United States: New York's Shared Renewables Initiative: A Bold Step To Expand Customer Access To Renewable Energy

"No man is an island, entire of itself..." In his 17th-century poem, John Donne aptly summed up the uniquely human desire to be connected to one's neighbors. This theme is being revisited today, as communities and neighborhoods from Maine to Hawaii have joined together to reap the environmental and economic benefits of clean, renewable energy through "community" or "shared" solar programs. These programs have enabled members of a community to pool resources and share the costs and benefits of a single solar energy installation that may be located remotely from the participants. Community shared renewables initiatives have the potential to dramatically expand the deployment of solar and other forms of "distributed generation," or "DG." For example, in the case of solar DG projects, the National Renewable Energy Laboratory estimated in its April 2015 Technical Report that approximately 49 percent of households and 48 percent of businesses are unable to host a solar photovoltaic (PV) system. Expanding the market to those customers could result in cumulative growth in PV deployment of 5.5-11GW from 2015 to 2020.1 New York recently enacted its own version of community renewables, which represents the most aggressive effort thus far to expand customer access to solar and other clean energy resources.

In its Order Establishing a Community Distributed Generation Program (Order),2 the New York Public Service Commission (NY PSC) introduced a shared renewables program (Community DG Program) to expand opportunities to purchase solar and other forms of clean energy to customers who are unable to install their own facilities on-site, either due to the high upfront costs or because their properties are unfit for installing solar panels or other clean energy projects. Unlike many similar programs, New York's Community DG Program is structured broadly to allow all forms of "behind the meter" generation that are eligible for net metering under existing law3 to be used for a community renewables project. This includes not only solar PV systems but also biogas facilities, wind turbines, fuel cells, and micro combined heat and power facilities.

Community DG Project Eligibility and Organization

To be eligible for net metering4 and to serve as a community DG project, a renewable energy facility must be no more than 2MW in size.5 This size limit should be large enough to permit community DG projects to capture the economies of scale that are crucial to maximizing the economic benefits to customers who participate in such a project.6 The project must also be located "behind the meter," at a site that is owned or leased by the project's "host" customer, and may include both demand or nondemand metered customer accounts. This feature is particularly important for siting community DG projects at multifamily housing facilities, which often have "master" demand meters for common load and nondemand meters for residential units. Additionally, a community DG project must be geographically located in the same service territory and NYISO load zone as the project's interconnecting utility.7

Under the Community DG Program, groups of eligible customers (Members) contract or organize with a project administrator (Sponsor), which may include project developers, municipal entities or nonprofits. The Sponsor is responsible for building, owning, operating and financing the community DG project, including interconnecting the project to the grid. The Sponsor also is responsible for the overall coordination of the project, including soliciting Members, allocating and managing each Member's proportionate share of the project's output in excess of the host's usage, and interfacing with the local utility. The utilities are responsible for tracking and distributing net metering credits in accordance with the Sponsor's instructions. Importantly, utilities are required to implement the Community DG Program without imposing any additional charges or fees on Members, at least initially. 

Potential Sponsors will need to have a wide variety of core competencies in order to successfully execute a community DG project. Sponsors will need to have, either in-house or through arrangements with third parties, skills ranging from low-cost customer acquisition and management to those more typically used for energy project development, including the ability to finance, own, and operate commercial-scale energy projects and to monetize any related tax benefits. To the extent renewable project developers do not possess these capabilities, they will likely seek to forge joint ventures or similar business arrangements with other interested parties to pursue project sponsorship opportunities under New York's Community DG Program.

Community DG Project Membership

A community DG project must have no fewer than 10 Members, but there is no prescribed maximum number of Members. Members may own or contract for their proportionate share of project output in an amount not less than 1,000kWh annually, and Members may not take more than their annual historical usage. To help facilitate project financing, the Community DG Program also allows up to 40 percent of the project's total output to be allocated to "anchor tenant" Members with more than 40kW of load (not including Members who are owners of multi-unit, master-metered buildings). 

The value of a community DG project for its Members is in the expected energy cost savings derived from their allocable share of the net metering credits produced by the generating facility in excess of the project host's usage. The excess output from the project is converted into the facility's net metering credits. The Sponsor is responsible for providing the utility with all necessary details as to how these credits are to be proportionally distributed among the Members. The credits are then applied to individual Members' bills, reducing their monthly energy charges. Utilities are required to provide a simple, on-bill credit to participating customers, enabling customers to see these direct economic benefits of joining a shared renewables project. 

Another feature of the Community DG Program is that a Member's allocation of net metered credits can be transferred or relinquished back to the project Sponsor in the event a Member decides to move. The project Sponsor may also accumulate net metered credits in other ways, such as when the output from the project is undersubscribed, or if a Member defaults on an obligation to the Sponsor and forfeits its share of credits. Sponsors are required to distribute unused credits to Members at least annually to avoid periodic cash-out requirements and to help compensate Members for project outages or other circumstances that may prevent a facility from reaching its forecasted annual production. 

Program Implementation Timeline

In the Order, the NY PSC noted strong support among many stakeholders for moving forward quickly to implement the Community DG Program. Accordingly, the Order creates an accelerated, two-phase timeline to facilitate the program's rapid implementation, while at the same time ensuring that DPS staff carefully coordinates the disposition of certain issues, such as rate design and the appropriate valuation of distributed resources generally, that are currently under consideration in New York's Reforming the Energy Vision (REV) proceeding. In early September, each of New York's investor-owned electric utilities made filings showing Community DG Opportunity Zones, or target areas where strategically located community DG projects would provide the greatest benefits to the local electric distribution system. The utilities are required to file tariffs implementing the Community DG Program by September 15. The first phase of the Community DG Program commences shortly thereafter, on October 19, and runs through April 30, 2016. During this first phase, qualifying projects are limited to those that either (i) install DG in areas where it can provide the greatest locational benefits to the power grid, or (ii) support economically distressed communities, by ensuring that at least 20 percent of the Members are low- or moderate-income customers. Utilities will then be required to open their entire service territories to community DG projects in phase two, beginning May 1, 2016. However, Sponsors of projects otherwise eligible for phase two will be able to file preliminary applications to interconnect during the first phase of the program. 

The NY PSC's Community DG Program, together with the landmark REV proceeding, further underscores the state of New York's interest in adopting bold measures to support market expansion and promote customer choice in accessing clean energy in an affordable manner. Potential Sponsors and Members alike are encouraged to closely monitor the implementation of the Community DG Program against the developing policies and legal requirements under consideration in REV and the rapidly evolving energy landscape in New York. 

Footnotes

1 NREL, "Share Solar: Current Landscape, Market Potential, and the Impact of Federal Securities Regulation," Technical Report, April 2015 (available at http://www.nrel.gov/docs/fy15osti/63892.pdf ). 

See Case No. 15-E-0082 (July 17, 2015). 

See New York Public Service Law §66-j and §66-l.

4 Net metering is the process whereby DG customers get a credit for electricity they deliver to the grid in excess of the electricity they consume from their DG project. Customers are typically credited at the full retail electricity rate for the power they sell back to the electric companies. "Virtual" net metering enables customers to assign their surplus power from their DG systems to other metered accounts that are not physically connected to the host DG system. Essentially, the excess electricity can be virtually assigned to reduce the bill of another account. Laws pertaining to net metering and virtual net metering vary from state to state.

5 The 2MW size limit applies to solar PV and small wind power projects; anaerobic digester projects are limited to 1MW, and fuel cell projects must be no larger than 1.5MW.

6 Each project built under the Community DG Program will be counted against the net metering utility's aggregate net metering cap (currently, 6 percent of each utility's 2005 peak demand).

7 Neither the New York Power Authority (NYPA) nor the Long Island Power Authority (LIPA) is subject to the jurisdiction of the NY PSC or to the Order. NYPA customers in Con Ed's New York City and Westchester service territories, however, will be able to participate in the Community DG Program. Moreover, LIPA has been "encouraged" by the NY PSC to adopt a shared renewables program along the lines described in the Order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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