New proposal threatens to upend community solar and reduce developer profits in New York
By Mike Gordon, Founder and Chief Strategy Officer, Joule Assets
A new proposal, jointly submitted by the New York State Energy Research and Development Authority (NYSERDA) and National Grid, threatens to rock the community solar market in New York.
It appears to be a well-intentioned initiative, designed to increase access to community solar benefits for low-income New York residents. However, if the Expanded Solar for All (E-SFA) proposal is approved, it would have significant implications for both Community Distributed Generation (CDG) developers and the low-income residents the petition seeks to benefit.
Under the proposal, National Grid will have full authority over 600 MW of community solar resources, a vast majority of the currently available market. This gives an enormous amount of market power and control to an international conglomerate that is already under investigation for abuse of its market power.
At its core, this proposal would create a centralized market, effectively undoing the more than 20 years of progress made by state leaders to deregulate and reduce the power of utilities. Centralization will not only greatly reduce free market competition and consumer choice, it will also create a bottleneck for the development of new solar energy projects in New York, reduce value to developers, dampen much-needed innovation in the energy market and much more.
Here’s a deeper look at why CDG developers should oppose E-SFA.
If the Public Service Commission (PSC) approves the petition this fall, National Grid will become the largest buyer of solar credits in the state, without exception. As a result, CDG developers have very few options for who to work for, leaving them generally at the mercy of the utility. The reduced competition resulting from market centralization could eventually drive down prices for developers, much like a farmer who sees crop value decline when sold to large chains.
In recent years, we have seen the incentives for small-scale projects in New York decrease and the difficulties associated with project development (permits, interconnection, etc.) increasing, reducing the potential value of projects to developers. The E-SFA proposal will only further reduce the value to developers.
Under the current market structure, developers typically give up 5-10% of the value stream of community solar projects, a savings that is passed on to the buyers. Under the new pricing structure, developers would have to forgo more than 20% for National Grid to meet the expected savings for HEAP residents. This increase would be offset to a small extent by cost-cutting procedures, but by no means completely, leaving a significant budget deficit for project developers or the government.
National Grid will begin charging an administrative fee of 1% of the generated solar credits for managing the projects and customer allocations, which is the current requirement for any utility company, but reserves the right to increase that fee with no limit to how high it can go. This would either raise prices for all consumers, including low-income residents, or developers would have to cover this with further reduced revenues.
Added complications for new projects
Developers also need to be prepared for the possibility of a long and slow RFP cycle that can leave them in a waiting pattern. The proposal would create an exclusive bidding process, giving the utility free rein to demand risky contract features for developers or move at their own pace and delay the completion of new assets, slowing the overall growth of renewable energy.
If a municipal leader wants to bypass the National Grid and offer community solar benefits to their own low- to middle-income residents, they must first get approval from the state agency and prove that their program would provide more financial benefit to residents than the E -SFA program. However, this will be nearly impossible as the E-SFA program may be subsidized by the Solar Energy Equity Framework – something that would not be available to the local municipalities.
Adding such a mechanism will reduce the amount of solar energy available to the incredibly successful council-led community choice pooling programs, cutting the cost of customer acquisition for developers in half. These programs can currently serve 1.2 million low-income New Yorkers and provide developers with access to low-income project adders.
Developers may also struggle to find available land to develop new community solar projects, as municipalities will be much more resistant to allocating community land for solar systems that do not directly benefit their community.
What can developers do?
Any developer or person opposed to the E-SFA petition can: submit a note ask the PSC to reject the proposal before the public comment period closes on August 22 and may Tweet to officials until the final decision date later this fall.
Otherwise, there are other avenues you can take to discreetly voice your opposition, such as contacting local advocacy groups or industry representatives who can speak anonymously on your behalf.
The potential impact of the E-SFA proposal is far too great to do nothing. The future of clean energy in New York depends on you.
Mike Gordon is the founder and Chief Strategy Officer at Joule Assets. Gordon is considered the father of the Energy Reduction Asset class, a “founder” of the demand response industry. He also played a vital role in expanding and improving the CCA market and designing new financing solutions for the energy efficiency market.