In March 2007, Community Housing Works, a non-profit developer/owner of low income housing projects, unveiled a 56-unit multi-tenant unit (MTU) apartment complex called Solara in Poway, California, in San Diego county. Solara was designed from the ground up to incorporate green and sustainability features, including a net-zero energy footprint goal. To generate 100% of its own electricity, the project included a series of 836 solar photovoltaic (PV) panels with a total nameplate capacity of 142 kilowatts (kW) installed on rooftops and carports throughout the complex.
At the time of Solara's construction, most projects only attempted to incorporate solar PV to serve the energy load from common areas, such as laundry facilities or community rooms. These installations were limited because of outdated regulatory policies that required each individual unit to have its own physically isolated solar system.
Solara sought to bring solar power to all of its tenants and was forced in install separate arrays of panels for each and every unit. This meant taking a dozen panels at a time, wiring them to individual solar inverters (to convert energy from DC to AC), and running separate cabling from each cluster of solar panels directly into each tenant's separate electricity meter. Clearly, this was not the most efficient way to deliver power in an MTU property.
A Better Way?
In 2008, the California Public Utilities Commission (CPUC) created a program called "Virtual Net Metering", or "VNM" specifically for Multifamily Affordable Solar Housing (MASH) projects like Solara. (CPUC decision 08-10-036.)
Using VNM, a property could install solar panels and feed all of the energy into a single meter with a single inverter, and virtually divide the credit for energy production across a series of meter numbers provided to the utility. With VNM, each individual unit would not require its own inverter and separate wiring, making it an elegant and efficient solution that significantly reduces solar installation costs. Unfortunately, under the 2008 decision, VNM was only available for MASH projects. Until now.
CPUC Expands VNM
In July 2011, the CPUC approved decision 10-05-004 to expand VNM beyond the "MASH only" restriction and make it available to all multi-tenant and multi-meter customers in residential, commercial and industrial properties.
This means that property owners can now install solar PV on their apartment buildings or commercial multi-tenant properties and virtually distribute those benefits across various tenants, even if those tenants are not physically connected to the PV array.
The decision also elucidates the fact that properties can utilize VNM regardless of their participation in the California Solar Initiative (CSI) rebate program. Therefore, even if the state incentive programs become fully subscribed, a property could still use VNM to distribute solar benefits to its tenants.
Building owners in California can now offer cost-effective renewable energy solutions to tenants, allowing them to enjoy lower energy costs and hedge against future escalations in utility rates. Don't be surprised if you begin to see apartment buildings and commercial office buildings advertising the availability of low cost solar energy bundled into the cost of rent, or included with the building as an amenity.
Next Steps for VNM?
One of the most promising applications of VNM would be an expansion to allow the trading of energy credits beyond contiguous parcels under common ownership. VNM is an excellent option for tenants of buildings that cannot or will not go solar. For example, the complex may have shading that prevents solar installation. Conversely, it may receive plenty of sunshine, but lack the necessary roof space to accommodate all tenants.
Residential apartment/home renters have no real options since they technically don't own the roof over their heads. However, many could benefit from the advantages of renewable energy. So, what if there was a way "rent" a solar panel inside a solar farm located in an unused plot of land, instead of on the roof that they don't control?
Taking the CPUC 10-05-004 decision a step further, what if VNM could be used to allocate credits across town and not just on the premises of a particular MTU project? Could that two-acre vacant plot be used for a "solar garden" which could sell "shares" of generation to individuals throughout the utility service area? This concept of solar gardens (sometimes called "off-site solar") is currently prohibited by the CPUC, but a bill introduced in February 2011 in the California state assembly (SB 843) aims to allow these gardens to grow and flourish.
Investment Grade Solar Projects
Solar gardens, as an extension of VNM, provide a very elegant solution to the collateralization problem faced in traditional equipment financing and solar leases: default risk.
For example, if Joe Homeowner leases a car and stops making payments, the car can be repossessed and sold in a secondary market. This is possible because the loan can be secured by the collateral of the underlying leased asset (the car).
Unfortunately, solar assets on a rooftop are a little more difficult to repossess and the secondary market for panels is almost non-existent. As a result, interest rates for solar leases are often in the high teens, as the investment community views them as unsecured consumer debt, much like a credit card.
With a solar garden, however, the assets are placed in a central facility, off-site from the consumer and similar to a traditional community garden (sometimes called "Community Supported Agriculture", or CSA).
Under a CSA model, people pool their capital, plant a garden and grow a basket of crops. Every week, when the fruits and vegetables are harvested, each person receives their "share" of crops based on their individual ownership participation.
The default risk is mitigated because when Joe Homeowner stops paying his CSA bill, his share of tomatoes is simply given to somebody else and the CSA subscription can be resold to another participant. In the event of a default, no physical assets need to be repossessed from Joe Homeowner's property.
In a solar garden, when a subscriber defaults, there are no panels that must be removed from their roof. Rather, the solar garden can sell the subscription to somebody else and allocate the power "virtually" to a different meter. This makes it easier for institutional investment to support community solar projects and allow more solar gardens to grow.
Feed-in Tariffs and VNM
A model where power is generated and fed into the grid may sound similar to a Feed-in Tariff. However, a Feed-in Tariff (a policy mechanism implemented very successfully in Germany and other European countries) pays the project owner a fixed, agreed-upon rate for their generation. While Feed-in Tariffs are themselves a very elegant solution, they have created some controversy in California around the pricing mechanism and the specific rate at which the utility should be required to purchase energy.
Solar gardens, on the other hand, don't require the utility to determine a price at all. Instead of paying a dollar amount, they "pay" a certain number of kilowatt hours (kWh) by virtually re-assigning the energy credit to a different meter. For example, if a solar garden produces 50,000 kWh in a given month and is divided equally among 100 subscribers, each person would receive a credit on their bill for 500 kWh. If a particular customer consumed 700 kWh that month, their utility bill would reflect a 500 kWh credit and they would only be charged for 200 kWh.
Virtual Net Metering (VNM) has proven to be an effective solution for MASH properties and has now been approved for other multi-tenant applications such as apartment buildings and commercial offices. As a result of this decision, scores of MTU properties will likely expand their renewable energy footprint beyond common areas and into the spaces occupied by individual tenants.
The decision to expand VNM will enable a proliferation of distributed generation. However, to take this program to the next level, the geographical boundary restrictions must be lifted. The Community-Based Renewable Energy Self-Generation Program (SB 843) would expand the allowable VNM footprint beyond MTU buildings and allow individual renters (residential or commercial) to enjoy the benefits of renewable energy even if it is not physically installed at their location.
This expansion would create a fertile environment for institutional investment which has largely shied away from renewable energy because of the lack of collateralization and negligible salvage value of the underlying asset. VNM and solar gardens solve this problem and will open the door to significant renewable energy development.