The models of community solar outlined below are what we call “behind the meter, below the load” models which are currently the most feasible for community energy. In this approach, the host site agrees to purchase the energy over the life of the project, thus avoiding the issue of selling the energy into the energy market. The scale needs to be less than the minimum load profile to minimise grid connection issues and costs.
Donation/community organisation models – these models of community energy involve a community raising funds through donations (either using a crowdfunding platform or more traditional fundraising) to install renewable energy or undertake energy efficiency measures. Typically, the host site and beneficiary of this model is a community organisation such as a school, surf-lifesaving club, fire station etc. Examples of groups who are using community energy donation/community organisation models include CORENA, The People’s Solar and Clean Energy for Eternity
Community investment models – these models are where an organisation develops a sustainable energy project and raise funds through opening up the project to community investors, on the expectation that these investors will receive a certain return on their investment. Examples of a community solar investment model is the Repower Shoalhaven model.
Commercial-community partnership models – those where a community group partners with a commercial energy developer (or similar organisation) to deliver a community energy project. This can result in duel ownership between the community and the developer or other structures such as those developed by Clearsky Solar Investments.
Multi-household models of community energy – are about aggregating households to deliver sustainable energy solutions. Examples of such models include solar bulk-buys which were popular around 2009 and the Moreland Energy Foundation has developed a rates-backed solar model for low income households with the City of Darebin.
Why behind the meter solar?
There are many challenges and barriers facing the community energy sector (see Challenges and Opportunities Report) as there are with any new sector. The constraints focused on in this document are those that significantly affect the financial viability of community solar projects currently – wholesale electricity price, retail price, the status of the Federal Renewable Energy Target policy, and a number of legal requirements associated with raising investment. Note many of these constraints apply to community energy projects more broadly across all technologies.
Community energy models are motivated by more than commercial success. While community energy projects need to be financially sound and many (though not all) provide a return on investment, they are not purely commercial projects. That is, community energy projects will include outcomes and benefits beyond just financial returns. As such, community energy models all require a degree of volunteer time and pro-bono and in-kind contributions. In order to achieve the non-financial benefits of community solar, a community energy organisation must harness non-financial support. If you are in this just for the money, community energy isn’t for you.
There are some key components that contribute to the financial viability of a community energy project:
- Costs to get a project operational
- How funds are raised to get the project operational
- Costs once the project is operational
- Income once the project is operational.
The wholesale electricity price, retail price, the status of the Federal Renewable Energy Target policy all affect the income of a project once it is operational (the Embark wiki provides articles with more detail on these).
So how do these pricing mechanisms work?
The wholesale price is the price a project receives when exporting electricity to the grid. It is low, currently somewhere between 4-7c/kWh. Recently, demand reduction has increased competition in the wholesale market and thus reduced the wholesale price. With only a couple of exceptions there are currently no Feed-in Tariffs available for new solar installations and particularly not at the scale of a typical community energy project (>10kW). If a project sells electricity to a retailer, 4-7c/kWh is the maximum likely to be received per unit of electricity generated and this is unlikely to cover the cost of the actual renewable energy technology, let alone all the other costs in developing a community solar project.
The retail price is the price a home or business pays for electricity. This includes the wholesale cost, network chargers, retail charges and margin and more. Currently, residential customers and small business customers pay a relatively high retail price (for residential to semi-large energy users it ranges from 12-30+c/kWh). The most costly component of this is network charges.
Renewable energy certificates
The Federal Renewable Energy Target (RET) creates two markets for renewable energy generation. Systems smaller than 100kW (and even smaller for non-solar PV technologies) are eligible for Small-Scale Technology Certificates (STCs) and renewable energy systems greater than 100kW can sell Large-Scale Generation Certificates (LGCs).
- STCs for <100kW solar PV installations receive an upfront payment of approximately $35 per unit of electricity predicted to be generated by the solar panels over 1, 5 or 15 years (deeming period depends on the installation) See the Clean Energy Regulator website for more information.
If the size of a project is eligible and the process doesn’t change, it increases your financial certainty and decreases the amount of investment or donations you need to raise.
- LGCs for systems greater than 100kW sell LGCs in a market. The current market price is low and with current policy uncertainty the future price extremely hard to predict – thus there is both significant uncertainty and currently a low price.
The National GreenPower Accreditation Program is a voluntary Program for providing accredited renewable electricity to consumers. It is governed by state governments and funded by industry. GreenPower Providers use LGCs created through the RET to demonstrate they have purchased sufficient renewable energy to supply their GreenPower Products. LGCs used to meet GreenPower obligations cannot then be used to meet RET obligations. GreenPower does not currently accept STCs created under the SRES. During 2014 and 2015 the GreenPower Program has been under review. A number of options for the future of the program are under consideration which may impact community energy projects seeking to leverage GreenPower LGCs. Community Climate Chest is an example of a community group that provides 100% accredited GreenPower to communities at a reduced rate while supporting broader community interests through a percentage donation of sales.
Given these current electricity market realities, it is clear that if a community solar project can reduce an organisation’s import of electricity from the grid, thus reducing the amount of money that organisation pays for electricity at retail rates, the financial case for the community solar project will be much stronger than if a project relies on selling electricity to the grid at wholesale price. Further, if a project is smaller than 100kW it has greater financial certainty through the RET by receiving upfront STCs.
Seeking investment is a highly regulated process. To seek investment from more than 20 investors, your project most likely will need to be covered by an Australian Financial Services Licence, have a Prospectus, and undertake significant annual reporting. All of these add to the upfront and ongoing costs of a community solar project. For <100kW projects the income generated from the sale of electricity is unlikely to cover these additional costs.
These legal requirements affect both the cost of a project (in the development and operation phases) and a group’s ability to raise funds.
Two options currently work:
- Twenty investors or less, which reduces the community ownership and means that you need investors that can invest larger amounts in many cases $5000 or greater.
- More than twenty investors and pay the extra costs, meaning you need a larger renewable energy system (>400kW). This in turn restricts the number of possible host sites as there are few energy users in Australia that use the amount of electricity generated from a 400kW solar system during the day every day of the year. These large energy users usually have a very low electricity tariff. See more in the Characteristics of Good Host Sites in Section 4.