By Mike Gordon, founder and chief strategy officer, Joule Assets
A new proposal submitted jointly by the New York State Energy Research and Development Authority (NYSERDA) and National Grid threatens to upend the community solar market in New York.
It appears to be a well-intentioned initiative, meant to increase access to community solar benefits for low-income residents in New York. However, if approved, the Expanded Solar for All (E-SFA) proposal would have significant consequences for both Community Distributed Generation (CDG) developers and the low-income residents that the petition aims to benefit.
Under the proposal, National Grid will be granted complete authority over 600 MW of community solar resources, a vast majority of the currently available market. This gives a tremendous amount of market power and control to an international conglomerate that is already under investigation for misuse of its market power.
At its core, this proposal would create a centralized market, effectively undoing over 20 years of progress made by state leaders to deregulate and reduce the power of utilities. Centralization will not only significantly reduce free market competition and consumer choice, it will also create a bottleneck for new community solar project development in New York, diminish value for developers, dampen critically needed innovation in the energy marketplace, and much more.
Here is a deeper look at why CDG developers should oppose E-SFA.
Reduction in value
If the Public Service Commission (PSC) approves the petition this Fall, National Grid will become the largest buyer of solar credits in the state, bar none. As a result, CDG developers will have very few options for who they can operate through, generally putting them at the mercy of the utility. The reduced competition created by market centralization could ultimately push down prices for developers, much like a farmer that sees the value of crops decline when selling to large chains.
Over the past few years, we’ve seen incentives for small-scale projects in New York decrease and difficulties associated with project development (permitting, interconnection, etc.) increase, cutting down the potential value of projects for developers. The E-SFA proposal will only further reduce value for developers.
Under the current market structure, developers typically give up 5-10% of the value stream of community solar projects, a savings that gets passed on to the off-takers. Under the new price structure, developers would be required to give up more than 20% for National Grid to meet its projected savings for HEAP residents. This increase would be covered in small part by cost-saving procedures but not nearly in full, leaving a significant budget gap for project developers or the government to fill.
National Grid will begin by charging a 1% administrative fee of the solar credits generated for managing the projects and customer allocations, which is the current requirement for any utility, but reserves the right to increase that fee with no cap on how high it can go. This would either raise prices for all consumers, including low-income residents, or developers would need to cover it with further reduced revenues.
Added complications for new projects
Developers should also be prepared for the possibility of a long and slow-moving RFP cycle that could leave them in a holding pattern. The proposal would create an exclusive bidding process, giving the utility free range to require 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 National Grid and offer community solar benefits to their own low-to-moderate income residents, they must first get permission from the state agency and prove their program would offer more financial benefit for residents than the E-SFA program. However, this will be nearly impossible to achieve as the E-SFA program may be subsidized by the Solar Energy Equity Framework — something that wouldn’t be available for the local municipalities.
Adding a mechanism like this reduces the amount of solar supply available for the incredibly successful municipal-led community choice aggregation programs, which have cut the cost of customer acquisition for developers in half. These programs can serve 1.2 million low-income New Yorkers right now, offering access to low-income project adders for developers.
Developers may also have a hard time finding available land for the development of new community solar projects as municipalities will be much more resistant to allocating municipal land for solar systems that won’t directly benefit their community.
What can developers do?
Any developer or individual that opposes E-SFA petition can submit a note asking the PSC to reject the proposal before the public comment period closes on August 22 and can Tweet at public officials through the final decision date later this fall.
Otherwise, there are other avenues you can take to discretely voice your opposition, such as reaching out to local advocacy groups or industry representative who can speak on your behalf anonymously.
The potential impact of the E-SFA proposal is far too great to do nothing. New York’s clean energy future 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 “founding father” of the demand response industry. He also played a critical role in expanding and enhancing the CCA market, and in architecting new financing solutions for the energy efficiency marketplace.