Editor’s Note:  Welcome to Colorado Energy News’ “Renewables Development Policy” section. This new topic area has been created to provide our readers with reporting and insightful analysis of the most current issues impacting development of renewable energy in Colorado. Topics that will be addressed include: recent legislative actions; PUC rulemaking activity; approaches to land acquisition and land use entitlements; actions and plans of locally serving energy providers; project financing methods; community solar gardens; smart grid’s relationship to distributed generation; the Governor’s Energy Office; innovative renewables technology; and more. We hope you find that the content in this new section keeps you up to date on vital policy issues and is directly applicable to advancing renewable projects in the State.

By David Miller, New Energy Development, LLC

On June 5th, 2010, Colorado enacted pioneering legislation empowering Coloradans to join together to create Community Solar Gardens. The first state-wide legislation of its kind in the nation, HB 1342 allows Colorado residential and commercial customers to own a share of a larger, off-site solar photovoltaic installation with the same benefits they would get with an on-site rooftop installation.  Benefits include rebates, renewable energy credit incentives, a federal tax credit, and net metering.

As proposed by State Representative Claire Levy (House District 13), the legislation’s sponsor, Community Solar Gardens are intended to open up solar energy opportunities to those otherwise excluded, such as renters, condominium owners, owners of historic properties, and owners of properties without adequate roof exposure. With Colorado’s new Solar Garden law, the idea is that anyone can share in the benefits of renewable energy production by joining together with other sustainability-minded people located within the same county.

WHAT IS A SOLAR GARDEN?
Community Solar Gardens are photovoltaic solar generation facilities that serve multiple electricity users who have joined together to form a cooperative to build and operate the facility.  Solar gardens are limited to subscribers who are customers of an investor owned utility such as Xcel or Black Hills Energy. Municipal Utilities and Rural Electric Associations are not included in the law, but could allow solar gardens if they so choose. 

A solar garden may have a capacity as small as 10kW or as large as 2MW.  The new law requires that half of all solar gardens installed each year must be smaller than 500kW, and would be governed by a utility’s standard offer (first-come-first-serve) process.  Projects larger than 500kW would be subject to a competitive request-for-proposals process. 

HOW WOULD A SOLAR GARDEN BE ESTABLISHED?
Each solar garden would require the establishment of a unique “subscription organization” that represents a group of subscribers.  This organization could take the form of a cooperative or a corporation that is formed to build, own and maintain the solar facility. The subscription organization would be responsible for handling issues such as new subscribers, transfer of subscriptions, change of location of subscribers, as well as dealing with operations and maintenance issues.

Subscribers may be residential, commercial or non-profits, though the law requires that there be a minimum of ten subscribers for each facility and that the facility and all its subscribers be located in the same county and within the same investor owned utility territory. Further, subscribers may own a share of the installation equal to no more than 120% of their average annual electricity usage.  The minimum size of a subscription would be 1kW.

Solar gardens may be built and owned by the subscriber organization or may be built, owned and operated by a third party partner under contract with the subscription organization.  The financing arrangement may follow lease, sale-and-leaseback or other deal structures currently used by solar developers.   The prospect of tax investors looking to capitalize on the tax incentives and renewable energy funds provides an interesting twist on financing as well.

WHAT ARE THE KEY ELEMENTS AND CHALLENGES?
The five key elements to implementing a solar garden are: assembling the group of subscribers; locating and tying up the site; entering into an off-take (power purchase) agreement with a utility; lining up financing to construct the facility; and building and operating the facility. Traditional solar developers can be expected to handle the last two elements.  Subscriber groups, on the other hand, may look at managing all elements, or more likely, use a third party consultant to assist with land acquisition, an off-take agreement, and working with a solar developer to arrange the financing as well as build and operate the garden.

Some of the primary challenges to implementing a solar garden include:

♦ Capacity Restraints: Lobbyists representing rooftop solar panel installers successfully pushed a capacity limitation into the legislation so that no more than 6MW per year will be committed to solar garden projects in the first three years.  This capacity restraint represents an artificial limitation on solar energy and distributed generation.

♦  Securities Issues:  Are subscriptions going to be regulated by the SEC as “securities?”  The answer is a clear “maybe.”  Solar gardens may avoid being characterized in this way by choosing a “cooperative” structure or by leveraging third party ownership of the facility and limiting subscribers to a contract for electricity.  Solar gardens may also embrace the securities concept and use established private placement channels to help establish the financing for the facility. 

♦  Property Tax Issues:  How State and local governments view solar gardens for tax purposes can impact the economics of a deal.  For example, commercial property is treated differently than residential property.  Recent legislation, including SB-177 (which addresses tax calculations for solar energy facilities) and HB10-1267 (which deals with third party owned systems installed on residential rooftops), may provide some guidance on how tax issues will be dealt with for solar gardens.

♦  Land Use Regulations: While many city and county land use regulations contemplate residential or commercial roof-mounted solar installations, most jurisdictions have no land use code provisions addressing larger ground-mounted renewable energy projects.  Solar garden developers will therefore need to include as part of their site selection efforts creative negotiation with government planning officials to receive approval for uses not contemplated by the existing code.

WHAT’S NEXT
Community Solar Gardens are an exciting expansion of distributed generation and solar energy production that can exploit economies of scale and broaden the availability of solar energy to more Coloradans.  There are some complexities that naturally follow the introduction of a new concept, but these initial hurdles can clearly be surmounted with good planning and the right partnerships. More detailed information about the implementation of the new law will be known this fall when the Colorado Public Utilities Commission completes its rule making process and the utilities issue their acquisition plans and standard offers for solar gardens. We’ll be sure to provide updates as these efforts are completed.

David Miller is a founding partner of Boulder-based New Energy Development, LLC. He has more than 15 years of experience as a transactional and government affairs lawyer, and as such has worked on complex projects for the U.S. government, large international firms and the largest IT company in the world.