Next Steps for Community Solar After the Passage of Oregon’s Landmark Clean Energy Legislation

Oregon’s landmark “Clean Electricity and Coal Transition Plan,” Senate Bill 1547 (SB 1547), was recently signed into law by Governor Kate Brown. Among other things, the new law increases Oregon’s renewable portfolio standard to 50 percent by 2040 and requires Oregon’s investor-owned utilities to eliminate coal-fired resources from the electricity allocated to Oregon’s ratepayers by 2030.  We will be posting an analysis of the new law shortly, but in this post we wanted to focus on the part of SB 1547 that will establish a community solar program in Oregon.

The new Community Solar Projects law, which appears in Section 22 of SB 1547, directs the Oregon Public Utility Commission (the “Commission”) to establish a community solar program. The Oregon legislature had been exploring the idea of community solar before it passed SB 1547, and in 2013, it directed the Commission to study the effectiveness of Oregon’s solar energy incentive programs, including the resource value of solar energy and the impact of programs to encourage solar development (Docket No. UM 1716).  In 2015, the legislature directed the Commission to examine a range of possible community solar programs under HB 2941 and to recommend community solar program designs, which the Commission did after holding public workshops and comments (Docket No. UM 1746). See our previous blog entries here, here and here.

Before SB 1547 became law, there was no statute or rule enabling a retail customer to acquire an interest in a community solar project. SB 1547 will eventually change all of that.  Here are the basics you need to know about the new community solar program law in Oregon:

How does Oregon define a “community solar project”? A community solar project is one or more solar photovoltaic energy systems that provide owners and subscribers the opportunity to share the costs and benefits associated with the generation of electricity by the system(s).  Residential or commercial customers who, for one reason or another, are unable to install or fully utilize a solar system on their property can either own or subscribe to a partial interest in a community solar project.  The community solar program will be especially useful for Oregon commercial customers who want to procure renewable energy to meet corporate sustainability goals but are unable to do so because of physical constraints on their property, legal limits imposed by their leases, or limits on direct access to off-site renewable energy projects.

How does a consumer acquire the right to receive electricity from a community solar project? Eligible consumers can either own or lease a portion of the project.  An ”owner” is a customer of an electric company who has a proportionate ownership of part of a community solar project, such as direct ownership of one or more solar panels or shared ownership of the project’s infrastructure.  A “subscriber” is a customer of an electric company who proportionally leases part of a community solar project for a minimum of 10 years.

Where can a community solar project be located? The project must be located in Oregon, but the new law adds that the project can be “located anywhere in the state.”  This language makes it clear that a community solar project need not be located within the service territory of the electric company that serves the customer—or even close to the customer.  Western Oregon is infamous for its overcast skies, but Eastern Oregon is sunny 300 days out of the year.  The devil is in the details to be hammered out by the Commission, but owners or subscribers in drizzly Portland could in principle earn a credit on their electric bill from a solar project located in a desert on the eastern side of the Cascade Mountains.

Who is eligible to be an owner or subscriber to a community solar project? Eligible customers, both owners and subscribers, must be located in the state of Oregon and within the service territory of an electric company (i.e., one of Oregon’s investor-owned utilities).  The term “electric company” does not include municipal electric utilities, peoples utility districts, or electric cooperatives.

Who can manage a community solar project and offer ownership or subscription interests? A project manager, which can be an electric company or an independent third party, will be responsible for managing the operation of the community solar project.  If the project manager is an independent third party, it will also be responsible for communicating with the electric company that buys electricity from the project.  A project manger may offer consumers ownership in or subscriptions to a community solar project.

Is there a minimum or maximum system size? A community solar project must have at least one solar photovoltaic energy system with a minimum generating capacity of 25 kilowatts.  The law does not, however, impose a maximum project size.

How much electricity can a consumer own or subscribe to? The project manager can offer, and a consumer can own or subscribe to, any amount of electricity that does not exceed the owner’s or subscriber’s average annual consumption of electricity.

How will consumers receive credit on their electric bill for their share of electricity generated by the solar project? Unless the Commission decides for good cause to use an alternative crediting mechanism, owners and subscribers will receive credit on their bills in a manner that reflects the resource value of solar energy.  The law requires the Commission to determine the meaning of the phrase “resource value of solar energy,” which is a topic that the Commission is considering in its UM 1716 docket.

What happens to the electricity generated by a community solar project developed by an independent third party? As part of the community solar program to be established by the Commission, the electricity would be sold to an electric company under a 20-year power purchase agreement (PPA).

Who owns the renewable energy credits (RECs)? Owners and subscribers own all RECs that are associated with the electricity generated by a community solar project.  The RECs are allocated to each owner or subscriber in proportion to the owner’s proportional ownership in, or the subscriber’s proportional subscription to, the project.

Who bears the costs and benefits of building, owning, and operating the community solar project? In general, owners and subscribers bear the cost and benefits of the community solar project.  Costs incurred by an electric company under a PPA are recoverable in the electric company’s rates, and funds collected pursuant to those rates may be transferred to the project manager for purposes of operating the project.

Will community solar projects provide benefits to low income residential customers? Yes.  SB 1547 directs the Commission to determine a methodology by which low-income residential customers will receive 10 percent of the generating capacity of the community solar projects operated under the program.  (The Commission is authorized to review and adjust the percentage periodically.)  The new law also provides that any value associated with the generation of electricity that exceeds an offer to own or subscribe to a project must be used by the electric company procuring electricity from the project in support of the electric company’s low-income residential customers.

Is SB 1547 Complete and Self Executing? No.  The new law leaves many questions unanswered, and the Commission will soon open a docket to create the program.  Here are a few topics that may be considered as part of that docket:

• If the community solar project is owned by an electric company, it will presumably serve that utility’s owners and subscribers. But if an independent third party develops a community solar project, do all the owners and subscribers for that project need to be customers of the same electric company, or could there be a mix? For example, in the case of a 20 MW project, could the owners or subscribers for 10 MW of the project be the customers of one electric company, while customers of another electric company own or subscribe to the remaining 10 MW? If a mix is allowed, could each electric company enter into a “slice” PPA for a portion of the project’s output?
• Could part of a project be certified as community solar while another part is used for sales to a utility in response to a request for proposals, qualifying facility, or bilateral PPA?
• If a community solar project managed by an independent third party interconnects with a utility other than an electric company, how will the transmission to the electric company’s system be handled?
• What structures will the program allow (or require) to establish an ownership or subscription interest in the project, particularly in the case of facilities that are developed and operated by an independent third party? Will the owners and subscribers be tenants in common of the facility, or can they own or subscribe indirectly through a partnership, limited liability company or corporation, or will their interest be established by some other mechanism? Flexibility in structuring will be important to ensure the tax-efficient use of the tax credit and property depreciation benefits associated with the solar facility, and will determine whether such tax benefits can be used by the electric company, the independent third party, or the owners or subscribers.

What is Next? The Commission will open a docket and create the program.  SB 1547 directs the Commission to establish rules for procuring energy from community solar projects.  Specifically, the Commission is directed to:

• adopt rules determining what qualifies as a community solar project eligible to participate in the program;
• certify qualified community solar projects;
• determine the form and manner by which project managers may apply for certification; and
• require that electric companies enter into a 20-year power purchase agreement with a certified community solar project.

The rules that the Commission adopts must, at a minimum, (1) incentivize customers to be owners or subscribers; (2) minimize cost-shifting from the community solar program to ratepayers who do not own or subscribe to a community solar project; (3) in cases where an electric company is the project manager, protect owners and subscribers from undue financial hardship; and (4) protect the public interest. The Commission also has the authority to suspend the program for good cause.

The Commission’s staff promptly scheduled a workshop to discuss SB 1547 as a whole—bear in mind that the community solar program is just a part of this important legislation. Staff will host a workshop for interested parties at 1:30 pm on April 21, 2016, in the Commission’s Hearing Room in Salem, Oregon.  The purpose of the workshop will be to identify issues that the Commission will address as a result of SB 1547’s passage and to provide feedback on the staff’s proposed implementation plan for related Commission actions.  Staff will circulate the draft plan before the workshop.  The Commission will likely create separate dockets to address the various components of the law, including the community solar provisions.

What does this law mean for solar in Oregon? The short answer is that it will encourage solar project development in the state.  There are several features of Senate Bill 1547 that are intended to promote such development: (1) investor-owned utilities will be required to enter into 20-year PPAs with community solar projects owned by independent third parties, (2) the projects must be located in the state of Oregon, and (3) any customer of an investor-owned utility—residential or commercial—is allowed to participate in the program.  The combination of these factors should encourage solar development within the state and will also give end-use customers greater freedom to select the source of their electricity.  Third parties seeking to develop community solar projects should be able to obtain financing for their projects based upon the 20-year PPA that the project would enter into with an electric company.  As the law is currently written, either investor-owned utilities or third parties can offer a community solar programs, and it will be interesting to see how consumer demand  responds to  the two alternatives.

We will continue to monitor and update you on the implementation of the community solar program in Oregon. For a copy of SB 1547, please click here.