Community solar is one of the solar industry’s most promising market segments. Rising demand and falling costs are making it increasingly attractive to utilities — but adding an entirely unfamiliar program poses major challenges in program design and consumer outreach
If they get it right, utilities can unlock solar for swaths of customers while adding new revenue streams. If they get it wrong, utilities could be stuck with undersubscribed assets and a high price tag.
In a recent report titled Accelerating Adoption of Community Solar, the Pacific Consulting Group (PCG) and Smart Electric Power Alliance (SEPA) surveyed nearly 900 consumers and analyzed 375,000 possible policy designs, identifying ideal program designs and marketing approaches to ensure utilities “get it right the first time.”
Getting it right the first time would be a win-win for utilities and their customers.
“From a societal cost and benefits perspective, community solar is just more efficient,” said Derek HasBrouck, a partner at PA Consulting. “It provides an opportunity to capture solar resources in the most cost-effective way for society.”
America’s community solar market has grown slowly through its first decade, with just 66 megawatts of installed capacity through 2014. But that’s about to change. GTM Research forecasts a half-gigawatt annual market by 2020.
The market drivers are beautiful in their simplicity: reaching new customers without solar access in bulk by flexibly siting clean energy generation across a service territory.
A 2015 report from the National Renewable Energy Laboratory (NREL) outlined the range of Americans poised to benefit from community solar. According to the analysis, 49 percent of U.S. households can’t own rooftop solar because they don’t own their home or they live in a high-rise building, and 48 percent of businesses can’t host solar because of insufficient roof space.
NREL’s report also underlines potential utility profits from reaching these customers. Community solar could represent nearly half of America’s distributed solar market and up to $16.3 billion in cumulative investment, both by 2020. And that’s without considering the benefits of expanding customer relationships into new products.
Education and cost challenges loom large
Connecting a community solar offering and this potential customer base isn’t a simple task, however.
“Your typical citizen has no clue what community solar is,” said Dan Chwastyk, utility strategy manager at SEPA. “The first step really needs to start with customer education so people are informed and can make intelligent decisions regarding their participation.”
As with most consumer decisions, the choice to subscribe to community solar projects often comes down to one factor: price.
Even though solar costs continue to fall, community solar projects can require a large upfront investment or a critical mass of subscribers before construction, meaning most utilities may not be able to offer customers immediate cost savings or guarantee future savings.
PCG and SEPA say that’s problematic for customers who aren’t incentivized to pay a premium for clean power. More than one-quarter of respondents ranked “initial investment” as the most important attribute in their decision to adopt community solar, while 20 percent said “net monthly impact on bill five years out” or “initial net monthly impact” was most important.
“Whether it’s rooftop solar, or community solar, the message 'this is somehow going to save money' is the expectation of consumers,” said HasBrouck. “That’s the tough part of the message. It’s tough to get it to pencil out to actually save money.”
PCG and SEPA found customers responded best to no initial investment requirements with a higher percentage of bills covered, and viewed bill increases negatively, but with little influence given to incentives like late-fee forgiveness.
While this cost barrier is challenging, it’s not insurmountable. Chwastyk cited the Sacramento Municipal Utility District (SMUD) blended rate approach to show how utilities can balance future cost declines and existing power-purchase agreements (PPAs).
Under this approach, community solar customers are offered a specific price based on the cost of the utility’s existing community solar PPAs when they sign up. As customer demand grows, the utility could build a second project at a cheaper price point, and with the blended rate, existing customers and new customers would pay the average of all PPAs.
“Subscribers today would be able to benefit from future cost reductions, which certainly gives a little more confidence to individuals who are hesitant because they think prices are going to decline,” said Chwastyk.
Flexible programs increase customer appeal
Contract flexibility can also help address customer concerns. The PCG-SEPA survey shows 14 percent of respondents, the third-largest individual response, said “duration of contract” was the most important attribute for community solar subscription decisions.
Survey respondents also favored marketing messages addressing contract flexibility. “Get started right away, cancel anytime,” ranked fourth most persuasive among 15 potential messages.
This theme played out in PCG program design testing. Respondents said a 10-year contract was nearly 35 percent less attractive and a five-year contract was 3 percent less attractive, but a month-to-month contract was nearly 26 percent more attractive.
“In a focus group I heard one customer say, ‘My cell phone contract is only two years, and I hate how long that is — why would I want to sign up for a longer contract in community solar?’” said Chwastyk, citing Rocky Mountain Power’s approach of allowing customers to join or leave the program whenever they want, with cost risk factored into subscription price as a middle-ground example.
Utilities can also consider requiring a security deposit where customers are charged a set fee upfront covering a specific subscription term. If they leave early, they’re charged a prorated amount of the funds — but once their subscription term is reached, they can leave the program and get the entire deposit back.
Beyond cancellation policies, customers also look for flexibility in taking their subscription with them if they move within a utility’s service territory. “If you move you can take it with you,” was the fifth-most persuasive message PCG tested, mirroring one of community solar’s prime benefits.
“For the Americans making up the more transitory portion of the population, the utility being able to smooth that out…and theoretically continue to benefit from your slice of a solar garden someplace is a significant benefit,” said HasBrouck.
Existing utility-customer communications work best
Designing community solar programs can be a thorny process, but once utilities figure it out, they’re primed to reach potential customers using existing communications channels.
Survey respondents ranked utilities most influential on community solar ahead of all other options (including neighbors, government officials, or well-known personalities) and ranked “messages on the utility bill” and “utility bill stuffer” as two of the four highest-priority ways to learn about new community solar offerings. This clearly opens the door for utilities to expand existing customer education efforts.
“Weatherization and other energy-efficiency investment programs are probably the things to look at as a bit of model there,” said HasBrouck. “Research has shown the same general finding with efficiency — we don’t see sports stars plugging insulation products.”
PCG and SEPA suggest utilities use these “synergies” among messaging and messenger to educate customers at key moments. For instance, emphasizing eligibility for money-saving opportunities next to the monthly charge on a utility bill “could be very effective.”
Existing relationships also put utilities in a good position to reach customers who may be more likely to subscribe, namely, those already on a green tariff program or those with electric vehicles or charging stations. “Reaching out to those customers first can really go a long way to getting the most bang out of your buck on marketing budgets,” said Chwastyk.
A transitional business model for utilities
The challenges of designing and marketing a successful community solar program may be daunting for utilities, but it could also be a key aspect to a successful next generation utility business model defined by consumer demand for cleaner energy and innovative products.
“The utility model is changing, and everybody agrees utilities have to get more customer-centric with the type of services and products they provide,” said Chwastyk. “Community solar itself is a business model to transition to a much more customer-centric entity.”
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