders, which was used to develop the Model Program Rules. For example, the Model Program

Rules specify a renewable system size cap of 2 MW. This size cap was chosen because a 2-MW system

maintains economies of scale both in the installed cost of the system and in the participation/marketing

costs for a business engaged in developing community shared renewables systems, and still allows for

relatively low-cost interconnection on most utility distribution systems. Regarding another program

element, the minimum number of participants, IREC considered conflicting program impacts raised by

stakeholders. On one hand, if a program requires too many participants, gathering up the minimum

number of participants can make participation by smaller systems difficult. On the other hand, if a

program requires just one participant, then the “community” aspect of a community shared renewables

program is taken out of the picture. In considering these two concerns, IREC has chosen to require a

minimum of two participants in a community shared renewables system. This requirement will allow

duplex owners, small apartment buildings, and small commercial establishments to participate.

During discussions with stakeholders on the development of these Model Program Rules, five areas

emerged as deserving of special attention:

1. Method of allocating the benefits

of participation

2. Program administration

3. Financing options for community

shared renewables

4. Valuation of the energy produced by

the community shared renewables

system

5. Utility compensation for program

administration

IREC intends to continue to develop and refine its Model Program Rules. IREC anticipates issuing a

revised version sometime in 2012.

ALLOCATING THE BENEFITS OF PARTICIPATION

Allocating benefits to program participants is a critical element of developing a successful renewables

program. In considering the best method for allocating benefits to participating customers, IREC felt it

was important to avoid structuring a program as a wholesale program that could result in taxable income.

From an economic standpoint, it makes little sense for customers to invest in greening their energy supply

if benefits of doing so will be siphoned off in taxes. Therefore, IREC has chosen to avoid program

structures that allocate benefits in a manner that might raise these concerns, such as cutting a check for

the value of energy produced and instead choosing virtual net metering (VNM) to allocate the benefits of

participation onto a customer’s monthly electric bill. Additionally, many customers are motivated to

offset as much of their energy bills as possible. While the reasons underlying this motivation are complex,

most states’ existing net metering programs accommodate this desire by placing net metering credits on a

customer’s monthly bill. VNM maintains this direct relationship between customers’ investments in

renewable energy and a reduction in the customers’ utility bills. Last, consistent with the principles

outlined above, VNM provides a similarity in experience between customers installing on-site systems

and those customers who participate in a community shared renewables program.

SECTION 9: APPENDIX B

PROGRAM ADMINISTRATION

Program administration represents another critical area of program design. Existing community shared

renewables programs have fallen into two categories with regard to who has program administration

responsibilities: customer representatives (as in Vermont’s group billing program) or utilities. IREC

believes the best approach is to allow utilities to administer a community shared renewables program.

This framework allows an entity with significant experience in administering complex energy programs

to administer the details of a community shared renewables program, which may have many participants.

Use of a utility administrator also prevents concern about creditworthiness of a third-party customer

representative.

FINANCING COMMUNITY SHARED RENEWABLES

Renewable energy systems represent significant investments. Accordingly, an array of local, state, and

federal incentives have been developed to incentivize customer investment in them. To maximize the

availability of funding and to ensure available incentives are used as efficiently as possible, IREC’s

Model Program Rules support direct ownership, third-party ownership, and utility ownership of

community shared renewable systems. Allowing a multitude of ownership options will maximize the

availability of funding and ensure federal, state and local incentives are used to the fullest extent. Of

particular note, third-party ownership of a renewable energy system can be critical to tapping into funders

who are able to use all available federal tax credits. The efficient use of federal tax credits can result in a

reduction in the cost of renewable energy by almost 50 percent. Recognizing the important role third-

party ownership can play in increasing access to renewable energy, thirteen states have explicitly

authorized third-party ownership of on-site renewable energy systems. In addition, legislation enacting

community shared renewables programs in Colorado, Massachusetts, Delaware and Washington have

made clear that third-party owners of community shared renewable energy systems are not subject to

public utility regulation.

An important aspect of allowing utility ownership is a requirement that all system purchase costs,

operation and maintenance costs, necessary investment returns, and other costs related to a utility-owned

system must be recovered from participants enrolled in a utility program. This requirement is important to

maintaining a level playing field between utility offerings and offerings of other parties. It ensures that all

costs incurred by a utility to operate a community shared renewable system are recovered from program

participants (as in the case with other competitive providers) and not from non-participating ratepayers.

VALUATION OF THE ENERGY PRODUCED BY THE RENEWABLE SYSTEM

At the heart of a successful community shared renewables program is the experience participants have as

a result of their participation in a project. With industry input, the regulators must make a threshold

decision on whether the net metering credits generated by a project should be transferred to participants as

a 1:1 kWh offset on the customer’s utility bill or whether the kilowatt-hours should be given a monetary

value based on some other rate. This is important because it determines whether the value of a credit can

be administratively determined or whether the value will be different for each participant and be based on

the amount that a participant would otherwise pay per kWh of electricity provided by a utility.

SECTION 9: APPENDIX B

Under most states’ net metering programs, net metering credits generated by an on-site system are used to

directly offset killowatt-hours delivered by a utility when a customer-generator’s consumption exceeds

the energy supplied by a renewable energy system. Given that most customer-generation is simply used

on site without requiring that a customer’s billing meter spin backwards to earn net metering credits, this

framework makes intuitive sense. However, the vast majority of participants in community shared solar

projects will not have generation located behind a billing meter, so the link between excess production

and 1:1 kWh offsets is not as important. In addition, it can be more difficult to administer this

arrangement once a generation source is separated from the participants who would like to receive

electricity from that system. Providing kWh credits can be particularly difficult to track if a customer is

on a time-of-use rate structure because kWh production would have to be tracked within time periods and

applied to the customers’ bills within time periods.

Credits denominated in dollars and cents are often much easier for utilities to administer and often require

fewer billing software changes. Accordingly, for ease of administration by utilities, IREC chose to allow

kWh generated by a project to be given a monetary value that can be applied to participants’ bills. In

determining the appropriate monetary value to assign to kWh credits, three approaches are currently in

use for community shared solar projects: (1) valuing a kWh credit based on the retail rate in effect where

the project is located (MA does this); (2) valuing a credit based on a the retail rate in effect for the

participant (CA does this); or (3) valuing a credit based on some other approach, such as the wholesale

value of power production (Maine’s approach).

IREC chose the second approach for several reasons. First, valuing the kWh credit at the retail rate in

effect for the participant maintains the ability of the project to act as a price hedge against future utility

rate increases. Second, valuing the kWh credit at the participant’s retail rate maintains an outcome that is

as close as possible to the experience participants would have if they installed a solar energy system on-

site. Third, transforming the kWh credit into a monetary credit should simplify the calculations required

for customers that need to compensate a utility for the use of the distribution system. Finally,

transforming kWh credits into a monetary credit allows customers that face demand charges to have their

participation in solar generation recognized by valuing their kWh credits at a total aggregate retail rate.

COMPENSATING UTILITIES FOR PROGRAM ADMINISTRATION

One of the most complex issues with development of community shared renewables programs is setting

an appropriate compensation rate for utilities to administer programs. It should be relatively

noncontroversial that utilities should be allowed to recoup administrative fees. However, the propriety of

allowing a utility to recover costs for distribution service is a more controversial topic, and one on which

California and Massachusetts have taken different approaches.

SECTION 9: APPENDIX B

In Massachusetts, net metering credits created by a “neighborhood net-metered facility” do not contain

the distribution portion of a fully bundled retail rate. As a result, participants in a “neighborhood” facility

continue to pay distribution charges. However, participants do not pay transmission fees. Currently, the

Massachusetts approach seems reasonable because neighborhood net-metered facilities are limited to 2

MW and participating customers may be located anywhere within a distribution utility’s service territory.

Although participating systems will be located close to load with no use of the transmission system, a

utility would only need to be compensated for use of the distribution system.

Unlike Massachusetts, in California, net metering credits are valued at a fully bundled retail rate. This

outcome appears sensible because, unlike the Massachusetts’ program, California’s virtual net metering

program is available only to occupants of certain types of multi-tenant buildings. Thus, California

participants will be located within the same building on the same distribution circuit and, as a

consequence, use of the distribution system will be nonexistent or minimal.

IREC’s Model Program Rules take a nuanced approach to this issue by specifying that customers on the

same distribution circuit as the community shared solar project will have their killowatt-hour credits

valued at the full retail rate, while also allowing a stakeholder process to determine an appropriate level of

compensation for use of a utility’s distribution system once a number of factors have been taken into

account.

Photo from a Steep Roof, University Park, Maryland

SECTION 9: APPENDIX B

IREC’S COMMUNITY SHARED RENEWABLES MODEL

PROGRAM RULES

These rules were created by the Interstate Renewable Energy Council and The Vote Solar Initiative to

serve as a guide for renewable energy stakeholders to consider when developing community shared

renewables policies to meet the needs of their states. The rules provide a framework for building a

community shared renewables program that is additive to successful on-site renewable energy programs

and uses solar, wind, hydro, biomass and other renewable energy sources to allow communities to

promote local job growth. These program rules are solely the recommendation of the Interstate

Renewable Energy Council and The Vote Solar Initiative and do not necessarily reflect the

recommendation of the authors, DOE, or NREL.

I. DEFINITIONS. AS USED WITHIN THESE RULES, UNLESS THE CONTEXT

OTHERWISE REQUIRES:

(a) “Biomass” means a power source that is comprised of, but not limited to, combustible residues or

gases from forest products manufacturing; waste, byproducts, or products from agricultural and orchard

crops; waste or co products from livestock and poultry operations; waste or byproducts from food

processing, urban wood waste, municipal liquid waste treatment operations, and landfill gas.22

(b) “Community Energy Generating Facility” means Renewable Energy Generation that is interconnected

at the distribution system level and that is located in or near a community served by an Electricity

Provider where the electricity generated by the facility is credited to the Subscribers to the facility. A

Community Energy Generating Facility may be located either as a stand-alone facility, called herein a

stand-alone Community Energy Generating Facility, or behind the meter of a participating Subscriber,

called herein a hosted Community Energy Generating Facility. A Community Energy Generating Facility

may be no larger than two megawatts (MW). A Community Energy Generating Facility must have at least

two Subscribers.

Subscribers pursuant to [code section for applicable Net Metering rules].

(d) “Locational Benefits” mean the benefits accruing to the Electricity Provider due to the location of the

Community Energy Generating Facility on the distribution grid. Locational Benefits include such benefits

as avoided transmission and distribution system upgrades, reduced transmission and distribution level line

losses, and ancillary services.

(e) “Net Metering” means a methodology under which electric energy generated by or on behalf of a

Subscriber and delivered to the Electricity Provider’s local distribution facilities may be used to offset

electric energy provided by the Electricity Provider to the Subscriber during the applicable billing period.

22 The definition of Biomass may need to be adjusted to reflect state renewable portfolio standard definitions.

SECTION 9: APPENDIX B

(f) “Renewable Energy Credit” means a tradable instrument that includes all renewable and

environmental attributes associated with the production of electricity from a Community Energy

Generating Facility.

(g) “Renewable Energy Generation” means an electrical energy generation system that uses one or more

of the following fuels or energy sources: Biomass, solar energy, geothermal energy, wind energy, ocean

energy, hydroelectric power, or hydrogen produced from any of these resources.

(h) “Subscriber” means a retail customer of a utility who owns a Subscription and who has identified one

or more individual meters or accounts to which the Subscription shall be attributed. Such individual

meters or accounts shall be within the same Electricity Provider’s distribution service territory as the

Community Energy Generating Facility.

(i) “Subscriber Organization” means an organization whose sole purpose is to beneficially own and

operate a Community Energy Generating Facility for the Subscribers of the Community Energy

Generating Facility. A Subscriber Organization may be any for-profit or non-profit entity permitted by

[state] law. The Community Energy Generating Facility may also be built, owned, and operated by a third

party under contract with the Subscriber Organization.

(j) “Subscription” means an interest in a Community Energy Generating Facility. Each Subscription shall

be sized to represent at least one kilowatt of the Community Energy Generating Facility’s generating

capacity; provided, however, that the Subscription is sized to produce no more than 120% of the

Subscriber’s average annual electrical consumption. For Subscribers participating in meter aggregation,

120% of the Subscriber’s aggregate electrical consumption may be based on the individual meters or

accounts that the Subscriber wishes to aggregate pursuant to these rules. In sizing the Subscription, a

deduction for the amount of any existing renewable energy generation at the Subscriber’s premises or any

Subscriptions owned by the Subscriber in other Community Energy Generating Facilities shall be made.

(k) “Total Aggregate Retail Rate” means the total retail rate that would be charged to a Subscriber if all

electric rate components of the Subscriber’s electric bill, including any riders or other additional tariffs,

except for minimum monthly charges, such as meter reading fees or customer charges, were expressed as

per kilowatt-hour (kWh) charges.

II. GENERAL PROVISIONS

(a) Subscriptions in a Community Energy Generating Facility may be transferred or assigned to a

Subscriber Organization or to any person or entity that qualifies to be a Subscriber under these rules.

(b) New Subscribers may be added at the beginning of each billing cycle. The owner of a Community

Energy Generating Facility or its designated agent shall inform the Electricity Provider of the following

information concerning the Subscribers to the Community Energy Generating Facility on no more than a

monthly basis: (1) a list of individual Subscribers by name, address, account number; (2) the proportional

interest of each Subscriber in the Community Energy Generating Facility; and (3) for Subscribers who

SECTION 9: APPENDIX B

participate in meter aggregation, the rank order for the additional meters or accounts to which Net

Metering credits are to be applied.

Generating Facility’s electricity generation shall be attributed for that Subscriber no more than once

quarterly, so long as the individual meters or accounts are eligible to participate.

(d) An Electricity Provider may require that customers participating in a Community Energy Generating

Facility have their meters read on the same billing cycle.

(e) If the full electrical output of a stand-alone Community Energy Generating Facility or the excess

generation from a hosted Community Energy Generating Facility is not fully allocated to Subscribers, the

Electricity Provider shall purchase the unsubscribed energy at a kWh rate that reflects the full value of the

generation. Such rate shall include the avoided cost of the energy, including any Locational Benefits of

the Community Energy Generating Facility.

(f) If a Subscriber ceases to be a customer within the distribution service territory within which the

Community Energy Generating Facility is located, the Subscriber must transfer or assign their

Subscription back to their Subscriber Organization or to any person or entity that qualifies to be a

Subscriber under these rules.

(g) If the Subscriber ceases to be a customer of the Electricity Provider or switches Electricity Providers,

the Electricity Provider is not required to provide compensation to the Subscriber for any unused Net

Metering credits.

(h) A Community Energy Generating Facility shall be deemed to be located on the premises of each

Subscriber for the purpose of determining eligibility for state incentives.

(i) Neither the owners of, nor the Subscribers to, a Community Energy Generating Facility shall be

considered public utilities subject to regulation by the [responsible agency having regulatory oversight]

solely as a result of their interest in the Community Energy Generating Facility.

(j) Prices paid for Subscriptions in a Community Energy Generating Facility shall not be subject to

regulation by the [responsible agency having regulatory oversight].

(k) A Subscriber owns the Renewable Energy Credits (RECs) associated with the electricity allocated to

the Subscriber’s Subscription, unless such RECs were explicitly contracted for through a separate

transaction independent of any Net Metering or interconnection tariff or contract. For a Community

Energy Generating Facility located behind the meter of a participating Subscriber, the host Subscriber

owns the RECs associated with the electricity consumed on-site, unless the RECs were explicitly

contracted for through a separate transaction independent of any Net Metering or interconnection tariff

or contract.

SECTION 9: APPENDIX B

(l) The dispute resolution procedures available to parties in the Electricity Provider’s interconnection

tariff shall be available for the purposes of resolving disputes between an Electricity Provider and

Subscribers or their designated representative for disputes involving the Electricity Provider’s allocation

of Net Metering credits to the Subscriber’s electricity bill consistent with the allocations provided

pursuant to Rule II.b. The Electricity Provider shall not be responsible for resolving disputes related to the

agreements between a Subscriber, the owner of a Community Energy Generating Facility, and/or a

Subscription Organization or any other party. This provision shall in no way limit any other rights the

Subscriber may have related to an Electricity Provider’s provision of electric service or other matters as

provided by, but not limited to, tariff, decision of [responsible regulatory body or agency], or statute.

III. NET-METERING PROVISIONS

(a) An Electricity Provider shall not limit the cumulative, aggregate generating capacity of Community

Energy Generating Facilities.23

(b) For a Community Energy Generating Facility, the total amount of electricity expressed in kWh

available for allocation to Subscribers, and the total amount of RECs generated by the Community Energy

Generating Facility and allocated to Subscribers, shall be determined by a production meter installed and

paid for by the owner(s) of the Community Energy Generating Facility. It shall be the Electricity

Provider’s responsibility to read the production meter.

available to Subscribers of that facility for Net Metering, including the host Subscriber, shall be based on

any energy production of the Community Energy Generating Facility that exceeds the host Subscriber’s

instantaneous on-site consumption during the applicable billing period and the Subscribers’ Subscriptions

in that Community Energy Generating Facility.

(d) For a stand-alone Community Energy Generating Facility, the determination of the quantity of kWh

credits available to each Subscriber of that Community Energy Generating Facility for Net Metering shall

be based on the total exported generation of the Community Energy Generating Facility and each

Subscriber’s Subscription in that Community Energy Generating Facility.

23 This program rule is based upon IREC’s Net Metering Model Rule (b)(2), which specifies that the cumulative, aggregate generating capacity

net metered by on-site renewable generation facilities shall not be arbitrarily limited. Some states cap the total amount of aggregate Renewable

Energy Generation that can be Net Metered for a particular Electricity Provider. Most commonly, aggregate enrollment caps are expressed as a

percentage of an Electricity Provider’s peak demand based on the aggregate of nameplate capacity of the generation systems (though it should

be noted that capacity calculations are not standardized in their methodology across or even within states). Such percentages can vary from as

low as 0.1% to as high as 20%. IREC believes aggregate caps arbitrarily and unnecessarily limit private investment in Renewable Energy

Generation and needlessly curtail the flow of benefits that are associated with customer-side Renewable Energy Generation. For states that place

an aggregate enrollment cap on net metered generation, that cap should be removed or expanded to ensure that community renewables programs

do not undermine successful on-site programs.

SECTION 9: APPENDIX B

(e) For Subscribers that host a Community Energy Generating Facility or where participating Subscribers

are located on the same distribution feeder as the Community Energy Generating Facility, the value of the

kWh credits for the host Subscriber and those Subscribers on the same distribution feeder shall be

calculated by multiplying the Subscriber’s share of the kWh electricity production from the Community

Energy Generating Facility by the retail rate for the Subscriber. For Subscribers on tariffs that contain

demand charges, the retail rate for the Subscriber shall be calculated as the Total Aggregate Retail Rate

for the Subscriber.

(f) For all other Subscribers to a Community Energy Generating Facility, value of the kWh credits

allocated to each Subscriber shall be calculated by multiplying the Subscriber’s share of the electricity

production from the Community Energy Generating Facility by the retail rate as charged to the

Subscriber, minus a reasonable charge as determined by the [responsible agency having regulatory

oversight] to cover the Electricity Provider’s costs of delivering the electricity generated by the

community electricity generating facility to the Subscriber’s premises after taking into account the

Locational Benefits and other benefits2 provided by the Community Energy Generating Facility. The

[responsible agency having regulatory oversight] shall ensure that this charge does not reflect costs that

are already recovered by the Electricity Provider from the Subscriber through other charges. In no event,

shall the charge, if assessed, be greater than the Subscriber’s distribution service charge as determined on

a per kWh basis.

(g) The Electricity Provider shall carry over any excess kWh credits earned by a Subscriber and not used

in the current billing period to offset the Subscriber’s consumption in subsequent billing periods until all

credits are used. Any excess kWh credits shall not reduce any fixed monthly customer charges imposed

by the Electricity Provider.

A Guide to

Community Shared Solar:

Utility, Private, and Nonprot Project Development

For more information, visit:

eere.energy.gov

Prepared by the National Renewable

Energy Laboratory (NREL), a national

laboratory of the U.S. Department of

Energy, Ofce of Energy Efciency and

Renewable Energy; NREL is operated by

the Alliance for Sustainable Energy, LLC.

DOE/GO-102012-3569 • May 2012

Printed with a renewable-source ink on paper containing at least 50% wastepaper, including 10% post consumer waste.

A Guide To Community Shared Solar: Utility, Private, And Nonprofit Project Development (Book), Powered By SunShot, U.S. Departme PV

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