Tesla Motors recently announced that it would share its technology patents, which has put a spotlight on open source and open standards. These standards already play a huge role in the computer industry: PCs have an open architecture and the World Wide Web has open standards. Google built its business on the open source Apache server and developed the open Android operating system. In 2011, Tioga Energy released an open source solar PPA. Can open standards and open source benefit the community shared solar industry?
Shared renewable energy systems (a common example is known as a solar garden) provide electricity that is credited to multiple utility customers. Shared systems are often managed by third parties, which must regularly communicate data to the utility, such as the proportion of energy to be credited to each account. Utilities use a variety of different billing software packages and credit participants in different ways, such as virtual net metering and community solar tariffs.
One of the very first solar gardens was developed in Ellensburg, Washington in 2006 with about 90 subscribers. Every three months, the resource manager of this small municipal utility would physically read the production meter. The kWh produced would be entered into a simple spreadsheet to calculate the billing credits, equal to each subscriber’s fractional interest multiplied by the revenue generated by the array. Utility billing department staff would then manually credit each subscriber account by the calculated amount. As the community renewables industry grows, managers require an automated and secure means of communicating between shared system managers and billing.
Open communication standards would allow billing software vendors to develop shared renewable application programming interface (API), and might encourage the creation of open source tools for shared system managers. In order to reduce the startup legal costs for any community renewables project, developers must adopt standardized business structures and approaches to securities law such as Direct Public Offerings. Such tools might lower fixed costs and lower the barriers to entry for community nonprofits, solar integrators, and small utilities, thereby speeding development of shared renewable systems.
Small utilities rely on commercially available billing software, and are beginning to demand functionality for community renewable bill credits. If open standards are available, software providers will be more easily able to add this functionality, just as the availability of the HTML open standard encouraged the development of web browsers. Open source software would benefit nonprofit and municipal system managers and small rural utilities.
Simplifying Securities and Tax Benefits
Community solar advocates, or “solar gardeners,” face challenges in developing shared renewable projects. The legal cost to develop a relatively small project that can both claim the federal 30 percent Investment Tax Credit and comply with federal and state laws regarding securities offerings can be prohibitive. Business structures cannot be considered intellectual property since they are contracts between persons. An open source approach offering replicable business structures might be able to lower barriers to entry for the shared solar industry segment.
The federal solar 30 percent Investment Tax Credit (ITC) will decrease to 10 percent at the end of 2016. However, continued equipment and soft cost reductions will allow projects to make sense without this incentive in many areas, especially community solar that often do not need as high a rate of return as traditional projects and frequently operate on a not-for-profit basis. Since tax equity is unnecessary, community solar projects are greatly simplified in both business structure and finance. For instance, Re-Volv’s 22-kW crowdfunded PV project on the Kehilla Synagogue in Piedmont, Calif. was successfully financed and installed without requiring tax equity at a cost of less than $3/Watt.
The tax code may allow certain subscribers/participants that qualify to claim a credit on their own taxes. The IRS tax code allows a 30 percent tax credit for residential customers. In late 2013 the IRS issued Notice 2013-70 that indicates this possibility for projects completed before the end of 2016.
Several securities law approaches show promise for the post-ITC era. Government, utilities, and nonprofits all enjoy exemptions from federal securities registration. Some states also give an exemption for cooperative associations. Providing these organizations with reproducible templates for community projects will help expand access to shared renewables in the public and nonprofit sectors.
For-profit organizations can look to two promising models for simplified securities offerings. Federal securities law offers an exemption for an intrastate Direct Public Offering (DPO) of up to $5 million from non-accredited investors (those with incomes less than $200,000 or net worth less then $1 million). Cutting Edge Capital in Oakland, California specializes in DPOs.
The Jumpstart Our Business Startups Act (JOBS Act) was signed into law by President Obama on April 5, 2012. It allows crowdfunded equity for up to $1 million. This is enough to support a solar project of about 300 kW at today’s prices. The Federal Securities and Exchange Commission issued proposed rules in October 2013 that, when finalized, will allow offerings through brokers and a new entity called a funding portal. Standardized models for these kinds of securities offerings could save on costs.
The Solar Gardens Institute is convening stakeholders interested in establishing open standards for community renewables. Such a group would ideally include utilities, solar developers, solar industry organizations, regulators, and billing software developers. Let’s make open source software, business structures, and finance tools available to communities everywhere.
To download the Solar 2014 paper on open standards, click here.
Lead image: Solar panels via Shutterstock