Paul Norton drives an electric car and likes the idea of getting clean energy from the sun. But putting solar panels on his family’s New Hope home wasn’t in the cards.
Like many people who have considered solar, Norton and his wife, Martha, didn’t want to borrow $20,000 or more to install rooftop panels and wait years for the payback.
Now, they don’t have to.
Centrally located shared solar is a new, and unusual, option for residential customers of Xcel Energy in Minnesota. People like the Nortons who want cleaner energy are signing up for community solar gardens — with no upfront cost. The first wave of projects is expected to be built next year.
“Ever since it has come out that we have a greenhouse gas problem, I have wanted to do something,” said Norton, who signed up for a Minnesota solar garden planned by Able Energy of River Falls, Wis.
At least 10 energy companies are offering community solar to Xcel residential customers, and most are ramping up marketing — with door-to-door campaigns, civic group partnerships and advertising. They promise a no-hassle way to go solar and save on electric bills. Only one solar garden is operating, but hundreds are in the pipeline and likely to be built next year.
“Customers have just not had access to a solution like this,” said Paul Keene, vice president of shared solar for NRG Home Solar, a Princeton, N.J.-based company that has entered the Minnesota residential market with door-knocking sales crews. “We see a huge pent-up interest.”
The program, mandated by a 2013 state law, marks the first time Xcel residential customers in Minnesota have been offered choice in their energy supplier.
For consumers, joining a solar garden is a long-term financial commitment that bears little resemblance to other transactions. Solar gardens save money for participants, who are called subscribers. But the terms of such deals can be confusing and should be studied closely, consumer experts say.
“It is similar to the purchase of a financial investment,” said Ben Wogsland, spokesman for the Minnesota attorney general. “Before deciding to invest, consumers should conduct due diligence and obtain written information similar to what an investor would get in a securities prospectus.”
Xcel’s program has rolled out slowly, with multiple regulatory delays and complaints of foot-dragging that the utility denies. Independent energy companies — not Xcel itself — are building the solar gardens and marketing them to the utility’s 1.2 million Minnesota customers. With more than 600 applications pending, industry officials expect solar gardens to bloom in 2016.
How the transactions work
Unlike those who invest in rooftop panels, Xcel customers who join solar gardens don’t own anything. Instead, they are subscribing to a share of a solar garden owned and operated by an energy company. It can be built in any sunny spot, but by law must be in the subscriber’s home county or an adjacent one.
It’s not just homeowners who are eligible — condo owners and renters who pay for their electricity also can participate, as can businesses, government and institutions.
But participants must get their electric service from Xcel to participate in this new program. Several other utilities, including Connexus, offer shared solar, though the options are significantly different from Xcel’s program, which is called “Solar Rewards Community.”
Most solar garden subscriptions are for 25 years, and the most popular are payment models with no upfront cost. In these pay-as-you go plans, solar subscribers pay a monthly amount to the operator, usually based on how much electricity is generated.
The solar garden’s electricity goes on the grid, not directly into subscribers’ homes. In fact, the subscriber isn’t buying the power — Xcel is buying it, and at a state-mandated price 2 to 3 cents higher than the retail rate. Subscribers still get all their power from Xcel, at retail rates.
The pricing difference is what creates savings for subscribers. Every month, the subscribers are credited by Xcel at the higher rate for their share of the solar garden’s output.
Using estimates from past bills, solar subscribers can offset all their electricity consumption with shared solar. Such subscribers would make no monthly payment to Xcel, only to the solar garden operator.
Two solar companies, MN Community Solar and Novel Energy Solutions, guarantee savings on electricity of 9 or 10 percent for 25 years. Another pay-as-you-go model, offered by SunShare, NRG Home Solar, Cooperative Energy Futures and others, is based on a kilowatt-hour charge that escalates annually. If Xcel’s electric rates go up faster than the solar price escalator, the savings increase over time.
It can be difficult to compare prices among different pricing models. Even so, looking at more than one company’s subscription agreement can help consumers decide which terms are best for them.
One other pricing option is paying everything upfront, similar to investing in a rooftop solar installation. These contracts also typically last 25 years, and produce no savings in early years, but bigger savings overall. Some companies, including MN Community Solar and SunShare, offer upfront and pay-as-you go plans.
“For a lot of consumers, they don’t necessarily have that money to put in up front, so pay as you go is really appealing,” said Lissa Pawlisch, director of the Clean Energy Resource Teams (CERTs), a University of Minnesota extension program that offers Web-based comparison tools, tips and other information to help people understand solar garden transactions.
Paying upfront can be a big investment. Doug Tiffany, a U agricultural economist, estimated that offsetting a residential customer’s entire 800 kwh monthly electric bill would require a $17,500 payment, and take 12 years to recover. “After that you start making money,” he said.
Yet that option has advocates. Michael Krause, a solar energy consultant working with Sundial Solar and a Minneapolis neighborhood group on shared solar atop the Linden Hills Food Co-op, said its upfront payment program offers two to three times more savings than pay-as-you-go plans. With them, he added, “a lot of the benefit is ending up in the pocket of the developer.”
Risks to consider
The first challenge faced by consumers is picking a solar developer who can deliver on the promised solar garden.
Two gauges of potential success are whether a planned solar garden has Xcel’s approval to connect to the grid and, if it doesn’t, what its position is in the approval queue. Yet those details have been protected as a “trade secret” by the solar industry, Xcel and state regulators, leaving consumers in the dark.
Timing matters because solar gardens built in 2016 get a 30 percent federal tax credit. After next year, the credit drops to 10 percent. Projects delayed beyond 2016 may never get built — or must redo their financing. Although the tax credit doesn’t go to the consumer, it’s a key factor in the pricing.
Solar industry officials and Xcel are discussing whether connection-related information will be made public. For now, there’s no official list of bona fide solar garden companies in Xcel’s program. CERTs, the university outreach program, has a partial list on its website. The Star Tribune interviewed 10 companies that say they offer or soon will offer community solar to residential customers.
Some of the obvious risks to solar gardens are failure of the solar panels, bankruptcy of the operator or an overly optimistic estimate of how much solar energy will be produced. Solar garden operators are responsible for maintenance, insurance and repairs, and those expenses are built into the rates.
One benefit of monthly payments based on output is that subscribers won’t have to pony up if the solar garden stops generating power. In theory, this is an incentive for garden operators to do proper maintenance and rapid repairs.
Under state rules, solar gardens’ subscription agreements must be disclosed to potential subscribers. But some companies make consumers jump through hoops, such as getting a credit check first. Experts say consumers should scrutinize the terms before signing, especially concerning what happens if a subscriber moves out of Xcel’s service area.
Sean Brown of St. Louis Park said he was excited when an NRG salesman knocked on his door in October selling community solar. But he quickly got turned off by a requirement to undergo a credit check before getting to read the contract.
Once Brown got a copy, he looked at the termination clause. If he moved out of Xcel’s region, he could be stuck with the solar garden subscription. If no one else wanted to take it over, NRG would keep charging him each month — even though he got nothing in return.
He didn’t sign up. “I wanted it to work,” he said. “There were too many red flags.”
Other solar garden companies take back the subscription if a subscriber moves. Some charge a modest fee. SunShare, a Colorado-base solar garden company, doesn’t charge a fee, and the terms appealed to Kate Wellner of Minneapolis, who signed up to join one of its planned solar gardens.
“I am used to reading through contracts,” said Wellner, who works for Target. “I was looking to make sure that I don’t get stuck in a situation I didn’t want.”
If something goes wrong with a solar garden, consumers shouldn’t expect Xcel to resolve it. Xcel does handle the bill credits for solar gardens, but most other things are the operator’s responsibility. If consumers feel wronged, they can file complaints with the state Public Utilities Commission or attorney general.
One concern about solar gardens is the exclusion of financially strapped people who could benefit most from the savings. That’s because solar garden companies, and their lenders, only want customers with good credit scores.
In the first effort to address the problem, the Shiloh Temple International Ministries of Minneapolis and Cooperative Energy Futures, an energy-focused co-op, have agreed to accept solar subscribers with lower credit scores. To assure lenders, the church has agreed to take over a subscriber’s solar shares if the subscriber can’t pay. The solar array is to be built on the church’s roof.
“We don’t want people to be turned away because of their credit score,” said Julia Nerbonne, executive director of Interfaith Power & Light, a faith-based clean energy group that is working on the problem.
Marketing solar gardens
Marketing of solar gardens to Xcel customers is ramping up.
Several companies have alliances with community and church groups that have screened projects and agreements and are recommending them to members. Consumers also can expect to see more advertising, door-to-door pitches and mailings about solar gardens.
Two large U.S. solar companies, SolarCity and SunEdison, said they plan to offer residential community solar in Minnesota, but have not announced details.
Until now, SunEdison focused on signing up institutional and corporate customers. SunEdison reported bigger-then-expected losses last week, and its stock has lost three-fourths of its value since late July. SolarCity’s stock also is down by half since July.
Most solar gardens won’t be built in subscribers’ communities. Solar developers say it’s particularly hard to find suitable urban sites. Most proposed sites are in Dakota, Wright and Sherburne counties, typically on leased farmland. A 1-million-watt project takes 8 acres or more.
“I don’t think that is a real surprise,” CERTs’ Pawlisch said of the push to build big solar projects on the urban fringe.
Customers who prefer to support solar gardens atop community buildings and local churches may find limited choices. That presents a dilemma and a risk — to sign up for a giant solar garden in the next county, or wait for a neighborhood project that may not happen.
“It is up to the subscriber to sort out, ‘What are my priorities?’ ” said Pawlisch.