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SolarStateofMind:ExpandingCommunityDistributedGeneration

inNewYorkState

May2017

Authors:

ArianeBenrey,EllieKahn,MarkKimDavidMaravilla,JullyMeriñoCarela,ParthVaidya

Advisor:

ProfessorStevenCaputo

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Aboutthisreport

ThisstudyistheproductofateamofgraduatestudentsfromtheSchoolofInternationalandPublicAffairs (SIPA)atColumbiaUniversity,aspartofaCapstoneconsultingproject forGRIDAlternatives Tri-State, Inc. (GRID or GRID Alternatives). It reflects research, analysis, andmodeling conducted between January and May 2017, and presents best practice for solardevelopersandotherstakeholders,andactionablerecommendationsforusebyNewYorkStatepolicymakersandagencies.

GRIDAlternativesTri-State,Inc.GRIDAlternativesisanon-profitdedicatedtoexpandingsolaraccesstolow-incomehouseholdsin the Tri-State area of Connecticut, New Jersey, andNew York. They provide free technicalassistance and turnkey installation services tomultifamily affordable housing providers whodevelop, own, and/or operate housing units. They also provide hands-on workforcedevelopmenttojobtraineesandvolunteersontheirsolarinstallationsites.Thisreportcomesastheresultoftheircommitmenttounderstandingthecurrentobstaclestolow-income community distributed generation deployment in New York State, and findingconcretesolutionstoovercomethem.

AnycitationofthisCapstonereport(oranyderivativethereof)mustcitethattheworkwascompletedas

a part of the Columbia University SIPA’s Capstone program, under the guidance of a FacultyAdvisor,

ProfessorStevenCaputoandincollaborationwithastudentteam(seeauthors).

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TableofContents

ExecutiveSummary………………………………………………………………………………………………………………...5

Introduction…………………………………………………………………………………………………………………………….8

Section1.TheNewYorkStateEnergyLandscape

1.1ReformingtheEnergyVision(REV)…………………………………………………………………………………….111.2EnergyProductioninNewYorkState…………………………………………………………………………………131.3EnergyAffordabilityinNewYorkState………………………………………………………………………………161.4EnergyAffordabilityPolicies………………………………………………………………………………………….…..201.5SolarPolicies………………………………………………………………………………………………………………………21

Section2.CommunityDistributedGeneration

2.1WhatisCommunityDistributedGeneration..........................................................................262.2HowCDGWorks…………………………………………………………………………………………………………………312.3HowCDGisFinanced..……………………………………………………………………………………………………….47Section3.FinancialModelingandAnalysis

3.1SolarCostsTrendsinNewYorkState…………………………………………………………………………………563.2OverviewofModelingExercise………………………………………………………………………………………....573.3ModelingResults……………………………………………………………………………..………………………………..603.4CostEffectivenessofIncentives…………………………………………………………………………………………66Section4.Recommendations………………………………………………………………………………………………….68

Conclusion……………………………………………………………………………………………………………………………….90

Acknowledgements

StakeholdersConsulted……………………………………………………………………………………………………………91AbouttheAuthors……………………………………………………………………………………………………………………93Abbreviations………………………………………………………………………………………………………………………….95

Appendices

Appendix1.DefinitionofLow-Income……………………………………………………………………………………..97Appendix2. AdditionalEnergyAffordabilityandEnergyEfficiencyPrograms…………………………..98Appendix3.ModelingInputs…………………………………………………………………………………………………100

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SummaryofFiguresandTables

Figures

Figure1.1StatewideenergyproductionmixFigure1.2UpstateandDownstateproductionmixesFigure1.3DistributedenergygenerationandpeakloadFigure1.4NYSretailelectricitypricesexceedthenationalaverageFigure1.5SolarinstallationcostsaredecliningFigure1.6Low-incomecustomersfacehighenergyburdensFigure1.7SummaryofCDGcompensationunderVDERFigure2.1StakeholdersofacommunitydistributedgenerationprojectFigure2.2NYSERDA’sresponsetoquestionsposedinthePSC“OrderonNetEnergyMeteringTransition,PhaseOneofValueofDistributedEnergyResources,andRelatedMatters”Figure2.3On-buildinginstallationmodelFigure2.4RemoteinstallationmodelFigure2.5NetworkedinstallationmodelFigure2.6ExampleofCDGpermittingprocessinNYSFigure2.7InterconnectionprocessforCDGprojectsfrom50kWto5MWDCFigure3.1Cost/WtrendsinNYS,withforecastto2019Figure3.2CDGprojectsatcurrentmarketcostFigure3.3ImpactofaccesstodebtonprojectIRR(NYC250kWand50kW)Figure3.4ImpactoflowinterestratesonIRRandNPVofamodel250kWinNYCFigure3.5ImpactoflowinterestratesonIRRandNPVofamodel50kWinNYCFigure 3.6 Impact of low interest rates on IRR and NPV of (A) 250 kW / (B) 50 kWUpstatemodelsFigure3.7ImpactofdoubledMWblockpluslowinterestratesonIRRandNPVfor(A)250kW/(B)50kWmodelsinNYCFigure3.8Impactof(A&B)doubledand(C)tripledMWBlockpluslowinterestratesonIRRandNPV–(A)250kW/(B)50kWUpstatemodelsTablesTable1.1Low-incomehouseholdsandrentersaredisproportionatelyenergyburdenedTable1.2MWBlockincentivelevelsTable3.1Mediansystemcost/WTable3.2CurrentMWBlockincentivesTable3.3CosttotheStatetoincreaseNPVofprojectsby$1

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ExecutiveSummary

Communitydistributedgeneration(CDG),orcommunitysharedsolar,hasbeenpromotedasaway to address the low-income energy burden, while expanding access to clean distributedenergyresources.Energyburden,atermthatreferstotheshareofhouseholdincomespentonenergy, is disproportionally high for low-incomeNewYorkers,with over amillion residentialutilitycustomersmorethan60daysinarrears.1Whilesolarisanexcellentwaytoreducethatburden, without CDG, access to clean energy remains primarily limited to higher-incomeresidential andbusiness customerswhoownbuildings,havehighFICOcredit scoresand lowdebt-to-income ratios, and can afford the up-front costs of a solar installation. According tocreditable estimates, less than 2% of solar installations in New York benefit low-incomehouseholds.2CDGallowsasinglesolararrayoranetworkofarraystoservemultiplehouseholds.ItthereforeenablesNewYorkerstraditionallyexcludedfromsolar,suchasthosewholackaccesstocapital,renters, or those whose roofs are unsuitable for solar installations, to have access to cleanenergy and receive corresponding benefits. New York State officials have recognized thebenefitsofCDG,notonlyintermsofincreasingaccesstocleanandaffordableenergyforlow-income customers, but also for the health impacts of displacing oil- and gas-based energygeneration (whichareoften in their communities) aswell as thegreen jobsandcommunity-buildingopportunitiesthatsolardevelopmentbrings.Unfortunately, the July 2015 New York Public Service Commission (PSC) order establishingdistributedgenerationhassofarresultedinonly6projectscomingonline,noneofwhichhaveadedicatedlow-incomecomponentdespitethePSCofferingtofast-tracklow-incomeprojects.In order to address this issue, in March 2017 the PSC released an additional order thatproposed a new value of distributed energy resources (VDER) for CDGprojects and solicitedcommentsonhowtoreducebarrierstoCDGdevelopmentandensurelow-incomeinclusion.OureffortshavebroughttolightmanyoftheobstaclestoexpansionofCDGinNewYorkState,includingthefollowing:

1. Roof space is expensive and rare in localities where high energy prices would makeprojectsmostattractive,particularlyDownstate.

1 NewYorkPublicServiceCommission,ProceedingonMotionoftheCommissiontoExamineProgramstoAddressEnergyAffordabilityforLowIncomeUtilityCustomersStaffReport.Case14–M-0565,NewYork:PSC,June1,2015.2AnApril2017studybyGreentechMedia,“HowWealthyAreResidentialSolarCustomer?”findsthat24%ofsolarofftakersinNewYorkStateareunder100%StateMedianIncome,whileforthepurposesofourreport,wedefinelow-incomeashouseholdsbelow60%ofSMI(Appendix1).However,GTMdoesfindthatNewYorkStatehasthelowestproportionoflow-incomesolarofftakers.

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2. Customeracquisitionandmanagementcanbedifficult,particularlyamonghouseholdsthatarelessfamiliarwithsolarand/ormistrustfulofpotentialscams.

3. Projectpermittingandinterconnectionprocessesremaincomplex,time-consuming,andcostly.

4. The uncertain policy environment regarding rate structures cast doubt over the long-termfinancialviabilityofCDGinvestments.

5. Low-costfinancingiskeytoprojecteconomics,butcanbedifficulttoobtaingiventhelackofmaturityoftheCDGmarketandperceivedcreditriskoflow-incomeparticipants.

Furthermore,throughthefinancialmodelingandanalysesincludedinthisdocument,wehavedeterminedthatwhilecostsofsolarinstallationsaredecreasing,theindustryisnotyetreadytodeliver affordable access to CDG for low-income customerswithout added incentives. Theseincentives help to balance the energy landscape where incumbent, largely oil and gasgenerators,possessacostadvantageovernewer,renewableassets.Inmanyareas,particularlyUpstate,incentivesareinsufficienttosupportCDGprojects.Wedeterminedthataccesstodebtand increasedup-front incentivesareessential tomakeprojectsviable in thenear term,andthat using incentives effectively, can, in fact, generate outsized returns, greater than theoriginalcostofthesubsidy,forNewYorkState.This report, basedonpolicy analysis, expert interviewsand financialmodeling, examines thepolicyandeconomiccontextsforCDGinNewYorkState,describescasestudieswithdifferentfinancialandlogisticalbarrierstoprojectimplementation,andidentifiesbestpracticesforsolardevelopers interested in low-income CDG. The report concludes with a list of robust,implementable policy recommendations for considerationby theAdministrationofGovernorAndrewM.CuomoandrelevantStateagencies.Therecommendationswerechosenbasedontheir impact as well as cost-effectiveness to the State and alignment with stakeholderobjectives.

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IndustryBestPractices

1. Promoteuseofsubscriptionmanagementsoftware.2. Developpartnershipswithmission-alignedoutreachorganizations.3. Streamlineinterconnectionapplicationsatutilitylevel.4. Combine CDG projects with existing energy efficiency programs in order to

maximizeenergysavings.5. Implementsubscriberbackstops.

PolicyRecommendations

1. ThePSCshouldreducetheminimumnumberofsubscribersforallCDGprojectstothree.

2. NYGreenBankshouldinstituteaDebtAccelerationProgramforCDGprojects.3. NYGreenBankshouldcreatealoanlossreservefundforCDGprojects.4. NYSERDAshouldmakeEmPowerfundsavailabletomakepropertiessolar-ready

forlow-incomeprojects.5. NYGreenBankshouldprovidelower-costdebtforlow-incomeCDGprojects.6. NYSERDAshouldincreaseMWBlockincentivesforlow-incomeCDGprojects.7. NYGreenBank&NYSERDAshouldrequirelow-incomeofftakercontractual

protectionsforprojectsreceivingincreasedincentives.8. NYGreenBankshouldpilotaprogramtoassessalternativeunderwritingcriteria.9. NYSERDAshouldcreateanonlinesubscriberwaitlistwithopt-inenrollmentfor

low-incomecustomers.10. ThePSCshouldmandatenetmeteringratesforallCDGprojects,inlieuofVDER.

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Introduction

ContextandProblem

Accesstosolarenergyforresidentialandcommercialconsumersalikehasgrownsignificantlyinthe past decade, stimulated by technological improvements and forward-thinking publicpolicies. Structuring this transformation to benefit allNewYorkers is a key challenge for theCuomoAdministrationandadvocatesforcleanenergy,andtheimpetusforthe“ReformingtheEnergyVision”(REV)initiativethatcurrentlyguidesenergypolicyinNewYorkState(NYS).The State currently faces a twofold challenge. First, the energy burden, that is to say, thepercentage of monthly income spent on energy, is disproportionately high for low-incomehouseholds.3NewYorkers’energybillsareamong thehighest in thecountry.Variousenergyaffordabilityprogramsalreadyexisttohelplowermonthlyutilitypayments,butsolarwouldbeakeytoreducingfurthertheenergyburdenforlow-incomeNewYorkers.Second, low-income households have largely been left out of the solar and clean energyrevolution,duetoacombinationoffinancialandpolicyobstacles.Utilitiesandpolicymakersareworkingtotransformgridoperationstoaccountfornewmodelsofdistributedandrenewableelectricitygeneration.Theavailabilityofnetenergymeteringcreditsatretailrateshasallowedowners of solar photovoltaic systems to reduce their energy costs and increase renewableenergyproductioninNewYorkState.Currently,however,distributedsolarinfrastructureisforthemostpartownedbyhigher-incomeresidentialandbusinesscustomerswhohaveaccesstothecapitalneededtocover theup-frontcostsof solar installationsand/or theability to takeadvantageofeconomically significant tax-based incentives (i.e. the investment tax creditandpropertytaxabatement).The Cuomo Administration is dedicated to finding solutions to this two-pronged energychallenge, having set targets for clean and affordable energy access under the overarchingframeworkofREV.Increaseddeploymentofresidentialsolarwillreducetheburdenofenergycostsonlow-incomeNewYorkers,whilesubstantiallyexpandingrenewableenergyproductioninNYS.

3 ThisreportisusingNYSPublicServiceCommissionmetricstodefinelow-incomeasbelow60%ofStateMedianIncome (SMI), or 150% above the federal poverty line, and middle-income as below 80% of SMI. It does soprimarilytomaintainconsistencyandallowforcross-programanalysis,astheStateMedianIncome(SMI)criteriaisusedtodetermineeligibility formostNewYorkStateenergyassistanceprograms.SeeAppendix1 for furtherdetails.

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CommunityDistributedGenerationCommunitydistributedgeneration(CDG),alsoknownascommunitysharedsolar,hasemergedasasolutiontothisdualproblem.Thisformofenergydistributionenablesmultiplehouseholdsto benefit from a single solar energy installation by attributing a certain proportion of theoutputtoparticipatingmetersviaon-utility-billcredits.CDGhasthepotentialtovastlyexpandsolarproductionnotonlytothosewholackaccesstocapital,butalsotorentersandthosewhosehomesareunsuitableforsolar installations.CDGhasthereforedrawnthe interestofNewYorkpolicymakersandsolardevelopers;however, ithasledtothedevelopmentofonlysixprojectsinthelasttwoyears.Despitepoliticalsupportand state incentives, the market for CDG remains extremely challenging, particularly whenincluding low-income customers. Issues linked to financing challenges, creditworthiness,permittingandinterconnection,customeracquisitionandmanagement,andsiting.Inaddition,the current policy environment remains in flux, as the New York Public Service Commission(PSC)exploreswaystofacilitatecommunitydistributedgenerationthroughouttheState,whilemodifying the mechanisms by which solar energy flows are compensated, which increasesuncertaintyaroundthisfledgingindustry.ReportandMethodologyThis report provides new insight into the feasibility and obstacles to the deployment ofcommunitydistributedgenerationinNewYorkState,withaparticularfocusonstrengtheningaccesstosolarforlow-incomemultifamilybuildings.Todoso,itreliesonathree-partqualitativeandquantitativeassessmentofCDGtoday.First, it includes an analysis of existing policies and subsidies that affect CDG projectdevelopment.Thisincludesfederalinitiativesthatsupportdevelopmentofcleanandaffordableenergy, such as the US Federal Investment Tax Credit (ITC) and Home Energy AssistanceProgram (HEAP) payments. It also analyzes the design and impact of New York State andmunicipalprogramsorganizedundertheumbrellaofREV.Second,itdrawsupontheinsightsgeneratedbyoverthirtystakeholderinterviewsconductedwith a wide range of policymakers, private sector developers, and non-profit actors. Theseinterviewsprobetheexperiencesofplayerswithinthefieldandsurveytheirrecommendationsforfuturepolicy.

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Finally, to examine the economic feasibility of CDG projects in New York State, the reportexploresfinancialmodelingofCDGprojectsinUpstateandDownstate.Specifically,itexaminesthe sensitivityofprojecteconomics tokeyparameters inorder toascertainwhich leversaremost effective to make projects viable while also guaranteeing substantial savings for low-incomecustomers,including:

• Varyingtheinstallationcosts• Accesstolow-costcapital• State-levelincentives

Thismodelingexerciseprovides insight intoeconomicsofprospectiveCDGprojects includingconstraints,break-evenpointsforfeasibilityandcost-effectivenessofstate-levelpolicies.Thisinformation can be used as a foundation to put forth proposals to the Public ServiceCommissiontoimproveprojecteconomicstoattractlarger,private-sectormarketparticipation.ReportOutlineSection 1 of the report seeks to lay out the current context for renewable energy andaffordability policy in New York State, by providing an overview of the current electricitygenerationandenergyaffordabilitylandscape.ItsummarizesexistingStateandfederalenergypolicies,includingaspecificanalysisoftheREVframework.Section 2 focuses on community distributed generation, detailing how projects function inpractice and why they appear to be a viable solution to the clean energy access andaffordabilitychallengespreviouslyidentified.Itfurtherdescribestheprimaryobstaclestolarge-scale deployment and financing of CDG and suggests how these might be overcome byprovidingcasestudiesandindustrybestpractices.Section3 providesanoverviewof themarketanalysisand financialmodelingmethodologiesandresults.ItdetailsthecosttrendsinsolarinstallationsinNYS,theimpactofincentivesandaccess to debt on project economics, and demonstrates how NYS can deploy resourceseffectivelytogenerateoutsizedreturnsforCDGprojectsgreaterthantheoriginalsubsidycosts.Section4laysoutrecommendationsforNYSdecision-makersregardingpolicychangesneededtoovercomethecurrentbarriersto low-incomeCDG.AsNewYorkStateconsidersadditionalcommentsonthevalueofsolarenergyforcommunitydistributedgeneration,thisreportaimstodirectlyaddressmanyoftheremainingquestionsidentifiedbythePSCtoensureequitableaccesstotherenewableenergyrevolution.

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Section1.TheNewYorkStateEnergyLandscape

ExecutiveSummary

The New York State (NYS) energy landscape is currently undergoing a profound shift astechnologicalimprovementspairedwithachangingpolicylandscapedrivetheStatetowardsacleaner and more affordable energy future. The Renewing the Energy Vision (REV) plandevelopedbytheCuomoAdministrationseekstodrivethis transitiontoanenergysystemofthe21stcentury.REVprioritiesare linkedtoadualproblem.First,theNewYorkStateenergymix is currently credited as one of the cleanest in the nation, due to the large share ofhydroelectric andnuclear energy.Despite this, a significant proportionofNewYork’s energyneedsisstillmetthroughtraditionalsourcessuchasoilandnaturalgas,leadingtoemissionsofover30millionmetrictonsofcarbondioxideequivalentin2014.4Second,energypricesinNewYorkareamongthehighestinthecountry,andlow-incomehouseholdsfacedisproportionatelyhighenergyburdens.ThechallengetodayistoensurethatREVtargetsaremet,withoutleavinglow-incomehouseholdsbehind.Thisfirstsectionprovidesanoverviewofthecurrentstateofenergy production and affordability in NYS, as well as the successes and shortcomings ofexistingpoliciesthatseektochangeitforthebetterforallhouseholds,especiallythoseinlow-incomecommunities.Section1.1ReformingtheEnergyVision(REV)

Reforming the Energy Vision (REV) is the Cuomo Administration’s energy strategy to build acleaner,moreresilient,andmoreaffordableenergysystemforallNewYorkers.REVisfocusedoncreatingthegridofthe21stcenturybytransformingelectricityproductionanddistributionand theway inwhichutilitiesoperate. It supports integrationofabroadrangeof renewableenergysourcesintothegridandeffortstomakethemmorecompetitiveintheenergymarket.REV employs State initiatives that will animatemarkets and attract private capital for cleanenergy solutions. It seeks to empower each municipality in NYS in its path towards moresustainableandresilientenergysystems.5Under the REV framework, the State has set ambitious emissions reductions and renewableenergyproductiongoalsforthecomingdecade.Anadditionalmissionistoreducetheenergybills of allNewYorkers and, inparticular, thosewhoare low-income. Implementationof the

4 NewYorkStateEnergyResearchandDevelopmentAuthority,NewYorkStateGreenhouseGasInventory:1990–2014.Albany,NY:NYSERDA,December2016,revisedFebruary2017.5“REVInitiatives,”REV.ny.com,https://rev.ny.gov/rev-initiatives/.

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REV agenda requires a coordinated effort combining regulations from the PSC, and financialassistanceandsubsidiesfromNYSERDAandNYGreenBank.SinceJanuary2016,NYSERDAhasbeentaskedwithadministeringthe$5billionCleanEnergyFund(CEF).6TheCEFbudgetisavailableforNYSERDAandNYGreenBanktodistributeamongavarietyofloanandgrantprograms.Goalsforthenexttenyearsincludeachievingacumulative88millionMWhofrenewableenergy,133milliontonsofCO2equivalentreductions,and$39billionincustomerbillsavings.7Withinthisoverallbudget,theCEFhas$2.7billionavailableformarket development and $961 million for the NY-Sun initiative, which seeks to promote thedevelopment of a robust solarmarket inNew YorkState. A further $782 million are available for NYGreen Bank to establish financial markets forrenewable energy projects, and $717 million forNYSERDAinnovationandresearch.Finally,theCEFisexpected to leverage $29 billion in privateinvestments over its lifetime and reduce ratepayercollectionsby$1.5billionby2025.8InFebruary2017,theCuomoAdministrationalsoexpandedfundingfortheEnergyAffordabilityPolicy,whichaimstolowertheenergyburdenoflow-incomehouseholdstonomorethan6%oftheirannualdisposableincome,bringingthetotalprogrambenefitsto$260millionannually.Theprogramwillprovidedirectbillassistancetocloseto2millionlow-incomehouseholds.9

6 “Governor Cuomo Launches $5 Billion Clean Energy Fund to Grow New York’s Clean Energy Economy,” NYGovernor’s Office, January 21, 2016, https://www.governor.ny.gov/news/governor-cuomo-launches-5-billion-clean-energy-fund-grow-new-york-s-clean-energy-economy.7WilliamOpalka,"NYPSCOKs$5.3BCleanEnergyFund,"RTOInsider,January24,2016,https://www.rtoinsider.com/nypsc-clean-energy-fund-21448/.8NewYorkStateEnergyResearchandDevelopmentAuthority,ReformingtheEnergyVision:CleanEnergyFund.NYSERDA,February2016.https://www.nyserda.ny.gov/About/Clean-Energy-Fund. 9“GovernorCuomoAnnouncesExpansionofFinancialBenefitsforLow-IncomeUtilityCustomers,”NYGovernor’sOffice, January 16, 2017, https://www.governor.ny.gov/news/governor-cuomo-announces-expansion-financial-benefits-low-income-utility-customers.

“WhenyouboilREVdown,whatit’stryingtodoistosetupamarket-basedprincipletodrivecapitaltobuildthisgridofthefuture.”–RichardKauffman,ChairmanofEnergyandFinance,NYS(May2,2017,“NewYork’sRenewableEnergyFuture.”)

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Section1.2EnergyProductioninNewYorkState

NYSProductionMix

In2015,powerproducersinNewYorkStategenerated142,346GWhofelectricity,10placingitin the top 10 highest energy producers in the United States.11 Overall, the New York Stateenergymix remainsheavily reliantontraditional formsofpowergeneration.Naturalgasandnuclear power generation combined account for over two-thirds of total electric energyproduction(Figure1.1).12However, NYS has made strides towards greening itsenergysupply.In2015,24%ofelectricityproductionwasgeneratedfromrenewablesources,or32,000GWhoutof142,000GWh.Ofthetotal,18%wasgeneratedfromlargehydroelectric projects; small hydroelectric, wind, solar,andotherrenewablesaccountfortheremaining6%.14There are clear distinctions between electricity sourcesforUpstateandDownstateresidents.Largehydroelectricexists primarily Upstate, where it accounts for 30% oftotal electricity generation. This is primarily due to thelocation of the two largest hydroelectric plants, theNiagara River and the St. Lawrence Power Projects.DownstateNew York, including theHudson Valley, LongIsland, and New York City, depends on natural gas foralmosttwo-thirdsofelectricityproduction(Figure1.2).15

10NewYorkIndependentSystemOperator,PowerTrends2016:TheChangingEnergyLandscape.Rensselaer,NY:NYISO,2016.http://www.nyiso.com/public/webdocs/media_room/publications_presentations/Power_Trends/Power_Trends/2016-power-trends-FINAL-070516.pdf. 11U.S.Energy InformationAdministration,Rankings:TotalNetElectricityGeneration, January2017.Washington,D.C.:January2017.https://www.eia.gov/state/rankings/#/series/51;Tobespecific,NYSisin10thposition.12NYISO,PowerTrends2016.13NYISO,PowerTrends2016.14NYISO,PowerTrends2016.15NYISO,PowerTrends2016.

Figure 1.1 Statewide energy

productionmix13

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Figure1.2UpstateandDownstateproductionmixes16

NewYorkStateelectricitygenerationanddistribution infrastructure is facingnewchallenges.Current trends show that energy consumption in Upstate New York is gradually decreasing,while the energy needs of the Downstate region are increasing. Higher energy demand isunlikely tobemetviaan increase inhydroelectricproductionas there is littlehydrocapacitydevelopableinDownstateregions.MuchoftheState’shydroelectricpotentialhasalreadybeentapped,andfutureexpansionwill likelybe limitedtorepoweringexistinggenerationfacilitiesby installing higher efficiency turbines or adding generation capacity to non-power dams.17Furthermore, in January 2017,Governor Cuomo announced his intention to close the IndianPoint nuclear power plant.18 Located in Westchester County, the plant has a 2,000 MWcapacity,whichrepresentsapproximately10%ofNewYorkState’s totalelectricitydemand.19AlloftheseissueslendnewurgencyfortheneedtothedevelopmentandrapidscalingupofnewformsofcleanenergyproductionintheState.Solar photovoltaic (PV) production provided less than 1% of New York’s net electricitygenerationin2015.20However,thesolarPVsectorisexpandingexponentially,havingincreased

16NYISO,PowerTrends2016. 17 “Hydropower in New York: AWorkhorse Renewable Energy Technology,”NYSDepartment of Environmental

Conservation,http://www.dec.ny.gov/energy/43242.html.18 PatrickMcGeehan, “Cuomo Confirms Deal to Close Indian Point Nuclear Plant,”New York Times. January 9,2017,https://www.nytimes.com/2017/01/09/nyregion/cuomo-indian-point-nuclear-plant.html.19U.S.NuclearEnergyInstitute,EconomicImpactsoftheIndianPointEnergyCenter.Washington,D.C.:NEI,June2015. https://www.nei.org/CorporateSite/media/filefolder/Policy/Papers/Economic-Impacts-of-the-Indian-Point-Energy-Center.pdf?ext=.pdf.20U.S. Energy InformationAdministration,NewYork Electricity Profile 2015.Washington,D.C.: EIA, January 17,2017. https://www.eia.gov/electricity/state/newyork/.

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more than 800% from December 2011 to December 2016.21 Four-fifths of the State’s solargenerationcomesfromcustomer-sitedsolarPV,ratherthanutility-scaleprojects.Sofar,~300GWhof customer-sited solarPV is generatedeachyear,half from residentialproducers, andhalffromcommercialproducers.22Utility-scaleprojectsarerarer,withone32MWutility-scalesolarprojectcurrentlyonlineonLongIslandandadditionalprojectsunderway,alsomainlyonLongIsland.PeakDemandandDistributedGenerationDue to its proximity to offtakers,distributed generation may be ofparticular interest to New York Stateduetothetrendsinpeakdemand.Peakdemandisgrowingatafasterratethanaverage energy consumption, puttinggrid infrastructure under strain andincreasing costs of energy distributionfor utilities23. Studies have found that locating solar generation facilities near where it isconsumedmayreducepeakdemandbyapproximately750MWby2026,whilealso loweringannualgrid-distributedenergyusageby3600GWhintenyears(Figure1.3).24

In August 2016, the PSC officiallyadopted a Clean Energy Standard(CES), requiring utilities to procure50%ofthestate’selectricityfromcleanenergy sources by 2030. Qualifyingresources include solar PV, wind,biomass, and hydroelectric, withnuclear considered only as a bridgetechnology that cannot be countedtowards the 50% mandate. The CleanEnergy Standard was designed toreplaceNew York Renewable Portfolio

21 “GovernorCuomoAnnouncesNearly800PercentGrowthofNewYorkSolarPowerOverPastFiveYears,”NYGovernor’s Office, February 21, 2017, https://www.governor.ny.gov/news/governor-cuomo-announces-nearly-800-percent-growth-new-york-solar-power-over-past-five-years.22NYSERDA,PatternsandTrends2000-2014.23NYISO,PowerTrends2016. 24Figuresource:NYISO,PowerTrends2016.

“Wehavea50%renewablemandateby2030andwe’renotgoingtobeabletoachievethatgoalonacosteffectivebasisorevenintimeifwekeepdoingthingstheoldway…justboltingthingsintothegridofTeslaandWestinghouse…Thatgridwasneverintendedtohaverenewablesonit,neverintendedtohavedistributedresources.”–RichardKauffman,ChairmanofEnergyandFinance,NYS

Figure1.3Distributedenergygenerationandpeakload

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Standard(RPS),whichexpiredin2015.Inadditionto financialandgridefficiencybenefits,CDGwill thereforehelpNYSreach itsCESenvironmentalgoals,includingtargetedreductionsingreenhousegas(GHG)emissionsof40%by2030and 80%by2050from1990levels.25NewYorkStatehasmanagedtodecreasecarbonemissions by 15% since 1990. Approximately a quarter of these reductions have come fromswitching tocleanerelectricpowergeneration,primarily fromcoalandoil tonaturalgas.26 IftheStateistomeetitsofficialenvironmentaltargetsandthusbecomealeaderinsustainabledevelopment,itwillneedtocontinuetogrowtheshareofrenewablesintheenergymix.

Section1.3EnergyAffordabilityinNewYorkState

EnergyPricesNew Yorkers consumesubstantiallylessenergyonapercapitabasis thananyotherstateintheU.S.,withthe exception of RhodeIsland.27 Yet despite thisfact, low-income NewYorkers face high energyburdens,meaningthattheydedicate a high proportionof theirmonthly incometoutilitybills.NewYork State energyprices arehigher than thenationalaveragebyapproximately5centsperkWh(Figure 1.4), making rates the 8th highest in thecontiguous48 states.28Customers inConsolidated

25“GovernorCuomo,JoinedByVicePresidentGore,AnnouncesNewActionstoReduceGreenhouseGasEmissionsandLeadNationonClimateChange,”NYGovernor’sOffice,October8,2015,https://www.governor.ny.gov/news/governor-cuomo-joined-vice-president-gore-announces-new-actions-reduce-greenhouse-gas-emissions.26NYSERDA,NewYorkStateGreenhouseGasInventory:1990-2014.27U.S.EnergyInformationAdministration,Rankings:TotalEnergyConsumedperCapita,2014.Washington,D.C.:EIA2014.https://www.eia.gov/state/rankings/.28FigureSource:U.S.EnergyInformationAdministration,NewYorkElectricityProfile2015.Washington,D.C.:EIAJanuary17,2017. https://www.eia.gov/electricity/state/newyork/.

Figure1.4NYSretailelectricitypricesexceedthenationalaverage

“Youtypicallyfindolderandmorechallengedinfrastructureinurbansettingsespeciallywithinformerrust-beltcities.Inmanycasesthosesameareasarelowincomecommunities.”–PaulTyno,FruitBeltNeighborhoodSolarPartnership

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Edison(ConEd)serviceterritoriesfrequentlyfacethehighestelectricitypricesinthenation.29Inrecentyears,energypricesbothinNewYorkandnationwidehavedeclinedslightly,primarilyduetotheavailabilityofcheapnaturalgas.However,gridmaintenancecostscontinuetoriseasutilities struggle to update infrastructure that is on average over 30 years old and in someplaces even dates back to the 19th century.30 In addition, changingweather patterns due toclimatechangeandsevereweathereventssuchasSuperstormSandycausecostlydamagetoenergygenerationanddistributionsystems.31Meanwhile, solar energy has established itself as an increasingly cost-effective source ofenergy.Thecostper-Watt(W)ofsolarhasbeendecliningeveryyearinNewYorkState(Figure1.5), from an average of $7/W in 2010 to just over $3/W today.32 This trend is expected tocontinue,which should foster continuedexpansionof solar capacityandenableNewYork toreachtherenewableenergytargetslaidoutintheREVinitiative.

29BillSanderson,“ConEdison’sBusiness-FriendlyThree-YearRate Increase,”NewYorkPowerandLight, January24,2017,http://nypowerandlight.com/2017/01/24/con-edison-rate-increase/. 30NYISO,PowerTrends2016.31 Diane Cardwell, Matthew L. Wald, and Christopher Drew, “Hurricane Sandy Alters Utilities’ Calculus onUpgrades,” New York Times, December 28, 2012, http://www.nytimes.com/2012/12/29/business/hurricane-sandy-alters-utilities-calculus-on-upgrades.html.32Datasource:NewYorkStateEnergyResearchandDevelopmentAuthoritySolarElectricPrograms,SolarElectricPrograms Reported by NYSERDA: Beginning 2000. New York: NYSERDA, Last Update April 14, 2017. Dataset,https://data.ny.gov/Energy-Environment/Solar-Electric-Programs-Reported-by-NYSERDA-Beginn/3x8r-34rs.

Figure1.5Solarinstallationcostsaredeclining

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EnergyAffordabilityPolicymakers in New York have recognized that energy affordability must be a key policypriority.33 In 2015, over 1million residential electricity customers inNewYork Statewere inarrearsmorethan60days,and295,000peoplehadtheirelectricityshutoffbyutilitiesfornon-payment. This represents approximately $800 million owed to utilities.34 Within the ConEdservice territory alone, 170,000 customers were in arrears – a full 10% of the utility’scustomers.35

The toll that high energy burden has on people’swellbeing is well-researched, with increased impactsfor children and the elderly.36 Inefficient heating andcooling may lead to asthma, chronic respiratorydisease, and heart disease.37 The anxiety of not

knowinghowautilitybillwillbepaidhasbeenlinkedtomentalhealthissuessuchaschronicstress and depression.38 When low-incomehouseholds spenda larger shareof their incomeonenergy,thisleaveslessforotherbasicexpenditures,including food and healthcare. Conversely, lowermonthly bills can reduce stress and can have apositiveimpactonhealth.The issue of energy affordability is linked to one ofequity, as access to affordable energy is not sharedequally among New Yorkers. Instead, studies show

33NewYorkPublicServiceCommission,ProceedingonMotionoftheCommissiontoExamineProgramstoAddressEnergyAffordabilityforLowIncomeUtilityCustomersStaffReport.Case14–M-0565,NewYork:PSC,June1,2015.34PCSEnergyAffordabilityforLowIncomeUtilityCustomersStaffReport.Case14–M-0565.35CoreinaChan,KendallErnst,andJamesNewcomb,“BreakingGround:NewModelsThatDeliverEnergySolutionstoLow-IncomeCustomers,”RockyMountainInstitute,2016,p.8.36DianaHernandez,“Understanding‘EnergyInsecurity’anditsImplicationsforHealthandEquity,”PresentationatColumbia University, March 23, 2017, http://energypolicy.columbia.edu/events-calendar/struggling-keep-lights-understanding-why-energy-insecurity-matters-health-and-equity-us.37KhalilShahyd,“StudyHighlightsEnergyBurdenforHouseholdsandHowEnergyEfficiencyCanHelp,”NationalResource Defense Council, April 20, 2016, https://www.nrdc.org/experts/khalil-shahyd/study-highlights-energy-burden-households-and-how-energy-efficiency-can-help.38DianaHernandez,“EnergyInsecurity’anditsImplicationsforHealthandEquity.”

Figure1.6Low-incomecustomersface

highenergyburdens

“We have a million New Yorkersstrugglingtopaytheirbills.”– Richard Kauffman, ChairmanofEnergyandFinance,NYS

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thatenergyburdenisdisproportionatelyhighforlow-to-moderateincomehouseholds(Figure1.6).39

Low-incomehouseholds experience higher energy burdens relative to the national threshold(Table 1.1), primarily due to a combination of two factors. First, energy expenses areproportionally largerforhouseholds livingonasmaller income.Second,datashowsthat low-incomecustomerspaymoreforenergypersquarefootinutilitybills,whichispartlyduetolessenergyefficienthousing.40Buildingretrofitsrequiredtoimprovetheenergyefficiencyofagingbuildings or upgrades to more efficient appliances or heating represents a significantinvestment that may not be financially feasible for low-income households and buildingowners. As the grid infrastructure and systems age, the costs formaintenance increase andenergycostswilllikelyrise.41

39Figuresource:ArielDrehoblandLaurenRoss,“LiftingtheHighEnergyBurdeninAmerica’sLargestCities:HowEnergy Efficiency Can Improve Low Income and Underserved Communities,” American Council for an Energy

EfficientEconomy,April2016. 40ArielDrehoblandLaurenRoss,“LiftingtheHighEnergyBurdeninAmerica’sLargestCities.”41ArielDrehobl, “Lifting theHighEnergyBurden inAmerica’sLargestCities:HowEnergyEfficiencyCan ImproveLowIncomeandUnderservedCommunities,”AmericanCouncilforanEnergyEfficientEconomy,Presentation,May25,2016.

Table1.1Low-incomehouseholdsandrentersaredisproportionallyenergyburdened

Householdtype Medianannual

income

Medianenergy

burden

Medianannual

utilitycost/sq.ft.

Incometype Low-income* $24,998$25,999

7.2%8.2%

$1.41$1.61

Non-low-income $90,000$103,999

2.3%2.3%

$1.17$1.34

Building

ownership

Renters $34,972$39,396

4.0%4.2%

$1.30$1.66

Owners $68,000$80,100

3.3%3.3%

$1.17$1.35

*:Low-income£80%AMIBlack:National(US)energyburdentrendsGreen:Northeasternstatesdata

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Section1.4EnergyAffordabilityPolicies

In addition to the overarching REV framework, a number of policies and public assistanceprogramsexist tohelp low-incomehouseholdsaffordtheirutilitybillsand lowertheirenergyburden.Stateandlocalgovernmentshaveastronginterestinguaranteeingaffordableenergytotheirconstituents.InMay2016,thePSCpublishedanorderthatsetouttoaddressthehigh-energyburdenfacedby 2.3 million low-income households in New York State.42 It set a target that energyexpendituresshouldnotexceed6%ofanyNewYorkhousehold’s income. It taskedtheStategovernment,utilities,andprivatestakeholderstoworktogethertostreamlineandharmonizeservicesaimedatbringingdownutilitybillsforlow-incomehouseholds.Theorderalsoallowedthe utilities, primarily ConEd and National Grid, to grandfather in their existing low-incomediscountprogramsandhavetheseprogramsapplytoallhouseholdreceivingHEAPpayments,afederal assistance program aimed at reducing heating costs to low-income Americans. Inaddition, the PSC identified CDG as a tool to address energy affordability. To this end, itprioritizeddistributedgeneration interconnection for low-incomesolarprojects inPhase1oftheOrderEstablishingaCommunityDistributedGenerationProgram,allowinglow-incomeCDGprojectstoskiptothefrontofthequeue.43Inaddition toStateand federalenergyaffordabilityprograms,utilitycompaniesofferseveraldiscountratesandpaymentoptionstolow-incomehouseholds.Selectedexamplesareincludedin Appendix 2. These are further complemented by existing weatherization and energyefficiencyprogramsdesignedtodirectlyreducetheelectricityneedsofcustomers,alsodetailedinAppendix2.Among these, theEmPowerprogramadministeredbyNYSERDAprovides freeenergyefficiency repairs and solutions to low-incomehomeownersand renters.Participatingaccreditedcontractorsmakerecommendationsastohowtobestimproveahome’sefficiencyto NYSERDA. If approved, the contractor installs the improvements at no cost to thehomeownerorrenter.Incomeeligibilityis60%ofStateMedianIncome.44

42NewYorkPublicServiceCommission,ProceedingonMotionoftheCommissiontoExamineProgramstoAddressEnergyAffordabilityforLowIncomeUtilityCustomers.Case14-M-0565,NewYork:PSC,June2015.43NewYorkPublicServiceCommission,ProceedingonMotionoftheCommissionastothePolicies,RequirementsandConditions for ImplementingaCommunityNetMeteringProgram.Case15-E-0082,NewYork:PSC, July17,2015.44 “EmPower New York Eligibility Guidelines,” New York State Energy Research and Development Authority,https://www.nyserda.ny.gov/All-Programs/Programs/EmPower-New-York/Eligibility-Guidelines.

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Section1.5SolarProgramsandIncentives

A number of policies and incentives have been established at all levels of government tosupport and accelerate the deployment of solar technology. Most focus on single-familyresidential solar, however, a select few specifically target multifamily buildings and/or low-incomehouseholds’access tosolar,with theunderstanding that it is thesecommunities thatfacethehighestbarrierstoobtainingcleanenergy.FederalProgramsThe InvestmentTaxCredit (ITC) is theprimarymeans throughwhich the federalgovernmenthas supported the deployment of solar energy generation. Established in 2005 under theEnergyPolicyActandexpandedundertheAmericanRecoveryandReinvestmentActof2009,this tax credit is designed to subsidize the acquisition of solar arrays by either residential,commercial,orutilityarrayowners.TheBusinessITCallowsinvestorstoclaimataxcreditequalto30%ofeligibleexpendituresforthesolarsystem,includingthepriceoftheequipmentandallinstallationcosts,whichhasbeensuccessfulinspurringsolarprojectdevelopment.Itwillbeprogressivelyphasedoutinthecomingyears,andleveloffatapermanent10%after2022.45As a permanent part of the Federal Tax Code, accelerated depreciation called ModifiedAccelerated Cost Recovery System (MACRS) is now available in its “bonus depreciation”form.BonusMACRSallowstaxownersofsolarsystemstodeduct50%oftheeligiblecostofasolarinstallationinyear1,withtherestoverthefirst5years.NewYorkStateProgramsandIncentivesNewYorkhasadditional incentivestoentice itsresidentsandbusinessestogosolar,mostofwhichhavesincebeengroupedundertheStatewideREVframework.

• Megawatt (MW) Block is a financial incentive offered by NY-Sun to help lowerinstallationcosts. It isadecreasing incentivebasedonhowmanyMWshavebeeninstalledinvariousregionsofthestate.Thetotalamountreceiveddependsontheregion,systemsizeandthecurrentvalueoftheMWBlockincentive(Table1.2).46

45“BusinessEnergyInvestmentTaxCredit(ITC),”U.S.DepartmentofEnergy,https://energy.gov/savings/business-energy-investment-tax-credit-itc.46 New York State Energy Research and Development Authority, Residential/Small Commercial MW Block.NYSERDA, https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Project-Developers/Residential-Small-Commercial-MW-Block.

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• NY-Sunwas launched in 2012 as part of theCuomoAdministration’s goal to improveenergy systems in NYS. It aims to installmore than 3 GW of solar capacity by 2023,throughacombinationofprogramsandincentivesthatsupportthemarketofsolarPVinstallations.47 NY-Sun brings together NYSERDA, Long Island Power Authority, PublicService Enterprise Group Long Island, and New York Power Authority, to spur thegrowthofasuccessfulandsustainablesolarmarketinNYS.

• Affordable Solar allows homeowners who earn less than 80% of the Area or StateMedian Income to receive double theMWBlock incentive to help lower the upfrontcostofinstallingasolarsystem.TheincentiveispaiddirectlytoaNY-Sunparticipatingcontractorwho,inturn,usestheincentivetolowerthecostoftheinstallation.Inorderto qualify for Affordable Solar, homeownersmust first take steps to improve energyefficiency in theirhome, for instancebyreplacing incandescent lightingwithLEDsandswitchingtolow-flowfaucets.48Rentersarenoteligibleforthisincentive.

• NYSITCisavailableforupto$5,000intaxcreditsunderlimitedcircumstances.Netenergymetering(NEM)isaStatepolicythatnetsthegenerationandnetusageonagivenmeter.Undernetmetering,ownersofasolararrayareallowedtosellexcessgenerationtothegridfromsystemsoflessthan25kWinstalledcapacityforresidentialsystemsandlessthan2MWfornon-residentialsystems.Theyarecompensatedatretailrates,meaningthefulldollaramount that theutilitycharges itscustomers, rather thanwholesale rates,which is thepriceelectricityproviderspayforutility-scaleenergy.

47“AboutNY-Sun.”NewYorkStateEnergyResearchandDevelopmentAuthority,https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/About.48“FrequentlyAskedQuestions-AffordableSolar.”NewYorkStateEnergyResearchandDevelopmentAuthority,https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Available-Incentives/Affordable-Solar/FAQ.

Table1.2MWBlockincentivelevels

CurrentMWBlockIncentive($/W) 50kW 250kW

NYC $0.70 $0.61

Upstate $0.40 $0.22

HighestHistoricalMWBlockIncentive($/W) 50kW 250kW

NYC $1.00 $0.63

Upstate $1.00 $0.40

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NetmeteringversustheValueofDistributedEnergyResourcesintheValueStack

InMarch 2017, the PSC issued an order transitioning away from a traditional net meteringmodeltothedevelopmentofaValueofDistributedEnergyResource(VDER)tariffthatseekstomoreaccuratelyreflectthetruevalueofdistributedsolar.SpecialprovisionshavebeenmadeforCDG,inordertofacilitatethetransitionfromnetmeteringtoVDER.

Oneofthecriticismsofnetmeteringisthatitdoesnotreflect the true value of solar energy. According tosome, net metering undervalues solar, because itprovides additional social, environmental, and publichealthbenefitsbeyonditssimpleenergyvalue.Othersclaim that net metering overvalues solar, becausecustomersarenotfullypayingforthegridservicesthatthey use. Finally, there is an equity issuewith havingnetmeteringbe financedby surchargesonutilitybillspaid by all energy customers, while the benefits goprimarilytothoseabletoaffordsolar,typicallyhigher-incomecustomers.

In March 2017, the PSC approved and released an order to resolve this issue and betterdetermine the VDER while at the same time encouraging the development of CDG. TheproceedingseekstoincorporateanewpricingmechanismcalledtheValueStack.Themovewillnot affect residential single-family system owners, who will continue to net meter at retailrates. Nor does it affect existing net metered projects, which will be grandfathered in andreceive retail rates until 2020. All other solar projects will be compensated based on theamountdeterminedbytheValueStack.CDGprojectshavereceivedspecialallowancestoeasethetransitionfromnetmeteringtoValueStack.InadditiontotheValueStack,theywillreceiveamarkettransitioncredit(MTC),whichwilleventuallydisappear.Inorder tocalculate theValueStackcompensationof solar (Figure1.7),Phase1calculationswilltakeintoaccountthefollowing:49

• Zonallocational-basedmarginalpriceincludinglosses

49NewYorkPublic ServiceCommission, In theMatterof theValueofDistributedEnergyResources. Case15-E-0751,NewYork:PSC,March9,2017.and New York Public Service Commission, Proceeding on Motion of the Commission as to the Policies,RequirementsandConditionsforImplementingaCommunityNetMeteringProgram.Case15-E-0082,NewYork:PSC,March9,2017.p.15-16.

“Netmeteringisnotatransparentsubsidy,meaningit’sapaymenttocustomersbeyondtheircosttobea [utility] customer, that is beingsubsidized by non-solar customer... there are better ways to valuesolar.”–Stakeholderinterviewed“[The PSC] undervalued the valuestack.”–AdamFlint,SouthernTierSolarWorks

24

• Capacity value “based on retail capacity rates for intermittent technologies and thecapacity tagapproach fordispatchable technologiesbasedonperformanceduring thepeakhourinthepreviousyear”

• Environmental value which will be based on Renewable Energy Credit prices or theSocialCostofCarbon

• DemandReductionValueandLocationalSystemReliefValue,“basedonadeleveragingofutilitymarginalcostofservicestudies”

Figure1.7SummaryofCDGcompensationunderVDER

CommunitydistributedgenerationprojectsdevelopedbetweenMarch2017andJanuary2020that have already paid 25% of interconnection costs benefit from Phase One Net EnergyMetering,which is identical to traditionalnetmeteringbutonlyapplies for20years.For therestoftheprojects,Phase1VDERcompensationisdeterminedbasedonaValueStack.Low-incomeCDG

TheOrdernotonlyaddressedVDER, italsoput theonusonNYSERDAandNYGreenBanktohelpincreaselow-incomeCDGactivity.Inordertospurlow-incomeCDGprojects,thePSChasrecommendedthatNYSERDAinvestigatewhethertheCEFcanbedirectedtostimulateprojectsandwhethermore fundsshouldbeallocated to theCEF.TheCommissionhas recommendedthat utilities allow for interzonal solar energy offtaking. This should allow households tosubscribetosolarsystemsoutsideoftheirserviceareasandNYISOzones.A PSC Staff proposal on low-income CDG will be submitted by September 1, 2017 that willaddressofsomethesuggestionsmadebythePSC intheMarch2017order.Theanalysisand

25

recommendationsdescribed in this reportaim tobedirectly responsive to thequestions thePSCintendstoaddressbeforeitsnextorder.50MunicipalProgramsA number ofmunicipalities inNewYork State have laid out additional initiatives to spur theexpansionoflocalsolarmarkets.

• Solarizecampaignsareorganizedlocallytosupporthomesandbusinesses ina localityforgrouppurchasingofsolararrayswiththeintentionofachievingeconomiesofscale.NYSERDAworkswithcommunity-basedorganizationsandlocalstakeholderstoprovidetechnicalassistanceandmarketingmaterialtohelpeducatelocalbusinessownersandconsumersontheiroptionsforsolar. Italsohelpsthegroupinselectingacompetitiveinstallation contractor. This programmay prove particularly effective for getting low-incomehomeownersinvolvedwithsolarprojects.

• InNYC,solarbenefits fromasignificantproperty taxabatement,equal to20%of thesystemcostoverfouryears,withinalimitof$250,000totalabatement.Theincentive,aswith all tax credit-based incentives, doesnot benefit organizations already exemptfrompropertytaxes,suchasnon-profits.

50NewYorkPublic ServiceCommission, In theMatterof theValueofDistributedEnergyResources. Case15-E-0751.and New York Public Service Commission, Proceeding on Motion of the Commission as to the Policies,RequirementsandConditionsforImplementingaCommunityNetMeteringProgram.Case15-E-0082,p.141.

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Section2.CommunityDistributedGeneration

ExecutiveSummary

FollowingREV’smissiontosupportsolardevelopment,CDGhasemergedasamodelformakingsolarenergyaccessibletoallsegmentsofthepopulation. Itsdeploymentwouldcontributetoensuringanequitabledistributionof financial andotherbenefits linked to solarenergy.CDGaddressesmanyof the limitations low-incomehouseholds facewhen trying togainaccess tosolar energy, including unavailable roof space, property age, and lack of rental control overproperties.CDG also provides economies of scale with costs spread across multipleofftakers.In this section,we explore the background and development process of CDG.WealsohighlightsomeofthebarriersandchallengesoftheCDGdevelopmentprocessandidentifybestpracticescurrentlyavailabletomitigatecertainconstraints.Section2.1WhatisCommunityDistributedGeneration?

Communitydistributedgeneration(CDG)allowsasinglesolarsystemornetworkofsystemstoservemultiple,dispersedhouseholds.IntheUnitedStates,CDGemergedin2006whenanewfederalpolicypermittedelectricitydistributionfromsolarprojectstomultipleusers.InatypicalCDGproject,thesiteforasolarinstallationisownedorleasedbyanentity,whichcanbeautility,solardeveloper,residentialorcommerciallandlord,municipality,communityornon-profit organization. This entity brings together a group of subscribers and hires acontractor to install thesolarpanels.Subscribersearncreditson theirelectricitybill for theirshareofenergyproduced,withoutnecessarilyhavingasolarsystemontheirownroof.51SeveralconfigurationsofCDGprojectsarepossible.Theactualsolarpanelscanbelocatedonthesubscribers’roof,onaneighboringroof,oronaremoteground-mountedsite.RooftopCDGsystems are designed to generate either a fraction of or the entire load required by theofftakers. The anchor tenant is usually the owner or landlord, and a large portion of energygenerated goes to offset the common area loads. Ground mounts are typically larger, andattractofftakersfromanywherewithinalargerradiusintheutility’sserviceterritory. 51InterstateRenewableEnergyCouncil.2012.“Community-SharedSolar:DiverseApproachesforaCommonGoal.”2013.“ModelRulesforSharedRenewableEnergyPrograms.”

27

CDGinNewYorkState:OrderEstablishingaCommunityDistributedGenerationProgramIn New York, CDG was enabled in July 2015 by the PSC “Order Establishing a CommunityDistributed Generation Program.”52 Implementation of the PSC order began on October 19,2015.CDGpoliciesfallundertheumbrellaofREV,specificallythoseREVinitiativesfocusedonimproving access to renewable energy for customers that install solar, small wind, or otherdistributedgenerationsourceontheirownproperty.ThebasiclegalframeworkofallCDGprojects(Figure2.1)requiresthefollowing:53• The project site can be the subscribers’ roof, a neighboring roof, or a remote ground-

mountedlocation.• Thesponsor isresponsibleformanagingmembershipsand interfacingwiththeutility,but

mayalsoownoroperate theproject. Sponsorscanbeprojectdevelopers,energy servicecompanies(ESCO),businessesandnon-profits,aswellaspartnershipsamongtheseentities.

• Thesponsorprovidestheutilitywithalistofsubscribersandtheirpercentallocationofthearray’soutputbeforetheinterconnectiontothegridtakesplace.Thislistmaybeupdatedonamonthlybasisassubscribersleaveandjoin.

• The projectmay be organized around an anchor, typically the system owner or buildinglandlord,whocantakeupto40%ofthetotalsystemenergyproduction.

• AnyutilitycustomermaybeasubscribertoaCDGprojectinthesameutilityzone.• Theshareofproductionofeachsubscriberappearsasacreditonhisorhermonthlyutility

bill.• Eachprojectmusthaveaminimumof10subscribers(thoughthereareproposalstoreduce

this number, seeRecommendation 1), with eachmember being allocated at least 1,000kWhperyear.Asubsequentamendmentspecifiedthaton-siteCDGonbuildingswithfewerthan10unitsareexemptfromthisrequirement.

• The terms of membership, including payment structure and provisions for existingsubscribers,aresetbyanagreementbetweensubscribersandthesponsor.

52NewYorkPublicServiceCommission,ProceedingonMotionoftheCommissionastothePolicies,RequirementsandConditionsforImplementingaCommunityNetMeteringProgram,Case15-E-0082.53Figuresource:DavidFeldmanetal.“SharedSolar:CurrentLandscape,MarketPotential,andtheImpactofFederalSecuritiesRegulation.”NationalRenewableEnergyLaboratory,April2015.http://www.nrel.gov/docs/fy15osti/63892.pdf.

28

Initial implementationofCDGby thePSCprioritizedprojects that includedat least20% low-income membership, thus establishing an incentive to include people traditionally excludedfromsolarmarkets.Nevertheless,aswasnotedinsubsequentproceedingsbythePSC,Phase1failed togenerateany low-incomeCDGprojects.Thus,todeterminehowtoensuresuccessinPhase2,thePSCestablished working groups including: barriers andtechnical constraints to participation; standardizedcustomer contracts; energy-efficiency requirements;marketing; data sharing; financing; and potentialbusiness models. Unfortunately, this process has alsostalled,andthePSCdisbandedtheworkinggroupsuntilanundetermineddateinthefuture.ToaddresstheshortcomingsresultingfromtheinitialorderestablishingaCDGinNYS,thePSCrequested stakeholder input on several issues as part of its “Order on Net EnergyMeteringTransition, Phase One of Value of Distributed Energy Resources, and Related Matters”54(Section1.5),including:

A)mitigationofbillimpactandCDGprojectcosts,55B)strengtheningparticipationoflow-incomecustomers,56and

54 New York Public Service Commission, Order on Net Energy Metering Transition, Phase One of Value ofDistributedEnergyResources,andRelatedMatters.Case15-E-0751and15-E-0082,NewYork:PSC,March9,2017.55“StaffisdirectedtoworkwithNYSERDA,theutilities,andmarketparticipantstodevelopandfileaproposalfor

next steps that canbe taken to reduce, eliminateormitigatemarketbarriers, bill impactsorCDGproject costs.

Topics include:development costs, consolidatedbilling, customermaintenancecosts,and interconnectioncosts.”

PSCrulingMarch9,2017,SectionG56 “TheCommissiondirectsStaff toworkwithutilitiesand interestedstakeholders toconsideran interzonalCDG

creditprogramdesignedtoprovidebenefitsfromCDGprojectsinterconnectedinserviceterritoriesandloadzones

otherthanthatofthe low-incomeparticipant. TheCommissionalsosupportsNYSERDA’scontinuedinvestigation

into enabling low-income customer participation in CDG projects, and directs NYSERDA to file CEF investment

chapters to support programs aimed to encourage and incentivize low-income participation in CDG

“Americans are locked out of thesolar market because they arerenters, low income or haveunsuitable roofs.” – Kelly Roache,SolsticeInitiative

Figure2.1Stakeholdersofacommunitydistributedgenerationproject

29

C)preparationforthelaunchofVDERPhaseTwoinMay2017.57

NYSERDA,oneoftheagenciesexplicitlypromptedtorespondtotheseissues,releasedadraftpresentationtostakeholdersontheirinitiative(Figure2.2).58

projects. Finally, theCommissiondirectsStaff toconsideroptions toencourage low-incomeparticipation inCDG under the VDER Phase tariffs, including tailored approaches for CDG projects that comprise a majority of low-

incomeofftakers.”PSCruling,sectionH

57PSCruling,sectionK58 Figure source: New York State Energy Research and Development Authority, LMI Community Solar InitiativeConcept.Albany,NY:NYSERDA,April3,2017.

Figure 2.2 NYSERDA’s response to questions posed in the PSC “Order on Net Energy Metering

Transition,PhaseOneofValueofDistributedEnergyResources,andRelatedMatters”

30

BenefitsofCommunityDistributedGeneration

CDG projects share the general environmental benefits of any solar array displacing oil- andgas-basedgeneration,includingreducedGHGemissionsandpollution,which,inturn,enhancespublic health (e.g. lower asthma and cancer rates), protects the natural environment, andsignificantlyreducesvolatilityinvariablecosts(becausetheenergysourceisprovidedforfreebythesun,themarginalcostofakWhofsolarisvirtuallyzero).59The main benefit of CDG within the context of this study is that it addresses many of thelimitations those traditionally excluded from solar face when trying to gain access to solarenergy.Thisincludesroofspace,propertyage,andlackofrentercontroloverproperties.Thecomparatively largescaleofCDGprojectsmayhelp inspreadingthe initialhighupfrontcostsandachievingeconomiesofscale.Thus,CDGhasbeenposed as a solution to the two-pronged problem ofequitablecleanenergyaccessandenergyaffordability.Furthermore, CDG projects have the ability to providelocal jobs and build community.60 As suggested in arecent report by the Interstate Renewable EnergyCouncil, low-income CDG can help enhance the economic wellbeing of these communitiesthrough“providingpathwaysforresidentstomoredirectlyparticipateinandbenefitfromthecleanenergyeconomy,”includingthecreationofemploymentopportunities.61

59DavidFeldmanetal.“SharedSolar:CurrentLandscape,MarketPotential,andtheImpactofFederalSecuritiesRegulation.”NationalRenewableEnergyLaboratory,April2015.“http://www.nrel.gov/docs/fy15osti/63892.pdf.60 Giancatarino, Anthony. 2013. “Community-Scale Energy: Models, Strategies and Racial Equity: A Scan ofCommunityInnovationaroundEfficiencyandRenewableEnergy.”NewYork,NY:CenterforSocialInclusion.61 Interstate Renewable Energy Council, “Shared Renewable Energy for Low- to Moderate-Income Consumers:PolicyGuidelinesandModelProvisions,”2016.

“Solar is a priority for New YorkCity, and community solar is bestwaytodothatatscale.”–BenMandel,NYCMayor’sOfficeofSustainability

31

Section2.2HowCDGWorks

2.2aCDGInstallationModels

On-buildinginstallations

AmultifamilybuildingcanhostaCDGprojectby installing solar PV panels on its roof andlimiting subscribership to building residents(Figure 2.3).62 The landlord, be it a public-housing agency, non-profit, or private LLC,either owns the system or leases the roofspacetoadeveloperorsponsor.Inthisscenario,thearrayownerdirectlylinksthe system generation to the host meter,which typically powers shared spaces, such as hallway lights and elevators. The energyproduced that is in excess of shared spaces’ load is then distributed among participatingresidentsofthebuilding.Notallresidentsarenecessarilyrequiredorinvitedtoparticipate.AsthePSCCDGorder currently stands, the sponsor is responsible forensuring thatappropriateportionsoftheenergycreditsaredistributedtoparticipantsbyprovidingup-to-datesubscriberliststothelocalutility.Theutilityisthenresponsibleforapplyingcreditstotheaccountsoftheparticipatingsubscribers.

Remoteinstallations

Remote installations can either be ground-mountedoronanearbyroof,solongastheyare within the same load zone as thesubscribers (Figure2.4).63Utilities (ifalloweda special dispensation by the PSC),commercial or residential property owners,developers,non-profits,orotherentitiescanownthesystem.Inremoteinstallations,theremayormaynotbeananchortenant.Instead,

62Figuresource:DavidFeldmanetal.“SharedSolar.”NationalRenewableEnergyLaboratory,April2015.63Figuresource:DavidFeldmanetal.“SharedSolar.”NationalRenewableEnergyLaboratory,April2015.

Figure2.3On-buildinginstallationmodel

Figure2.4Remoteinstallationmodel

32

all electricity generated could conceivably go to subscribers. There must still be a projectsponsorresponsibleformanagingsubscribersandcommunicatingsubscriptionstoutilities.Remote installations tend to have more flexibility, as membership is not limited to singlebuildings and larger rooftops or open landmay be leveraged to increase solar capacity andachieve economies of scale. However, being remote may eliminate many of the socialengagement aspects of CDG projects, unless additional steps are taken to actively engagesubscribersintheproject,forexample,throughworkforcedevelopmentorvolunteeroptions.Anchors

CDG projects typically have an anchor,the largest energy offtaker of the solararray (see page 27). In New York, ananchor may take nomore than 40% ofthe energy produced by the solarinstallation, and the sponsormust thendistribute the rest to the surroundingcommunity.AnanchorcanplaymultiplerolesinaCDGproject,fromofferinglandor roof space for a solar installation, toproviding financial backing, tocommunityengagement.Anchorscanbea number of different kinds of actors,including hospitals, schools, warehouses, government agencies, big-box stores and malls,churches,community-basedorganizations,andpublichousingcomplexes,amongothers.

Anchorswilltendtohavelargerroofsorgreateraccesstovacant land,enabling larger installationsandbettereconomiesofscale.Theycanalsoserve tosponsororbackstop the project financially. They are frequentlybetter able to leverage their good credit and balancesheets to support affordable loans and simplify duediligencefortheinvestors.Inaninterviewwithamajortax equity investor, anchor tenants were seen as amajor way to mitigate perceived financial risk, if theanchorwaswillingtoofftakeandpayforenergy from

drop-outordefaultedcustomers.(SeetheexampleofFruitBeltNeighborhoodProjectpage33forfurtherdescriptionofthebenefitsofananchor.)

Master-meteredbuildingsMaster-metered buildings, wherein allelectricitychargesareincludedintherentandpaid to the utility by the landlord, pose aparticular challenge for on-building solarinstallations. Inthissituation,utilitiesarenotable to credit individualbills and thusensurethatmembers reap themonetary benefitsofsolar.Sincemonitoringdistributionofbenefitswouldbecumbersomeandcostlyinamaster-meteredproperty,wehavechosentoexcludemaster-meteredtenants fromthisreportandanalysis.

“Itwouldbehelpfulifthereisananchortoserveasabackstop.”–BruceSchlein,CitiBank“[The]mostfinanceableisasinglesystemwithanchorofftakerwhoiscreditrated…[youcan]balancethatoutwithanunratedsubscriberbase.”– EdRossier,USBank

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Networkedinstallations

Networked installations are comprised ofarrays onmultiple roofs distributed across aservice area (Figure 2.5).64 The FruitBeltNeighborhood REV demonstration projectcurrentlyunderwayinBuffalo,NYadherestothismodel.Numerousbuildings,oftensingle-familyownedorrented,installarraysontheirroofsthatexceedthecapacityneededbythehosthousehold.Whenlargenumbersofroofsareenrolled,theexcessgeneration ispooledandofferedtoneighborswhocannothostsolarthemselves.Networked installations sharemany of the same community-building benefits as on-buildinginstallations.Inaddition,thesekindsofprojectscanachieveeconomiesofscaleintermsofbulkpurchasing, financing, and installing. They may also improve grid efficiency, which is ahypothesis currently being tested in the FruitBelt Neighborhood REVDemonstration project.However, the numerous interconnections and installations require substantial labor,administration,andhostacquisitioncosts.TheprojectinBuffalohassufferedfromadearthofsuitableroofspaceandisnotontracktoachieveits500-kWgoalusingthismodel.FruitBeltNeighborhoodSolarREVDemonstrationProject

ProjectType:NetworkedInstallation,quasi-CDGCapacity:500kW(target),~25kWonlineasofJan1,2017Location:Buffalo,NY65The FruitBelt Neighborhood Solar Partnership in Buffalo, NY runs one of several REVdemonstration projects intended to pilot new project types and perform research. Thisprojectwillbea100-systemnetworkedinstallationlocatedinalow-incomeareaofBuffalo,the FruitBelt neighborhood. Amain goal of the project is to assess howhighly distributedgenerationimpactspeakloadandgridperformance,withasecondarygoalofprovidingcleanenergyandbillcreditstolow-incomehouseholds. 64 Figuresource:DavidFeldmanetal.“SharedSolar.”NationalRenewableEnergyLaboratory,April2015. 65“ImplementationPlanforFruitBeltNeighborhoodSolarREV,”NationalGrid,January4,2016.http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId=%7BAFABE824-60F5-4800-9D28-5FC1A69B4D83%7D

Figure2.5Networkedinstallationmodel

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Allarraysareownedbythelocalutility(NationalGrid),andtheprojectsarefinancedusingfunds collected from renewable energy feesonutility bills, and installed free-of-chargeon100participating homes. The local hospital, BuffaloNiagaraMedical Campus, serves as ananchor, facilitating community outreach and helping to organize the project. The programwasmarketedthroughutility-sponsoredmailingsandthroughcontractingwithacanvassingorganization.Thisproject isnotstrictlyCDG,buthasan initialperiodofquasi-CDGwherein inthefirst2years,50subscriberswhohaveexpressed interestbutareunable tohost solar themselves(becausetheyarerentersorhaveunsuitableroofs)willreceivecreditsof$15+.After2years,allsavingswouldreverttohosthouseholds.ThisPartnershiphasstruggledtofindenoughsuitableroofs,asmanyhomeownerswhohaveexpressed interest require substantial roof repairs. National Grid has a budget of$2,000/householdforroofrepairs,butinmanysituations,thesefundsareinsufficient.Inthenext stagesof theproject,NationalGridhas revised their strategy to includeanchorhosts(e.g.churches,community-basedorganizations)inordertoreachtheircapacitytargets.KeyTakeaway:Notall roofsareabletoaccommodateasolarPVarraywithoutsubstantialupgrades.Makingsufficient fundsavailable forupgradeswillallowtheState tobringmoresolarcapacityonline.Inaddition,anchorhostsitesmayenablelargerarraysandfacilitatetheinclusionofmoreofftakers.

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2.2bCustomerAcquisitionandManagementInallCDGprojects,initialidentificationofpotentialcustomerscanbedifficult.Althoughmanyof the stakeholders interviewed for this report note a growing familiarity with solar energyamong the public, solar contracts remain relatively complex and require a significantinvestmentoftimeandeffort.Itisevenmoredifficultforlow-incomecustomers,whotendtobeparticularlywaryofpotentialscamsduetoahistoryofESCOabuse.Typically,gettingthefirstmembersismostdifficult,duetounfamiliaritywithsolarmarketsandlackoftrustindevelopers.Mostsolarcompaniesrelyontraditionalcommunityoutreach,usingpartnerssuchascommunitygroups,localgovernment,andchurchesthatarewell-establishedandtrustedwithinthetargetneighborhood.Assolarpenetrationinaneighborhoodgrows,sodoesword-of-mouth.Participantsareabletoseeandpotentiallyengagethroughvolunteeringin the installation of the solar array. Visibilitymay seem trivial, but studies have shown thatwhen an individual sees neighbors install solar photovoltaics, the likelihood of following suitdramaticallyincreases.66This,ineffect,providespeer-to-peermarketingforfutureprojects.Inaddition, when individuals feel more engaged in aproject, they may be more committed to prioritizingpaymentofbillsandexpensesassociatedwithit.Many developers choose to delegate subscriberacquisitionandmanagementtodedicatedcompanies(ESCOs).Historically,ESCOswereabletodo so at the lowest cost, as they were able to draw upon existing customer servicedepartments.Recent inquiriesbythePSC intoclaimsofESCOsoverchargingcustomersfoundthatNewYorkState low-incomecustomerswhochoseservicefromanESCOpaidalmost$96millionmore than theywould have for service supplied by their default service utility. As aconsequence,asofDecember2016,ESCOsarebanned fromsellingelectricity to low-incomecustomers.67Today,progressinsoftwaredevelopmentandautomationmaydrivedownthecostandeffortrequired for subscriber acquisition and management. Portals such as the one developed inpartnershipbetweentheNYCMayor’sOfficeofSustainabilityandCityUniversityofNewYork(CUNY) serve as platforms to connect energy consumers, developers, and roof owners (see

66BenSchiller,“IfYourNeighborGetsASolarPanel,You’reGoingToWantOne,Too,”FastCompany,October30,2014,https://www.fastcompany.com/3037750/if-you-neighbor-gets-a-solar-panel-youre-going-to-want-one-too.67 New York Public Service Commission, Order Adopting a Prohibition on Service to Low-Income Customers byEnergyServiceCompanies.Case12-M-0476NewYork:PSC,December16,2016,http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={1803241A-06B8-4B4C-96CA-F6B7C1D64A16.

“Ifyouwantpeopleengaged,getitontheroof–theyseeiteveryday.”–PaulTyno,FruitBeltNeighborhoodSolarPartnership

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CaseStudybelow). Forexample,UtilityAPI is changinghowenergyusagedata is releasedbyutilities.Most softwarewill likely be used to facilitate back-endmanagement by developers,ratherthantodirectlyinterfacewithlow-incomeconsumers.Althoughstudiesshowthatlow-incomehouseholdsareincreasinglymakinguseofonlinetoolstotrackbills,manystilldonothave access to internet. In New York City, for instance, almost 20% of households have nointernetathomeorontheirphones.68

BestPractices:SubscriberManagement

Promoteuseofsubscriptionmanagementsoftware.

Scaling up CDG enterpriseswill require increasingly cost- and time-effective subscribermanagement processes. On the customer acquisition side, initiatives exist to facilitateconnectionofpotentialsubscriberswithsolarCDGdevelopers(foronesuchexample,seeSharedSharedNYCGatewaybelow).However,notall low-incomecustomersmayhavereadyaccesstothe internet,andthereforecustomer-facingsoftwaresolutionsmaynotbeusefulforthesecommunities.On the back-end subscribermanagement side, developersmustmake use of effectiveonline tools to streamline internal processes and interactions with utilities. As thingsstand,manydevelopersstill relyonExcelspreadsheetstoconsolidatecustomernames,account numbers, and amount of energy used, information that is then sent to theutilities to correctly assign credits.While thismayworkon a small scale, itwill quicklybecomecumbersome,drivingup inefficienciesandadministrativecostsforbothprojectmanagersandutilities.Themarketisalreadyworkingtostreamlineandautomatetheseprocesses. Somesolardevelopers suchasSunShareandSolarCityhavedeveloped theirown in-house software, while utilities such as ConEd are planning to introduce similarsoftwareinthenearfuture.EarlymoverssuchastheCleanEnergyCollective(CEC)havedevelopedsoftware-as-a-servicesystemsthatfacilitatebillingprocesses.Werecommendthat developers interested in growing their CDG business engage with softwarecompanies to find technological solutionsbest suited to theirneeds.Thismay take theformofanopen-sourceplatformmade freelyavailable toanyone,or it couldbea tooltailored to the needs of a particular solar developer. Given the rapid growth of the

68 “Mayor de Blasio, HUD Secretary Castro, and T-Mobile Announce 5,000 Families in Bronx Public Housing toReceive Free Tablets and Mobile Internet Service,” NYC Mayor’s Office, December 16, 2016,http://www1.nyc.gov/office-of-the-mayor/news/956-16/mayor-de-blasio-hud-secretary-castro-t-mobile-5-000-families-bronx-public-housing#/0

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market, free or low-cost software should be available to sponsors operating to benefitunderservedcommunities.CaseStudy:SharedSolarNYCGateway

TheSharedSolarNYCgatewayisajointventurebetweenNYCSolarPartnership,SolarizeNYC,andCUNY.This initiativeusesawebpagetobringtogethersolarhosts,developersand subscribers, thereby eliminating many information barriers and outreach costs,particularly for low-income communities. The gateway has not yet facilitated anyprojects,whichCUNYattributestodifficultiesfindingappropriateroofsinNewYorkCity.However, the project has attracted a large number of potential subscribers,demonstratingthatthereisademandforCDG.KeyTakeaway:Onlineplatformsmayhelpalleviatecustomeracquisitioncosts,butsitingremainsamajorbarrier,particularlyindenseurbanareas.

2.2cSiting

RooftopsolarRooftops are a popular choice for installing solar panels for residential/small-scale projects.However, rooftop installations are not available to everyone because of the followingconstraints:Roofspace:Basedonanaveragesolarpanelsizeof15sq.ft.andgenerationof230-275WDC,typical power generation density is between 10-20 W/sq. ft. The roof area required toaccommodatea50kWsystemisthereforeapproximately3,300sq.ft.69Foragivensystemsize,requiredareaofroofspacecanbeimpactedbythesefactors:

• Rooforientation(abilitytoplacepanelssouth-facing)• Obstructions(e.g.pipes,HVACsystems,dormer)• Shading(fromneighboringbuildings/trees)• Existingfirecodeprovisions

69U.S.DepartmentofEnergy,SunShotInitiativeRooftopSolarChallengeII,NewYorkCityMultifamilySolarGuide,CUNY,March2015,http://www.cuny.edu/about/resources/sustainability/solar-america/installer-resources/Multifamily_Resources_Final_Final.pdf.

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Roofage:SolarPVsystemshaveanestimatedlifespanof20-25years.Theroofsupportinganysuch systemmust thereforehaveat least20-25yearsof ‘good life’ remainingat the timeofinstallation.70 If a roof does not meet therequirements for a solar installation, roof upgradeswouldbeneededandwouldaddtotheoverallcostofthe project. New York State has many old buildingsthatmayrequiresignificantroofupgradesinordertohost a solar rooftop project (see FruitBelt

NeighborhoodProject).Roofusagerights:Beforeinstallationofsolarrooftopprojects,itisalsoimperativetoconsiderroofownershipanddevelopmentrights.Somebuildings(e.g.co-operatives)mayhaveroofsasacommonresource,whichcanaffectthepermissionsrequiredtosecureroof-usagerights(seeSection2.2e).Additionalconsiderationsare required forhistoricalbuildings,which facestrictmunicipalcodestopreservearchitecturalintegrity. Openland/groundmountedsolar

Forruralareas,groundmountedsystemsmaybepreferred.Fora250kWCDGproject(servingaround50households), roughly50,000sq. ft.ofopen landwouldbe required.71Selectionofsuitableopenlandforgroundmountedsolardependsonthefollowingfactors:72

• Cost• Ownership• Shading,trees,orotherobstructions• Current/potentialusage• Distancefromtheloadstation/powerlines

70U.S.DepartmentofEnergySunShotInitiativeRooftopSolarChallengeII.71U.S.DepartmentofEnergySunShotInitiativeRooftopSolarChallengeII. 72 Sara Matasci, “Ground Mount Solar Panels: Top 3 Things You Need to Know,” Energy Sage, April 3, 2016,http://news.energysage.com/ground-mounted-solar-panels-top-3-things-you-need-to-know/.

“Not a lot of people are willing togive up their roof space for 15-20years.” – Dan Giuffrida, SafariEnergy

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Sitingconsiderationsforurbansettings

AvailableroofspaceinNYCisreducedsubstantiallybecauseoffirecodeprovisions,whichmaytake up to 11% of roof area for fire access paths. This is 3 times greater than fire coderequirementsforotherareasinNYS.73Placing a solar system on a roof is a 20- to 25-yearcommitment.Thereisanopportunitycosttochoosingto build solar instead of keeping that space open for future, potentially more profitableventures.Open land groundmounted systems are rare in urban regions, because of the high price ofland, small lot sizes available, and shading due to adjacent structures. Rural areasmay havemoreopenlandavailableforCDG.

BestPractices:CustomerAcquisition&Siting

Developingpartnershipswithmission-alignedoutreachorganizations.

Outreach and educational barriers have traditionally restricted low-income customersfrombenefitingfromsolar.Onecriticalfactoraffectinglow-incomeoutreachprogramsistrust. Information, benefits and other aspects of participation in CDG projects shouldcome from trusted leaders and organizations in order to generate maximumparticipation. These may include non-profit community organizations, churches,schools/colleges, hospitals, community centers, affordable housing developers, andothers. This also includes government agencies that may have a higher willingness toreachout tounderprivilegedneighborhoods than traditionalmarketactors.Webelievethat this targeting approach of partnerships with trusted leaders and mission-alignedoutreachorganizationswillprovideaquickerresponsethanwouldotherwisebepossiblewhenestablishingworkingrelationshipsandeducatingvariousorganizations.Suchpartnershipsmayalsofacilitatethesearchforavailablerooforground-mountspace,particularlyasestablishedorganizationssuchaschurchesandcommunitycenterstendtobe located in larger buildings than many residences. Furthermore, mission-aligned

73 Christian Roselund, “Solar in the Big Apple,” PV Magazine, August 22, 2016, https://pv-magazine-usa.com/2016/08/22/solar-in-the-big-apple/.

“Roof space is a huge barrier inNYC.”–Solardeveloper

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organizations may be more willing to participate in low-income projects even if theygenerateonlymodestreturnsandmaybemoretolerantofpotentialsetbacksandissues.Finally,low-incomehouseholdsmayfeelmoreateasewithprojectsorganizedthroughatrustedpartner.CaseStudy:CDGProjectwithLow-IncomeParticipation

ProjectName:SanMiguelPowerCommunitySolarType:Remote-sitedCDG,ground-mountedCapacity:1.1MWLocation:Bedrock,COColoradopassedtheCommunitySolarGardensActin2010,whichallowshomeownerstopurchasesharesofcentralizedsolarinstallations.Furthermore,Coloradorequiresthat5%of the electricity of each solar garden be reserved for subscription by low-incomehouseholds.TheSanMiguelPowerCDGprojectisa1.1MWsystemlocatedon7acresofrurallandinColorado. When construction plans were announced in 2012, it was the largest CDGsystem in thecountry.74Thesystem isownedandoperatedbyCleanEnergyCollective,butwasdeveloped inclosepartnershipwitha localenergycooperative,theSanMiguelPowerAssociation.Thislargesystemhas~5,000sharesavailableat235Weachatacostof$705/W,withanadditionalrebate(dependingonlocation).Oneshareisexpectedtogenerate$45insavingseachyear.Customersareinvitedtopurchasemultiplesharesupto100%oftheirhistoricalusage.Sofar,atleastonecustomerpurchased100shares.75Toinclude lower-income individuals and renters, Clean Energy Collective partneredwith alocalcredituniontocreateaprogramforlong-termfinancingatinterestratesaslowas2.25%fora3-yearloanor5.5%fora10-yearloan.Unlikemanysolarloans,theloanwassecuredusing thevalueof thepanel itself insteadofonhomeownership, thusenablingrenterstoparticipate.76,77KeyTakeaway:Workingwithmission-alignedorganizationsinboththecleanenergyand

74 BeckyMashburn, “SMPA Community Solar Offering Sunny Solution for Members,” Simply Solar CPS Energy,September4,2012,http://www.cpsenergyrooflesssolar.com/Shownews.aspx?ID=07399a39-589f-42bf-8590-ff1fa3ebaa7a.75CollinMcRann,“Paradoxsolarfarmabouthalfsold,”TellurideDailyPlanet,December1,2014,http://www.telluridenews.com/news/article_2171f66f-937a-5d5a-aa33-f114f038ea65.html.76LaurelPassera,“SharedSolarFinancingGoesLocal,”IREC,February3,2014,http://www.irecusa.org/2014/02/shared-solar-financing-goes-local/.77“CECLaunchesCommunitySolarGardenFinancingProgram,”CleanEnergyCollective,April17,2012,http://www.morecleanenergy.com/Shownews.aspx?ID=233fcf4f-3e27-439d-b1f4-b3e34a76c61b.

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financialsectorscanallowdeveloperstocreateflexiblemodelsthatmeettheneedsofadiversityofcustomers,includingrentersandlow-incomecustomers.

2.2dSubscriptionandContractStructureWhileCDGprojectsacross thecountrydemonstrateadiversityofcreditingmodels, currentlythemajortypesincludevolumetricandmonetary.Volumetriccreditsarebasedonthenumberof kWh produced by the portion of the array associated with the subscription, whereasmonetary creditingmay be flat-fee or adjusted as a percent of the overall solar production.Monetary crediting isusuallyused in virtualnetmetering,which isnot currently allowed forresidentialcustomersinNewYork;therefore,thissectionwillfocusonvolumetriccrediting.In most CDG projects, subscribers own shares in a given number of panels or a certainpercentageofthetotalarray.Thereisnospecificformulafordeterminingthesharesize,butitdoesnotusuallyexceed100%ofhistoricalenergyusageforthathousehold.Inmostinstances,thesharesizeisbetween15-75%ofhistoricalusage.78,79ManyCDGprojectsallowsubscriberstobuymultiplesharessoastoincreasetheamountoftheirenergysavings.Mostsubscriptionmodelsrequireanupfrontpaymenttopurchaseashareofsolargeneration.Afrequentlyusedrangeofup-frontpaymentsinColoradoandMichiganprojectsis$700-$800foranaveragesizedpanel, thoughsome largesharesmaybe inthethousandsofdollars.80,81Frequently, there is an additional monthly charge for the subscription, which should besubstantiallylessthanthesolargenerationbillcreditreceivedeachmonth.Somemodelshaveallowed fornoupfront costs, insteadproviding apay-as-you-go servicewherein the fees aredeductedfromfutureenergybillsavings.Thisistypicallythecaseinprojectsthatincludelowand moderate income households, who tend to be less able to make large upfrontexpenditures.

78“SolarRewardsCommunityMinnesotaSubscriberFAQs,”XcelEnergy,March18,2015,https://www.xcelenergy.com/staticfiles/xe-responsive/Admin/Managed%20Documents%20&%20PDFs/MN-SRC-Subscriber-FAQs.pdf.79NationalRuralElectricCooperative(NRECA),SolarCaseStudies,https://www.cooperative.com/public/bts/sunda/evaluation/Documents/solar-case-studies.pdf.80NationalRuralElectricCooperative(NRECA),SolarCaseStudies,https://www.cooperative.com/public/bts/sunda/evaluation/Documents/solar-case-studies.pdf.81Beverly Corbell, “DMEA Completes Construction On Two New Solar Arrays,” The Watch, July 20, 2011,http://matchbin-assets.s3.amazonaws.com/public/sites/165/assets/42C8_The_Watch___July_14__2011.pdf.

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MostCDG regulations require thata contractbedraftedbetween thearray sponsorand thesubscriber that details the benefits of the program, dispute resolution, contract terminationfees, and duration of the agreement. New York requires sponsors to have contractswith allsubscribers.Manystatesstipulatethatcontractsprovidespecificconsumerprotectionssuchasguaranteedsavings,specificdisclosures,orlimitedsubscriptionpriceescalation.Since renters tend to bemore transient than homeowners, contract length and terminationfees can be a major barrier for renter participation. Renters and others who are uncertainabout their short- or long-term living situations may be reluctant to enter into multi-yearcontracts.Unfortunately, longercontractswithhigh termination feesaregenerallyviewedasmore favorable by financial backers, as theywant to ensure that there is always anofftakeravailabletoreceivetheenergyand/orpaysubscriptionfees.Balancingthesetwoforceswillbedifficult,particularlyassystemslastapproximately20-25years.Anchorsmayalsoenterintocontractstotakeonexcessenergyincaseofsubscriberdrop-outs.Theymayreceivetheexcessenergyatthesubscriberrate,oratalowerratesoastoencouragethesponsortofindanewsubscriber.However, inNewYork,anchorsareentitledtonomorethan40%oftotalgeneration.

2.2eProjectPermitting,Interconnection&ApprovalProcessesProject application costs canbedivided into two segments:permitting costs related to Stateand municipal regulations; and interconnection costs related to connecting a distributedgenerationsystemtotheutility-managedgrid.82Governmentpermitting

Thesolarindustryregularlyclaimstobe“strangled”byadministrativeredtape,aproblemthatstemsfrommultiplepermittingauthorities,documentationrequirements,fillingprocessesandfeestructuresacrossmunicipalities.83EachmunicipalityinNYShasthepowertosettheirownproceduresforpermitting.Figure2.6describesthekeystepsforCDGpermittingacrosstheState. 82“UnderstandingSolarPVPermittingandInspectinginNewYorkState,”NewYorkStateEnergyResearchandDevelopmentAuthority(NYSERDA)NY-SUNTeam,September2016,http://www.vchamplain.com/files/UnderstandingSolarPermit.pdf. 83TomZellerJr.,“SolarFirmsFrustratedbyPermits,”NewYorkTimes,January19,2011,http://www.nytimes.com/2011/01/20/business/energy-environment/20permit.html.

“Red tape - it’s been an issue foras long as solar has happened inNYS.”–Solardeveloper

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Figure2.6ExampleofCDGpermittingprocessinNYS

In an effort to streamline municipal permitting processes in NYS, in 2013 the governmentinstituted the Unified Solar Permit. In participating municipalities, this single applicationreplaces all other solar permitting procedures. Thus, a developer can submit a simplifiedapplicationformalongwithrelevantdocumentstothemunicipality’sDepartmentofBuildings(DOB). Thedepartmentwill then issuebuildingandelectricpermits fortheprojectwithin14days of application. However, only projects that are less than 25 kWDC are eligible for thispermit,therebyexcludingmostCDGprojects.Utilityinterconnection

Inorderfordistributedgenerationsystemstobeinterconnectedtothegrid,developersmustsign a contract with the utility, potentially pay system upgrade costs, and cover aninterconnectionfee.84Utilitiesarerequiredtoclearly identifycostsrelatedtotheapplicants’ interconnectiontothegrid. In turn, applicants are responsible for paying for the cost of the interconnection and,whereneeded, for theupgrades to thegrid.TheDepartmentofPublicServicesmonitors theapplicationprocesstoensurethatutilitiesaddressapplicationsinatimelymanner.85

84NewYorkStatePublicServiceCommission,StandardizedInterconnectionRequirementsandApplicationProcessforNewDistributedGenerators 5MWor Less Connected in ParallelwithUtilityDistribution Systems, February2017,p.3. 85NewYorkStatePublicServiceCommission,StandardizedInterconnectionRequirementsandApplicationProcessforNewDistributedGenerators 5MWor Less Connected in ParallelwithUtilityDistribution Systems, February2017,p.4.

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The interconnection process differs for projects that are 50 kW or less and for those withcapacitybeyond5MW.Figure2.7describestheutilityinterconnectionapplicationprocessforprojectsizes50kWto5MW.Systemsunder50kWhaveanexpeditedinterconnectionprocessthatdoesnotrequireanengineeringstudy.Figure2.7InterconnectionprocessforCDGprojectsfrom50kWto5MWDC

BestPractices:InterconnectionProcesses

Streamlineinterconnectionapplicationsatutilitylevel.

Duringconversationswithsolardevelopersoperating inNewYorkState, ithasbecomeapparentthatsomeutilitiesarebetterablethanotherstoprovideclear,straightforwardproject interconnection applications. ConEd, for instance, has established a dedicatedDistributed Generation Group, responsible for talking to external stakeholders aboutapplications,rates,policies,andeducatingdevelopersabouttheinterconnectionprocess.Employeesareonhandtoanswerquestionsandproviderecommendationsateverystepof a project’s development. It has earned a reputation for being a strong and willingpartner for solar interconnection. Utilities and regulators must continue to prioritizestreamliningmethodsacrosstheState.

2.2fProjectOperationandMaintenance(O&M)O&M is an important element to a solar system to optimize solar production, monitorperformance, reduce risk, protect asset value, and comply with applicable regulations.86Operationsofthesolarsysteminvolvemonitoring,administrationofoperation,protocolsanddocumentation.Maintenance involvespreventiveprocedures,administrationofmaintenance,

86GlennaWiseman,“SolarIsNOTMaintenanceFree:TheGrowingU.S.SolarO&M,”SolarPowerWorld,February8,2014,http://www.solarpowerworldonline.com/2014/02/accelerating-u-s-solar-om-market-solar-maintenance-free/

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and improving performance.87 Typically, O&M is outsourced to third-party providers, thoughsome solar system owners, including utilities, operate and maintain the system in-house.88According to a study conductedby the Federal EnergyManagement Program, averageO&Mcostsfordistributedgenerationsystemsvaryfrom$21(+/-$20)kW/yearforsystems<10kWto$19(+/-$10)kW/yearforlargesystems>1MW.89Sincesolarsystemshaveanassetlifeupto 25 years, proper design and implementation of operations andmaintenancewill have animpactontheperformanceandlongevityofthesystem.

BestPractice:EnergyEfficiencyPrograms

CombineCDGProjectswithExistingEnergyEfficiencyPrograms inOrder to

MaximizeEnergySavings.

Inordertomaximizesavings,energyauditsandweatherizationmeasuresshouldbetakenbeforesubscribersofftakefromaCDGproject.Weatherizationprogramsforlow-incomehomeownersandrentersalreadyexistinNewYork.Makingsubscribersawarethattheycantapintono-costenergyefficiencyupgradeswillmaximizeutilitybillsavingsandlowerenergy burden. Weatherization measures can produce energy savings of over 20%annually90.Thismeansaweatherizedhouseholdwillconsumelessenergyfromthegridandthesolararray,thusfurtherreducingtheamounttheypayforutilitieseachmonth.Someof thecausesofhighutilitybills include theageof thehousing stock,householdconditions,andenergyconsumption.WhensigningupforaCDGprogramoroptingintotheonlineportal(seeRecommendation9),subscribersshouldreceiveinformationonno-cost energy efficiency options available to them. Outreach should also be done bycommunity partners in neighborhoodswhere CDGprojects are in the process of beingdeveloped.

87T.J.Keating,A.Walker,K.Ardani,BestPracticesinPVSystemOperationsandMaintenance,SolarAccesstoPublicCapital(SAPC)WorkingGroup,Version1.0,NREL,March2015,http://www.nrel.gov/docs/fy15osti/63235.pdf.88CedricBrehaut,“TheGrowingSplitBetweenSolarOperationsandMaintenance,”GreenTechMedia,January21,2016,https://www.greentechmedia.com/articles/read/The-Growing-Split-Between-Solar-Operations-and-Maintenance.89T.J.Keating,A.Walker,K.Ardani,BestPracticesinPVSystemOperationsandMaintenance,NREL. 90“AbouttheWeatherizationAssistanceProgram(WAP),”NewYorkStateHomes&CommunityRenewal,http://www.nyshcr.org/programs/weatherizationassistance/.

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EmPowerandWAPbothofferhomeassessmentstoidentifywaystoimproveefficiency.WhilebothareadministeredbytheState,EmPowerisfundedbyNYSERDAandWAPbythe U.S. Department of Energy. Both programs offer similar weatherization measuresincluding sealing of cracks and leaks, insulation, appliance replacement, and lightingupdates. Income eligibility for both programs is set at 60% of the State MedianIncome.91,92Theseprogramsperformenergyauditsandworkwithhomeownersandrenterstohelpthemunderstandwherethereareopportunitiestoimproveenergyusage.Thisalsohelpsthem becomemore energy literate, which, in turn, encourages behavioral changes toreduceenergyconsumption.

Thereare restrictionson thekindsof improvements renters canmakesince theydon’thavefullcontroloverthebuildingwheretheyreside.Forexample,heatingandwindowsupgradesmayhavetobecompletedbythebuildingowner.Anotherissueisthatpossiblecuts to theWAP from the currentPresidential administrationwill affect theamountoffundsavailableforenergyauditsandweatherization.

NewYorkCity has energy efficiency programs targetedmore towards building owners,butthiscanalsoreduceenergybillsfortheirtenants.SimilartoEmPowerandWAP,theNYC Retrofit Accelerator offers free personalized advice on ways to increase energyefficiency. While it does not offer no-cost solutions, the program connects buildingownerswithqualifiedcontractorsandhelpsthemfindfinancingandfundingsuchascashincentivestohelpoffsetthecostofweatherizationmeasures.Launched in 2009, NYC Cool Roofs offers no-cost or low-cost installation of a whitereflective layer painted on NYC roofs. In 2012, NASA found that white roofs were 42degreesFahrenheit cooler than thosewithblack surfaces; lower roof temperaturescanhelp reduce energy usage.93 Priority is given to non-profits and affordable housingbuildings.94We recommend that all buildings installing low-income CDG on their roofsfirstreceivetheprotectivecoatingiftheymeetallrooftopcriteria.

91“EmPowerNewYorkEligibilityGuidelines,”NewYorkStateEnergyResearchandDevelopmentAuthority(NYSERDA),https://www.nyserda.ny.gov/All-Programs/Programs/EmPower-New-York/Eligibility-Guidelines.92“AbouttheWeatherizationAssistanceProgram(WAP),”NewYorkStateHomes&CommunityRenewal,http://www.nyshcr.org/programs/weatherizationassistance/. 93“BrightIsTheNewBlack:NewYorkRoofsGoCool,”NASA,March7,2012,https://www.nasa.gov/topics/earth/features/ny-roofs.html.94“NYCCoolRoofsInitiative,”NYCMayor’sOffice,https://www1.nyc.gov/nycbusiness/article/nyc-coolroofs.

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Section2.3HowCDGisFinanced

ExistingSolarFinancingStructureSolarprojectsaregenerallycharacterizedbyrelatively lowoperationalcostsbuthighupfrontcosts.Solarfinancingremainsanichesegment,particularlyforCDGprojects.Thecurrentsolarmarketreliesonexistingfederal,state,andlocalincentivestofacilitatefinancingstructurestomakeprojectseconomicallyviable.Tax-EquityStructureOne of the common forms of financing involves tax equity investors who have other taxliabilitiesandaimtotakeadvantageoftax incentivesavailableforsolarprojects.Thistypeoffinancingtendstoberelativelymorecomplicatedandmayinvolvestructuresthatareparticularto the project. For example, one form of tax-equity financing structure is a sale-leasebacktransactionwhereaprojectsponsordevelopsandconstructsasolarproject,sellstheassetsoftheproject toa tax-equity investor(s), and then the sponsor leases the system from the tax-equity investors.Thetax-equity investor(s)capturestheprojectstaxbenefitswhile itreceiveslease payments from the project sponsor. The project sponsor maintains responsibility onoperating and covering expenses on the project and pays lease payments to tax-equityinvestors,whicharefundedfromrevenuegeneratedfromsellingsolarenergyproducednetofoperatingexpenses.Another version of tax-equity financing is the partnership flip model where both tax-equityinvestor and sponsor (though at a lower level) share in the financing, risk and return of theproject rather thananoutrightsale lease-back transaction.Under this structure, typically thetax-equity investors initially receive the benefits of the project through accelerateddepreciationandtaxbenefitsuntiladefinedreturnisachieved,typicallyinoraroundyearsix.Once thismilestone is reached, theproject sponsor flips to95-100%ownershipand receivesthe remaining project cash flows. While these are not exhaustive examples of the manyiterations of tax-equity structures deployed in themarket, this type of financing is relativelycomplicatedandrequiresextensiveunderstandingofaccountingandlegalimplications.95AcceleratedDepreciationInvestorscanalsobemotivated to takeadvantageof theaccelerateddepreciationunder theModifiedAcceleratedCostRecoverySystem(MACRS),wherethesolarassetisdepreciatedover 95DavidFledmanandMarkBolinger,“OnthePathtoSunShot,”NREL.

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the first 5 years of operation, and which lowers the taxable base in the early years of theproject.Current ITCandMACRScanamounttoapproximately56%of the installedcostsofasolarsystem.96Until2019,solarprojectsareeligiblefor“bonusdepreciation”treatmentwheretheyear1depreciationis50%oftheeligiblecostofthesolarsystem.PowerPurchaseAgreementsA purchase power agreement (PPA) with anchor or high-credit quality offtakers representsanother form of financing structure. A PPA is a financial arrangement between a projectsponsor, who is responsible for providing energy generation and operating the system, andsubscribers,whopurchasetheenergyproducedfromthesystematafixedprice,typicallyatorlower than the utility’s retail rate. PPA agreements typically range from 10 to 25 years. Thepurchasers of solar generation are typically high-credit quality counterparties, who have ademonstratedtrackrecordofmeetingcashobligations.Thishelpsreduceunderwritingriskforfinancialinstitutionsandinvestors.Thesetypesofstructuresincorporatedebtfinancingand/ortaxequitywiththeprojectsponsorsretainingaportionoftheequity.Forsolarsubscribers,aPPA provides the advantage of avoiding upfront costs associated with ownership, reducesenergycosts,andlimitsriskasitavoidstheresponsibilityfortheoperationandmaintenanceofthesystem.Sincesolarprojectupfrontcosts representa financialbarrier,particularly to low-income households, PPAs provide accessibility to solar for broader community bases andincome levels, assuming the credit risk can bemanaged. The project sponsor or third-partyinvestorbenefitsfromthecashflowgeneratedfromtheproject,depreciation,andtax-benefitsavailable.However,PPAsinvolvenegotiations,administrativecosts,andrealestateimplicationsthatmayrepresentachallengetothismodel.97,98,99DiversityinFinancingModelsforCDGCurrently, there are no clear, standard financing models for CDG projects. For those CDGprojects that are in the pipeline or developed andoperating, financing structures havebeentailoredtothespecificprojectsandavailabilityofincentives.Itappearsiterationsoftax-equityfinancing have been relatively more market-accepted. However, tax-equity structures aretypicallycomplicatedandlesscost-effectivethancheaperdebtfinancing,whilethelatterform 96DavidFledmanandMarkBolinger,“OnthePathtoSunShot,”NREL. 97KieranColeman,ThomasKochBlank,CurtisProbst,andJeffWaller,“FinancingCommunity-ScaleSolar,HowtheSolarFinancingIndustryCanMeet$16BillioninInvestmentDemandby2020,”RockyMountainInstitute,February2017,http://blog.rmi.org/Content/Files/Financing_Community_Scale_Solar.pdf.98“WhatisaSolarPowerPurchaseAgreement?”SolarEnergyIndustriesAssociation,http://www.seia.org/research-resources/solar-power-purchase-agreements.99“SolarPowerPurchaseAgreement,”USEnvironmentalProtectionAgency,https://www.epa.gov/greenpower/solar-power-purchase-agreements.

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offinancingremainsdifficulttoobtain.SomeexamplesoffinancingstructuresforCDGprojectsinclude a third party owner utilizing ITC and MARCS under PPA agreements (SacramentoMunicipal Utility District: SolarShares Program), utility-financed (United Power: Sol PartnersCooperative Solar Farm, Colorado), a combination of tax equity, secured loan and sponsorequity (Co-Op Power 595kw project in Green Field), tax equity flip (Tri-County ElectricCooperative),andco-opmember-funded(OkanoganCountyElectricCooperative).100ChallengestoSolarFinancingSinceCDGisadevelopingsegmentofthesolarmarket, financing remains difficult to obtain.These projects need to demonstrate assetperformance in order to establish a trackrecord for financial institutions and investorsto get comfortablewith theunderwriting risks and thereby facilitatematurationof the solarfinancingmarket.Moreover,therehavebeenonlyalimitednumberofCDGprojectsthathavebeen developed, each requiring a demanding level of investment underwriting relative to atraditional investmentopportunity inamatureassetclass.TheCDGmarket is takingstepstoreduce this burden with proposals to standardize terms. For example, NREL formed SolarAccess to Public Capital, a working group intended to standardize contracts, develop bestpractices, and build databases to facilitate solar projects. This process standardization mayreduceduediligencerequirementsforthird-partyinvestors.101Additionally, the ability to obtain debt financing may be influenced by project system size,specifications,andgeographiclocation.Forexample,certainsolarprojectsmayhavedifficultyinobtainingfinancingduetolowcreditratingsorarerelativelytoosmalltoreceivefinancingonastand-alonebasis.Sincesolaroutputisdependentonthesun,therearemanyvariablesthatmay impact production, such as weather, that can influence the financing components of aproject. Inotherwords,unshaded,sunnier locationsmayreceivemoredebt financingduetohigherlevelsofcertaintyinregardstoenergyproduction.102 100IsaacBaker,Co-OpPower,CommunitySharedSolarForAll,NRECA,SolarCaseStudies,https://www.cooperative.com/public/bts/sunda/evaluation/Documents/solar-case-studies.pdf.andJasonCoughlin,JenniferGrove,Linda,Irvine,JanetF.Jacobs,SarahJohnsonPhillips,LeslieMoynihan,JosephWieldman,TheCommunitySolarGuide:Utility,Private,andNon-profitProjectDevelopment,U.S.DepartmentofEnergy,November2010,http://www.nrel.gov/docs/fy11osti/49930.pdf. 101MichaelMendelsohn,MarkUrdanick,JohnJoshi,CreditEnhancementsandCapitalMarketstoFundSolarDeployment:LeveragingPublicFundstoOpenPrivateSectorInvestment,NREL,http://www.nrel.gov/docs/fy15osti/62618.pdf102DavidFledman,MarkBolinger,“OnthePathtoSunShot,”NREL.

“Perceivedconstraintsoncreditandfinanceabilitymakesomedeveloperslessinterestedincommunitydistributedgeneration.”–BenHealy,CTGreenBank

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StructuringpotentialCDGprojectsalso requiresbalancingopportunities to takeadvantageoftaxcreditsand thedegreeof leverage itassumes.Tax-equity investorsmaybecautiouswithprojects taking on too much debt financing as in a potential default, tax benefits may berecaptured.Moreover, theremaybe some limitationson theamountof leverage foragivenproject to the extent tax equity investors want to fully take advantage of the tax creditsavailableandaccelerateddepreciation.103

Based on conversations with stakeholders, anotherprimary challenge with financing low-income CDGprojectsistheperceptionofhighcreditriskwithinthelow-incomesegment.ProvidersoffinancialcapitaluseFICO scores as one of themainmetrics to determinecredit quality of consumers. During the underwritingprocess, FICO scores and other consumer informationare used to determine default probability and creditriskiness.104 Generally, lenders require minimum FICOscores of 700 to finance solar projects.105 Nationally,the average low-income household FICO score isaround 664.106 While not all low-income householdswillhavelowFICOscores,thereisaperceptionamong

financial actors that theyposean increased riskofdefault. Inmost cases, theassumptionoffinancing for a potential CDG project resides at the sponsor level, but underlying subscribercredit quality and perception is a factor in the ability to obtain financing. To mitigate thisunderwriting risk, there are financial institutions that provide capital with certain credit-enhancementproducts, includinganchorofftakersor requiringsponsors topre-paya specificamount.However,tax-equityinvestorswithlimitedproject-leveldebtfacilitatethemajorityoftheseCDGprojects.

103DavidFledman,MarkBolinger,“OnthePathtoSunShot,”NREL.104CoreinaChan,KendallErnst,andJamesNewcomb,“BreakingGround:NewModelsThatDeliverEnergySolutionstoLow-IncomeCustomers,”RockyMountainInstitute,2016.105GregoryHall,“Progress,ButCommunitySolarStillIsn’tShared,”CadmusGroup,http://www.cadmusgroup.com/articles/community-solar-still-isnt-shared/.106RobertHarrow,“AverageCreditScoreinAmerica:2017Facts&Figures,”ValuePenguin,https://www.valuepenguin.com/average-credit-score.

“[Low-incomeinclusion]introducesrisk,whetherrealorperceived,whichleadstohigherfinancecostsandpotentiallyhigheroperatingcostsduetoincreasedturnoverandun-remittedrevenues.”–DennisPhayre,EnterSolar“There’s no correlation betweencreditscoreandabilitytopay.”–Solardeveloper

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BestPractices:SubscriberRiskMitigation

Implement subscriberbackstops.One of the challenges of CDG is guaranteeing a project’s continued profitabilityconsidering that subscribers could drop out. With fewer subscribers than originallyplanned,thesystemmayfailtomeetestimatedratesofenergyofftake,andthusfailtogeneratestablereturns.InthecaseofCDGsystemsservinglow-incomesubscribers,thisuncertainty increases the project’s financial risk and hinders developers’ chances ofaccessinglow-costfundingfortheproject.An identified best practice is the implementation of subscriber backstops to ensure aconstantrateofenergyofftakeinCDGprojects.Thereareseveraldifferentalternatives.One possible method is creating a subscriber waitlist, which stakeholder interviewssuggestistypicallysetatbetween5–10%oftotalsubscribersdependingontheprojectsize.Thus,ifonesubscriberdropsout,thereisanotherimmediatelyreadytostepinandtakethatplace.Anothermethod involvesmakinganagreementwiththeanchortenanttotakeupexcessenergywithinthe limitof40%oftotalproduction,perthePSC’sCDGorder.Bothofthesealternativesmaybeeffectivewaystomitigatetheperformanceandprofitability ramificationsof subscribersdroppingoutof theproject,while still allowingdeveloperstocontinuetheirworkwithlow-incomecommunities.Thisbestpracticeisassociatedwithsomechallenges.Forinstance,subscriberbackstopspotentiallyincreasesubscribermanagementcostsbecauseoftheneedtomaintainanup-to-date record of potential subscribers. This practice also assumes that there will besufficientdemandforCDGinlow-incomecommunitiestogenerateawaitlist.Implementingsubscriberbackstopsisarelativelysimplemeasuretomitigatethefinancialrisk of CDGprojects serving low-income individuals. Thismeasure increases acquisitionandmanagementcostsgiventheneedtoeithersignupinterestedlow-incomeindividualsintheproject’swaitlistorreachoutandpartnerwithananchororganization.However,these increased costs are likely to be offset by benefits stemming from mitigatingproject’s financial risk throughensuringstablereturns.Assumingthat there issufficientdemandforCDG,thismeasurehasthepotentialtoreduceprojectrisk.

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SpecialPurposeEntities(SPE)Inordertoensureregulatorycomplianceandmaximizetaxbenefits,projectsponsorswilloftenformspecialpurposeentities. Forexample, sinceanon-profitdoesnotpay income tax, theymaycreateafor-profitSPEtoownthesysteminordertotakeadvantageoftaxcredits.Autilitymay form an SPE in order to maintain compliance with regulations that forbid them fromdirectlyowninggenerationfacilities.

NYGreenBank

Over the course of our research we interviewedAlfredGriffin,PresidentofNYGreenBank,whichisadivisionofNYSERDA.NYGreenBank’smissionis“toaccelerate clean energy deployment in NYS by

working in collaboration with the private sector to

transform financing markets,” and this includeseffortstostimulateactivityinavarietyofsectors,includingCDG.107

NY Green Bank’s investments are driven by consistent, ongoing conversations with, andoutreachto,privatesectorprojectdevelopers,financiers,ESCOs,andothersactivelyworkingtoadvancecleanenergyprojectsinNewYorkState.NYGreenBankfocusesonareaswherethere are opportunities that create attractive precedents, standardized practices androadmapsthatcapitalproviderscanwillinglyreplicateandscale,andonareaswherethereislimitedliquiditytoday.ThisisthecaseforthecurrentemergingmarketforCDG,particularlyrelatingtolow-to-moderateincomeopportunities.

ThroughongoingconversationsandevaluationsperformedatNYGreenBank,AlfredGriffinhas found that “low income is not directly affiliated with poor credit and there are asignificantnumberoflow-andmoderate-incomeindividualswithgoodFICOscores.”Greaterfamiliarityamongdevelopers,ESCOs,andfinancierswiththeperceivedandactualrisksthatexistwouldbehelpfulintermsofmovingthemarketforward.

KeyTakeaway:NYGreenBankcouldpotentiallyplayanumberofdifferentrolestosupportthelow-incomeCDGspace,includingbutnotlimitedto,providingfinancingforshortertermcontracts,providingdebtfinancing,orprovidingcreditenhancementfortaxequityinvestors.

107“Mission,”NYGreenBank,https://greenbank.ny.gov/About/Mission.

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ConnecticutGreenBank

In2011,ConnecticutbecamethefirstUSStatetocreatea“GreenBank”.Theremissionisto“ensureenergysecurityandcommunityprosperity by realizing CT’s environmental and economicopportunitiesthroughcleanenergyfinanceand investment”and“achieve cleaner, cheaper and more reliable sources of energy while creating jobs andsupportinglocaleconomicdevelopment.”TheCTGreenBankhasover$130Minassetsandderivesitsprincipalrevenuestreamfroma$0.001/kWhsurchargeonelectricitybills.

The Bank supports projects in underdeveloped markets or involving riskier underlyingassets/customers,whichwouldotherwisenotreceivefinancing.Theyoffer loanorigination,co-investmentwith private investors, credit enhancement, and securitization functions. CTGreenBankfinancesenergyefficiencyupgradesfor low-incomeresidents,pre-developmentloanstoenablecustomerstogetoverinitialhurdlessuchasauditingandspecification/designcosts associated with both efficiency and solar projects, and community distributedgenerationprojects.

ConnecticutGreen Bankworks closelywith public and private partners. For example, theypartnered with the Connecticut Housing Investment Fund to ensure that low-incomehouseholds have access to low-cost energy efficiency loans. To securitize a pool of solarloans,CTGreenBankcollaboratedwithMosaic,acrowdfundinginvestmentfirm,withtheCTGreen Bank originating loans through its partner Sungage and then packaging them forinvestmentviaMosaic’splatform.108

TheyhavealsopartneredwithPosiGen,aprivatedeveloperthatoffersno-money-down,no-creditchecksolarinstallationstolow-incomecustomersinordertoexpandlow-incomesolargeneration in the state. To date, there are approximately 12 low-income, master-metermultifamilyprojectsinprocessinConnecticut.InaninterviewwithBenHealey,theDirectorof Clean Energy Finance, however, we determined that CT Green Bank is playing a veryhands-on role in getting such projects off the ground. We suggest that they have gonebeyond their role as a provider of low-cost capital to facilitate customermanagement andotheradministrativeaspectsoftheproject.

Key Takeaway: CT Green Bank is partnering with private financial institutions on creativefinancingsolutionstoscale-upCDGprojectsintheState.

108 MichaelMendelsohnetal.“CreditEnhancementsandCapitalMarketstoFundSolarDeployment:LeveragingPublicFundstoOpenPrivateSectorInvestment,”NREL,February2015,http://www.nrel.gov/docs/fy15osti/62618.pdf.

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ConEdSharedSolarPilotProgramforLow-IncomeCustomers

Projecttype:NetworkedInstallation,quasi-CDGCapacity:3MW(target)Location:NewYorkCity,NYIn October 2016, Consolidated Edison Company of New York, Inc. (ConEd), the utility thatservesNewYorkCityandsomesurroundingareas,petitionedthePublicServiceCommissionto waive the restriction on utility ownership of electricity generation facilities in order todevelopapilotlow-incomeCDGproject.The program aims to install 3MWof generation on ConEd-owned properties aroundNewYorkCity,andaimstoprovidenet7%savingsforlow-incomecustomerswithintheirserviceterritory,with energy offtake sized proportionally to 12-monthhistorical usage. Customerswill pay for their subscription on a pay-as-you-go basis, with credits and subscription feesapplieddirectlytocustomers’utilitybills.ConEdplanstorecoupcoststhroughsubscriptionfees. Subscriberswill be entitled to participate if they are enrolled in ConEd’s low-incomeprogramandalsoineitheraConEdorNYSERDAno-costenergyefficiencyprogram.The pilot program aims to determinewhich program design features arewell received bylow-incomecustomersanddeterminewhetherCDGprojectsareaneffectivewaytoprovideaccesstodistributedenergyresourcestolow-incomesubscribers.ConEd’simplementationplanisduetobereleasedatsomepointin2017.The ConEd Shared Solar Pilot Program was authorized by the PSC in order to address aspecificmarketfailure,namelythelowpenetrationofsolarforlow-incomehouseholds.Itisan exception to the ban on utility-owned electricity generation in New York State. Thisquestion of utility-owned generation remains highly controversial; many stakeholders arewary of utilities moving back into the generation space, fearing unfair competition andmarketdistortions.Key Takeaway: Utility-owned CDG affords streamlined customer acquisition given thatutilities already have customer bases and subscriber information. However, manystakeholders expressed concerns about utility-owned generation interfering with marketcompetitionandincreasedcostsgivenutilities’highcostofdoingbusiness.

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Section3.FinancialModelingandAnalysis

ExecutiveSummary

In our analysis, we find CDG project economics in New York challenging under existingincentives,financingoptions,andcurrentinstallationcosts.InordertoencourageCDGprojectsacrossNewYork,ouranalysisshowsthatincreasingcurrentMWBlockincentivesisahighlyuseofpublic funds for improvingprojecteconomics.Moreover,webelieve that theState shouldfacilitate access to competitive financing through NY Green Bank to help build marketconfidence in the sector. The combinationof increasingMWBlockwith access to affordablefinancing should make CDG projects viable, while also providing substantial savings tocustomers.ThiswillpotentiallyaccelerateCDGdevelopmentacrossNewYork.Asprojectinstallationcostsdecrease,NYSmaybeginphasingoutorsteppingdownincentives,asMWBlockisalreadydesignedtodo.However,untilsuchtimeasprojectcostsaresufficientlylow to generate returnswithout added incentives, NYS should provide additional support toencourageCDGprojects,especiallyiftheyincludelow-incomecustomers.

Introduction

Tounderstand theeconomic feasibility of CDGprojects inNewYork,wemodelednumerousscenariostoexploreprojecteconomicsandsensitivitiestokeyvariables.Inourmodels,theCityofBuffaloisusedtorepresentUpstateandNewYorkCityisusedtomodelDownstate.WhiletwocitiescannotfullycapturethediversityofcontextsinNewYorkState,theyrepresenttwodivergent points on a spectrum and should provide a broader understanding of localmarketplacedynamics,aswellas interconnection,siting,andinfrastructureconstraintsacrossNYS.Wealsoexaminedtwosystemsizes,a50kWDCnameplatetorepresenta“small”systemanda250kWDCnameplatetorepresenta“large”systemineachlocation.Forallmodels,weassumedthataCDGprojectguaranteed20%savings tocustomers.Giventhemanyvariablesthatmay influence project economics, certain technical parameterswere kept constant (seeAppendix3forfurtherdetailsonmodeling).ThismodelingexerciseprovidesinsightsintoeconomicsofprospectiveCDGprojectsincludingconstraintsandbreak-evenpointsforfeasibility.Thisinformationcanbeusedasafoundationfor policy recommendations and further studies to put forth proposals for improving projecteconomicssoastoattractmarketparticipation.

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Section3.1SolarcosttrendsinNewYorkState

InNewYork,thereiswidedispersionofinstalledcostsperwattacrosslocation,residentialorcommercialsystems,andsystemsize.Thevariabilityintotalinstalledcostsmaybeinfluencedbylocallaborcosts,localregulatoryenvironments,infrastructureandstructuralconsiderations,permittingcostsand turnaround times.This study relieson total installedcostsdata sourcedfromtheNYSERDASolarElectricProgramsdatabase109andthe latest report fromNRELtitled“U.S.SolarPhotovoltaicSystemCostBenchmark.”110Therearelimitationswithsolelyrelyingonthesedatasources.Forexample,theNYSERDASolarElectricProgramsdatabaseincludesonlyself-reportedinformationforprojectscompletedorcurrently inthepipelinewherecostsmaynotbereflectiveofcurrentmarketrates,particularlyassolarequipmentcostshavesignificantlydeclinedinrecentyears(Figure3.1).TheNRELdatadoesnotalwaysaccountforthevariationsinprojectcontexts.

109SolarElectricProgramsReportedbyNYSERDA.https://data.ny.gov/Energy-Environment/Solar-Electric-Programs-Reported-by-NYSERDA-Beginn/3x8r-34rs/data110RanFuetal.“U.S.SolarPhotovoltaicSystemCostBenchmark:Q12016,”September2016,NREL,http://www.nrel.gov/docs/fy16osti/66532.pdf

Figure3.1Cost/Wtrends inNYS,with forecast to2019.Cost/Wtrends inNYShavebeendeclining,whichislargelyattributedtosignificantdeclinesinsolarequipmentcosts.Asweextrapolatethedata,weexpectcost/Wtocontinuetodecline.

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Section3.2Overviewofmodelingexercise

Forthisexercise,weusedNREL’sSystemAdvisorModel(SAM)torunthefinancialandpolicyanalysis. SAM is open-source performance and financial modeling software focused onrenewableenergyanalysis.AsSAMisacomprehensiveandrobusttool,itistrustedbyarangeofindustrystakeholders.Inordertoensureprojectswere,infact,providingsubstantialsavingstocustomers,allmodelsassumeda20%discountonutilitybills(seeAppendix3formoredetailonthistarget).InstallationcostsIn order to determine the installation cost/W for a solar array in New York State, we usedhistoricaldataavailable fromtheSolarElectricProgramsReportedNYSERDADatabase.111Wecalculatedtheaverage,medium,maximumandminimumpricesfromJanuary2016toFebruary2017 for solar systems sized between 40 kW to 60 kW to represent a small system (50 kWmodel)and150kWto500kWtorepresentalargesystem(250kWmodel).Todeterminetheimpactofprojectcostsonreturns,weranthemodels at a range of installed cost/Wwith the NRELforecast as a minimum cost ($2.07/W for a 200 kWcommercial system) and the area median actual projectcosts from January 2016-February 2017 derived from theNYSERDA dataset as a maximum.112 We believe thisprovides a realistic range of project costs fromwhich wedetermine breakpoints on project economics undercurrentlyavailableincentiveswhiletargetinga20%savingsoncurrentutilitybillstoPPArates.Weuse10%unlevered,after-taxreturnsasthetargetthemarketrequirestopursuetheseprojects.113Inourfindings,NewYorkCityprojectsgainedaninternalrateofreturn(IRR)of10%ataninstallcostofaround$2.00-$2.50/Wdependingon systemsize. For themodelUpstateproject, theNRELforecastpriceof$2.07/WwasnotlowenoughtoprovideanIRR.TodeterminetherateatwhichinstallcostsweresufficientlylowtogenerateanIRR,wecontinuediteratingthemodelat

111SolarElectricProgramsReportedbyNYSERDA.https://data.ny.gov/Energy-Environment/Solar-Electric-Programs-Reported-by-NYSERDA-Beginn/3x8r-34rs/data112RanFuetal.“U.S.SolarPhotovoltaicSystemCostBenchmark:Q12016,”NREL.113DavidFledman,MarkBolinger,“OnthePathtoSunShot.”NREL.

Modelingtargets:

10%IRR20%customersavings$1ofStatefundsgeneratesimprovementgreaterthan$1inprojecteconomics

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lowercosts.TheUpstateprojectsdidnotreach10%IRRuntilcostsdroppedto$1.60-$1.80/W(Figure3.2).

Giventhatthesemodelsstillincludecurrentlevelsofincentivesandretailnetmeteringrates,itwill likelybesometimebefore itwillbefeasibletoscaleback incentiveswithoutstiflingCDGgrowth. New York State should continue to monitor trends in installation costs in order todeterminethe impactofregulatorydecisionsonthemarket. Itwouldbedetrimentaltosolardevelopmenttoremoveincentivesbeforecostsarelowenoughtoaccommodatesuchchanges.

Figure 3.2CDGprojectsat currentmarket cost: Despite declining cost/W,without additional

incentives CDG projects remain uneconomic at current market costs. (A,B) Based on existingincentives, in NYC, cost/Wwouldneed to decline to $2.00-$2.50/W to achieve 10% IRR. (C,D) ForCDGprojects inUpstateNewYork to achieve 10% IRR, cost/Wwouldneed to decline significantlybelow current market levels to $1.60-$1.80/W. Despite declining cost/W, without additionalincentivesCDGprojectsremainuneconomicatcurrentmarketcosts.

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DefiningthebasecaseAbasecasewascreatedusingthemedianpricefromtheNYSERDAdatabase(Table3.1).Themedian price is a more accurate representation of costs as there were a few outliers thatskewedthedata.

The base case also assumed that current incentives remain available for solar, including the30%FederalITC,$5,000NewYorkStateSolarTaxCredit,andtheMWBlock(MWB)incentives,whichvarybyregion(Table3.2)

IncentivemodelsIn order to determine which policies and incentives have the biggest impact on a project’sfinancialviability,weranthefollowingmodel:

• BaseCase:Mediancost/W,CurrentMWB&0%debt• IsolatedMWB:Mediancost/W,DoubleMWB&0%debt• Isolated low-cost loan:Mediancost/W,CurrentMWB incentive&50%debt -0%,2%,

3.49%,marketrate• CombinedMWB& interest rate incentives:Mediancost/W,DoubleMWB incentive&

50%debt-0%,2%,3.49%,marketrate

Table 3.2 Current MW Block incentives. The MW Block incentive is $0.30/W lower Upstate thanDownstatefora50kWnameplatesystemand$0.39/Wfora250kWnameplatesystem.

Nameplate Downstate(ConEdregion) Upstate

50kW $0.70/watt $0.40/watt

250kW $0.61/watt $0.22/watt

Table3.1Mediansystemcost/W.Basedonmediansystemcost/WsourcedfromNYSERDAdatabase,Upstatesystemsarearound$1.00/WlowerthanDownstate.

Nameplate Downstate Upstate

50kW $4.04 $2.94

250kW $4.06 $3.00

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We chose to double the MW Block, as NYS already provides this incentive to low-incomehomeowners to install single-family solar through theAffordable Solarprogram. The interestrateschosenaresimilartothoseprovidedbyNYSERDA’sOn-BillFinancingprogram(3.49%)andHPDefficiencyloanrates(2%and0%).Section3.3Modelingresults

TheimportanceofaccesstocapitalOur models demonstrate that access to capital greatly improves project economics. Whencomparing the same project with no debt or 50% market-rate debt, the debt case hassubstantially higher IRR, even when faced with high installation costs (Figure 3.3).114 Manyrepresentativesof commercial financial institutions interviewed for this report indicated thatsmallerCDGprojects(<1MW)wouldlikelynotbeworththeirattention,asthefinancingcostsare high and somewhat constant regardless of project size. However, as more loans areoriginated,duediligencecostswill fallduetostreamliningandstandardization.This indicatesthat there is a limited, transitional role for the State in providing access to capital for initialprojectsinordertobuildmarketconfidenceinthesector.

In addition, access to debt below market rates may improve project economics while alsoenabling20%savings tocustomers.Aspartof themodel,weanalyzedthe impactof interestratessetatandbelowmarket-rate.

114MarketinterestrateisdefinedasL+550-575(3monthLIBOR).SeeAppendix3forfurtherdetails

Figure3.3ImpactofaccesstodebtonprojectIRR(NYC250kWand50kW).CDGprojecteconomicssignificantlyimproveonanIRRbasiswithdebtfinancing.Asillustratedbelow,projectswithdebtgenerateapositiveIRRathighersystemcost/Wthancomparableprojectswithoutdebt.

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The impact of lower-cost debt was substantial across both locations and array sizes. Forexample,inNewYorkCity,a250kWsystemwouldgainanIRRofover10%withinterestratesat3.49%,comparedtonoIRRwithmarketinterestrates(Figure3.4).

Despitethefactthatthe250kWNYCsystemreached10%IRRwith3.49%interestrates,thiswasnottrueforanyoftheothermodelsrun.The50kWsysteminNYConlyapproached10%IRRwhen the interest rate on the debt declined to 2%. This presents a compelling case for

Figure3.4Impactof lowinterestratesonIRRandNPVofamodel250kWsysteminNYC.Lowerinterest rates further improveproject economics. For a largeNYC system, rates at 3.49%or lowergeneratean IRRthatwouldbemarket-acceptable.ThisdemonstratestheimportanceofaffordablefinancingtogrowtheCDGmarket.

Figure 3.5 Impact of low interest rates on IRR andNPVof amodel 50 kW system inNYC.Givenrelativelyhighcost/Wforsmallersystems,interestratesmustbelowerforsuchprojectstobeviable.

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havingpartnerswithinthemunicipality,suchasHPD,usetheirlow-costfinancingprogramstosupportsuchprojectsattheirstandardrates(suchas0%-2%forHPD)(Figure3.5).

While net present value (NPV) was improved under low-cost debt, this incentive alone isinsufficienttomakeUpstateprojectsviable(Figure3.6).TospurprojectsUpstate, layeringofincentiveswilllikelybenecessary.

Figure3.6.ImpactoflowinterestratesonIRRandNPVof(A)250kW/(B)50kWUpstatemodels.

GiventhelowercostofenergyinUpstateNewYork,projecteconomicsremainchallengingdespitecheap,low-costdebtfinancing.

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AdvantagesofMWBlockincentives

BasedonthemodelingresultssummarizedinFigure3.7,wefindthatdoublingtheMWBlockincentive generates positive NPV for Downstate projects, while providing 20% savings tocustomers.However,withoutaccess todebt, theyarenotenoughtobringreturnsto10%. IfNewYorkCityprojectsarefinancedbydebt(evenatmarketrates),projectreturnssoar,raisingIRRsover60%.IftheMWBlockweredoubledfortheseprojects,NYGreenBankcouldprovidemarket-levelinterestratesfortheinitialprojectstoprovetheconcepttotheprivatemarket.Ifsuccessful,theprivatemarketcouldthentakeupthechargeandfinancesimilarprojects.

Figure3.7ImpactofdoubledMWblockpluslowinterestratesonIRRandNPVfor(A)250kW/(B)

50kWmodelsinNYC.ProjecteconomicsinNYCforboth250kWand50kWmodelsaremeaningfullyimproved with the combination of doubled MW Block and low interest rate debt financing. Thisillustrates the positive impact of these two proposals for the development of a CDG market.

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Fora50kWsystemUpstate, themodelprojectgeneratesreturnswitha3.49%interestrate,but in the250kWsystem, theprojectonly reaches10% IRRwhenpairedwitha2% interestrate. Unlike New York City, the doubled MW Block incentive would not generate returns

Figure3.8Impactof(A&B)doubledand(C)tripledMWBlockpluslowinterestratesonIRRandNPV

–(A)250kW/(B)50kWUpstatemodels.ProjecteconomicsUpstateforboth(A)250kWand(B)50kW models are also meaningfully improved with the combination of doubled MW block and lowinterest rate debt financing. However, given the lower cost of energy inUpstateNewYork and thealready low MW Block rate, doubling this incentive is insufficient to generate acceptable marketreturns. When MW Block is tripled, NPV is finally positive for an Upstate 250 kW system (C).

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Upstateunlesspairedwith abelow-market interest rate. Since theNewYorkCityMWBlockincentives are higher to begin with, a doubling increases the incentive by a much largermagnitude thanUpstate. IfNewYork State seeks to useMWBlock as amajor lever to spurprojectsUpstate, itwould need to provideMWBlock incentives closer to current (standard,non-AffordableSolar)NewYorkCitylevels,ortripletheircurrentlevels(Figure3.8).

Weacknowledgethatsomeofthereturnsgeneratedundersomeofthesescenariosarequitelarge.WedonotmeantosuggestthattheStateshouldsubsidizeprojectssotheygenerateIRRsclose to 100%. Instead, we seek to demonstrate the impact of various levers on projecteconomics. One potential limitation of the analysis performed here is the assumption thatthere is no real estate value or opportunity cost to tying up roof space for 20 years.While,theseprojectsgeneratereturns,muchofthesereturnsarelikelytobeconsumedbyeconomicrentspaidtoscarcefactors,namely,roofspace.Inaddition,asprojectcostsdecline,manyoftheseincentiveswillnolongerbenecessary.ItisimportantthattheStatecontinuemonitoringtrendsininstallationcostsandprojecteconomicswhenmodifyingincentivelevelsandstructures.Wehavedeterminedthat,forthetimebeing,incentivization is necessary for the CDG market to establish a foothold in New York State,especiallyifprojectsincludelow-incomeofftakersreceivingguaranteedsavings.

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Section3.4CosteffectivenessofincentivesIncreasedMWBlockismorecost-effectivethanlow-costdebtTheNPVofallprojectsmodeled inthis reportwereconsistentlymoresensitivetoMWBlockincentivesthanlow-costdebtincentives.Forexample,wedeterminedthattoincreaseNPVoftheUpstate250kWsystemby$1.00,theStatewouldonlyneedtospend$0.68onMWBlock.ToachievethesameimprovementinNPV,theStatewouldhavetospend$1.15ifusingalowerinterest rate incentive (3.49%) (Table 3.3). Interviewswith developers revealed a consensusthatMWBlockwouldmost likely have the largest impact on project economics. ThismodelconfirmsthatthislargeimpactmayalsocomeatlowestcosttoNewYorkState.Combining increasedMWBlockwithaccess todebt is cost-effectiveandcanmakeprojectsviable

Whenconsideringincentivesinisolation,MWBlockwasmostcost-effective.However,layeringMWBlockwithaccesstodebtcontributedtoanincreaseinNPVandalsoallowedprojectIRRsto reach 10%. For the base debt case, we assumed a market interest rate and thereforeassumed that this imposednocost to theState.Forother interest rates,wedetermined thepresentvalueof thedifference in cash flowsbetween thediscount rateand themarket rate(Table3.3).

SubsidizedUpstateprojectscostless

As discussed previously in this section, Upstate projects appear to have more difficultyachieving returns. This is likely causedby a combinationof lower energyprices and reducedincentives.However,additionalincentivizationislesscostlyforUpstateprojects.Forexample,doubling the MW Block in NYC requires the state to contribute an extra $0.61-$0.70/W,whereas Upstate it only requires $0.22-$0.40/W. If an increase of magnitude, rather thanproportion,isconsidered,thesamecostwouldbeincurredbytriplingorevenquadruplingtheMWBlockincentiveUpstate.AswesawinFigure3.7above,triplingtheMWBlockto$0.66/WfortheUpstate250kWmodelmadeprojectshighlyeconomic,atacostofonly$0.44/Wtothestate.JustdoublingtheMWBlockforthelargerNYCproject($0.61/W)wouldcostmorethantriplingtheUpstaterate.As such, the New York State PSC should consider providing similar magnitude subsidies toUpstate low-income CDG projects as to Downstate projects, rather than simply proportionalincreasesasareprovidedintheAffordableSolarProgram.

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Table3.3Cost to theState to increaseNPVofprojectsby$1.An incentive is consideredcost-effectiveifincreasingNPVby$1coststheState$1orless.ThisanalysisindicatesthatincreasingMW Block incentives is the most cost-effective mechanism to improve projecteconomics. The combination of increased MW Block incentives and debt financing atmarket-rates generate additional NPV. However, we believe higher MW block incentivespluslow-costfinancingoptionswouldaccelerateCDGdevelopment.

ModeledincentiveMarginalcostofadditionalincentivestoachieve+$1NPV

Buffalo250kW

Buffalo50kW NYC250kW NYC50kW

2xMWB(nodebt) 0.678 0.678 1.099 1.099 marketinterest N/A N/A N/A N/A3.49%interest 1.149 1.149 1.476 1.2272%interest 1.289 1.289 1.373 1.3580%interest 1.402 1.402 1.476 1.559 2xMWB+marketinterest 0.483 0.541 0.915 0.9012xMWB+3.49%interest 0.970 0.927 1.261 1.2532xMWB+2%interest 1.088 1.032 1.346 1.3462xMWB+0%interest 1.201 1.139 1.447 1.499 3xMWB(nodebt) 0.339 0.508 - - 3xMWB+marketinterest 0.429 0.319 - -3xMWB+3.49%interest 0.787 0.540 - -3xMWB+2%interest 0.893 0.618 - -3xMWB+0%interest 1.002 0.706 - -

BluetextindicatesmodelswithIRR>10%Shadedcellsindicatecost-effectiveincentives(>$1)

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Section4.Recommendations

Based on the policy analyses, stakeholder interviews, and financial modeling exercisesdescribed in this report, we have developed 10 recommendations that represent the mostimpactful steps New York State policymakers can undertake to facilitate CDG projects andinclude low-income households in NYS. While the recommendations will need to beimplementedbyspecificagencies,theCuomoAdministrationshouldalsousethisdocumenttoinformitspoliticalprioritiesandencourageagenciestoadoptthem.These recommendations are specifically targeted to be responsive to the questions raised inthe March 2017 PSC Order on Net Energy Metering Transition, Phase One of Value ofDistributedEnergyResources,andRelatedMatters,115inparticular:

A)MitigationofBillImpactandCDGProjectCosts116

Recommendation1.ThePSCshouldreducetheminimumnumberofsubscribersforallCDGprojectstothree. Recommendation2.NYGreenBankshouldinstituteaDebtAccelerationProgramforCDGprojects.Recommendation3.NYGreenBankshouldcreatealoanlossreservefundforCDGprojects.B)StrengtheningParticipationofLow-IncomeCustomers

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Recommendation4.NYSERDAshouldmakeEmPowerfundsavailabletomakeproperties

115PublicServiceCommission,CASE15-E-0751and15-E-0082.March2017.116“StaffisdirectedtoworkwithNYSERDA,theutilities,andmarketparticipantstodevelopandfileaproposalfor

nextstepsthatcanbetakentoreduce,eliminateormitigatemarketbarriers,billimpactsorCDGprojectcosts.

Topicsinclude:developmentcosts,consolidatedbilling,customermaintenancecosts,andinterconnectioncosts.”

PSCrulingMarch9,sectionG117“TheCommissiondirectsStafftoworkwithutilitiesand interestedstakeholderstoconsideraninterzonalCDG

creditprogramdesignedtoprovidebenefitsfromCDGprojectsinterconnectedinserviceterritoriesandloadzones

otherthanthatofthe low-incomeparticipant. TheCommissionalsosupportsNYSERDA’scontinuedinvestigation

into enabling low-income customer participation in CDG projects, and directs NYSERDA to file CEF investment

chapters to support programs aimed to encourage and incentivize low-income participation in CDG

projects. Finally, theCommissiondirectsStaff toconsideroptions toencourage low-incomeparticipation inCDG

under the VDER Phase tariffs, including tailored approaches for CDG projects that comprise a majority of low-

incomeofftakers.”PSCruling,sectionH

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solar-readyforlow-incomeprojects.Recommendation5.NYGreenBankshouldprovidelower-costdebtforlow-incomeCDGprojects.Recommendation6.NYSERDAshouldincreaseMWBlockincentivesforlow-incomeCDGprojects.Recommendation7.NYGreenBank&NYSERDAshouldrequirelow-incomeofftakercontractualprotectionsforprojectsreceivingincreasedincentives.Recommendation8.NYGreenBankshouldpilotaprogramtoassessalternativeunderwritingcriteria.Recommendation9.NYSERDAshouldcreateanonlinesubscriberwaitlistwithopt-inenrollmentforlow-incomecustomers.C)PreparationfortheLaunchofVDERPhaseTwoinMay2017

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Recommendation10.ThePSCshouldmandatenetmeteringratesforallCDGprojects,inlieuofVDER.

118

PSCruling,sectionK

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A. MitigationofBillImpactandCDGProjectCostsThePSC,NYSERDA,andNYGreenBankshouldcontinuetotakestepstoreducecurrentbarrierstoallCDGprojectsinNYS.Thereisaroleforpolicyinfacilitatingprojects,butakeytakeawayfromouranalysisisthatfinancialsupportisrequiredtostimulatethedevelopmentoftheCDGmarketintheState,untilsuchtimeasprojectinstallationcostsaresufficientlydecreased.

Recommendation1.The PSC should reduce the minimum number of subscribers for all CDGprojectstothree.Objective:Reducesitingbarriersandadministrativeburden

Organizations including GRID Alternatives, Natural Resources Defense Council, andEnvironmentalDefense Fund requested thePSC reconsider theCDG10-subscriberminimum,statingthatitwouldhinder“solaraccessopportunities,particularlyinurbanareasandlow-andmoderate-income communities.”119 In response, the PSCmoved to amend CDGmembershiprequirements in March of 2017, removing the 10-subscriber minimum for onsite systemsinstalled on multifamily buildings with fewer than 10 units. However, the 10-subscriberminimumforbuildingswith10unitsormorestillstands.120This requirement presents an additional barrier to implementing a project and reducesflexibility in project models. For example, if there is an 11-unit building in which only 9householdsagreetoparticipate,thesponsorwouldhavetofindadditionalsubscribersoutsidethebuildingbutwithinthesameload-zone.Inaddition,tall,narrowapartmentbuildingswithmany units but small roofs may not be able to host an array sufficiently large to ensuresignificant bill impacts for 10 subscribers. This would disproportionally impact urban areas,wheresuchbuildingsaremorecommonplace.Wehavechosenasubscriberminimumofthreetoensurethatprojectscomplywiththe40%maximumsystemofftakepersubscriber,andthereforekeepwithinthespiritofCDG. 119PublicServiceCommission.JointRequestoftheCityOfNewYork,SolarOne,GridAlternatives,NaturalResourcesDefenseCouncil,theAssociationforEnergyAffordabilityandEnvironmentalDefenseFundtoWaivetheMinimumMembershipRequirementforCommunityDistributedGenerationProjectsSitedatPropertieswithMultipleResidentialUnits,NewYork:PSC.Case15-E-0082.September1,2016.120PublicServiceCommission.OrderModifyingCommunityDistributedGenerationMembershipRequirements,NewYork:PSC.Case15-E-0082.March13,2017.

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Advantages:

• ReducesadministrativebarrierstoCDGprojects• Facilitatesadiversityofprojectmodels• LieswithintheregulatorymandateofthePSC• HasstrongsupportamongCDGstakeholders

Challenges:

• CouldbeperceivedasviolatingthespiritofCDG

Takeaway:CDG projects should be allowed to flourish in a diversity of contexts. The 10-subscriberminimum introduces additional barriers to implementation with no tangible benefit. Werecommend that the PSC eliminate the 10-subscriber minimum requirement for all CDGprojectsinitsnextOrder.

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Recommendation2.NY Green Bank should institute a Debt Acceleration Program for CDGprojects.Objective: Create market-oriented mechanism to incentivize current projects whilerecapitalizingforfutureprojects.

Asourmodelingexercisedemonstrated inSection3,access todebtgreatly improvesprojecteconomics.Wepropose creationof aDebtAccelerationprogram,which seeks tomaintain acircularflowoffundingbetweentheNYGreenBankandCDGprojects.Morespecifically,theNYGreenBankprovidesdebttoaCDGprojectinaco-financingoperationwithaprivateinvestor.NYGreenBank,co-financers,andprojectdevelopersestablishatargetedinternalrateofreturn(IRR) for that particular project.When the IRR is achieved, NY Green Bank-funded debt willaccelerate.Webelieve thisprogramdistributesproject riskbetween theNYGreenBankandprivate investorsmore than a traditional financing structure. This program can be deployedeither in isolation or in conjunction with our loan loss reserve recommendation(Recommendation3)andcanbeusedwhenoriginatingloansdescribedinRecommendation5.Astheprojectbeginstogeneratereturns,ongoingcashflowwilladdressprincipalinterestandamortization(bothpurposelybelow-market)withresidualcashflowcapturedbytheprivateco-investors.OncetheestablishedtargetIRRisachieved,futureresidualcashflowswillbeappliedtoacceleratedebtrepaymenttoNYGreenBank(nomakewholeprovision).OncetheNYGreenBankfundeddebtisrepaid,allremainingfutureresidualcashflowswillagaingototheprivateco-investors. This proposal addresses the high upfront cost serving as a barrier to CDGdevelopmentinNewYorkbyfacilitatingaccesstodebt.Moreover,theabilityfortheprogramto accelerate repaymentof the loan to allow theNYGreenBank to redeploy these funds toother projects addresses any funding constraints of the bank. As the market continues todevelopandeconomicreturnsimprove,webelievethisprogramwillbalancetheabilityofthemarket to access affordable financing through NY Green Bank and achieve a target equityreturn,whileprotectingthebank’scapital.The concept of this proposal has been formulated from innovative partnerships that arebecomingmore common in the oil and gas industry.With the decline in commodity prices,certainoilandgascompaniespartneredwithprivateinvestorstocontinuedrillingnewwellsastheywerestarvedofcapital.Specifically,privateinvestorsprovidedcapitaltodrillnewwellsonthecompany’sacreageandreceivedthebenefitofthecashflowupuntilanagreedreturnwasachieved. After achieving this return, the remaining cash flowwas split between the private

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investorandtheoilandgascompany,withthelattercapturingthemajorityoftheresidualcashflow.Thistypeofpartnershipsolvedtwoissues:theseoilandgascompaniesnowhadaccesstocapitaltogenerateadditionalcashflowstreamsfromdrillingnewwells;andprivateinvestorscaptured attractive returns. Our proposal is a formulation of risk-sharing concept alreadyadoptedinthemarketplace.121

Advantages:

• ProvidesaccesstodebtforcurrentCDGprojectsinthelongterm• Spreadsriskburden• MaintainsasteadyflowofcapitalforNYGreenBank• Stimulatesprivate-sectorcapital,whichisinlinewiththemissionofNYGreenBank

Challenges:

• MayprovedifficulttodefineIRRtargetsinthefledglingCDGmarketTakeaway:

Sinceaccesstodebthasmajorimpactsonprojecteconomics,NYGreenBankshouldimplementa Debt Acceleration Program to share in the risk burden, provide access to debt and thusfacilitateprojectdevelopment.

121“CaliforniaResourcesCorporationandMacquarieannouncejointventuretoinvestupto$300millioninoil&gasproperties,”CaliforniaResourceCorporation(CRC),April19,2017,http://news.crc.com/press-release/california-resources-corporation-and-macquarie-announce-joint-venture-invest-300-milli.

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Recommendation3.

NYGreenBankshouldcreatealoanlossreservefundforCDGprojects.

Objective:ReducecreditriskforinstitutionsprovidingfinancingtoCDGprojects.

Aloan lossreserveservesasafirst-losspositionon investmentsand isacreditenhancementtool used in the marketplace to facilitate financing transactions.122 The CT Green Bank hasestablishedseveral loanlossreserveprograms, inwhichtheCTGreenBanktakesfirst lossontheinvestmentuptoaspecifiedamount.Forexample,aspartofCTGreenBank’sLowIncomeMultifamily Energy Loan program, the bank set aside approximately 8.5% of the entire loanfund to serve as first loss.123 Loan losses in excess of the reserve fund are borne by theinvestors. This credit enhancement tool is used to facilitate private, institutional financing ofinvestmentsasthecreditprofileoftheinvestmentimproveswiththepartialtransferofrisktothebank.Moreover,aloanlossreservefundallowsformorecompetitivefinancingratesgiventhe risk mitigation it provides for the lending institutions. We recommend NY Green Bankprovidesimilarloanlossreservefundsorfirst-lossprogramstoencourageparticipationamonglending institutions in CDG projects across the State. We propose a loan loss reserve fundrepresenting 5-10% of the total portfolio principal amount, which is a common marketstructurethatadoptsthistypeofcreditmitigationtool.124Advantages:

• Facilitatesprivate-sectorparticipationinCDGprojects• EnablescompetitivefinancingratesandflexibletermsforCDGprojects• SignalscommitmenttoCDGbyNYS

Challenges:

• Requiresstrictunderwritingstandardsgivenfirstlossposition

Takeaway:

WerecommendNYGreenBankestablishaloanlossreservefundrepresenting5-10%ofthetotalportfolioprincipalamountinordertostimulatethemarketforCDG.

122KieranColeman,ThomasKochBlank,CurtisProbst,andJeffWaller,“FinancingCommunity-ScaleSolar,HowtheSolarFinancingIndustryCanMeet$16BillioninInvestmentDemandby2020,”RockyMountainInstitute.123“ComprehensivePlanFiscalyears2017-2018,”CTGreenBank,http://www.ctgreenbank.com/wp-content/uploads/2016/11/CTGreenBank-Comprehensive-Plan-Fiscal-Years-2017-2018-11232016.pdf.124“LoanLossReserveFundRisk-SharingFormula,”OfficeofEnergyEfficiency&RenewableEnergy(energy.gov),https://energy.gov/eere/slsc/loan-loss-reserve-fund-risk-sharing-formula.

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B. StrengtheningParticipationofLow-IncomeCustomersLow-incomeCDGprojectswillneedfurthersupportgiventhebarriersidentifiedinthisreport.The following recommendations are oriented towards increasing low-income participation inCDG projects, protecting low-income subscribers from fraud and abuse, and ensuring thatprojects that include low-income subscribers are financially viable. More specifically, werecommend that theNewYorkGreenBank andNYSERDAwork together tooffer a one-stoplow-income CDG incentive package including MW Block (Recommendation 6) and low-costdebt(Recommendation5)withlow-incomecontractrequirements(Recommendation7).

Recommendation4.NYSERDA shouldmake EmPower funds available tomake properties solar-readyforlow-incomeprojects.Objective:Reduceup-frontcostsandincreasesitingoptions.

As has been pointed out in this report, one of themain barriers to installing rooftop solar,whether it be on a single-family home or CDG, low-income or otherwise, is site constraints(Section2.2).Theageorconditionoftherooforwiringmayrenderitunfittocarryanarray.Ifsubstantial repairs are required, this may impose high upfront costs that can derail a solarproject.Thishasbeenabarriertomanyprojects(seeFruitBeltNeighborhoodProject,page33)andlikelylimitstheamountofsolarelectricitythatcanbebroughtonlineStatewide.InresponsetotheMarch2017PSCOrderNetEnergyMeteringTransition,PhaseOneofValueof Distributed Energy Resources, and Related Matters, NYSERDA has established an “LMICommunity Solar Initiative” that aims to incentivize projects and facilitate low-incomeparticipation in CDG.125 NYSERDA explicitly identifies EmPower as a potential mechanism tosupport customer outreach and education. We propose NYSERDA expand this mandate toenable EmPower resources to be used, not just for outreach, but also to ready low-income-inhabitedpropertiesforsolarinstallations.Under thecurrentEmPowerprogram,which isadministeredbyNYSERDA, roofandelectricalsystemrepairsand replacementarenoteligible for funding.WerecommendEmPowermaketheir funding available to cover costs to make a property solar-ready, up to $12,000 perbuilding,forwhentheupgradeisrequiredspecificallytoaccommodateaCDGsystemwithlow-

125PublicServiceCommission,CASE15-E-0751and15-E-0082,March2017.

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incomeofftakers. This numberwas chosenas it represents the lowerboundof average roofreplacement costs and would avoid diverting substantial funds from the program’s originalservices.126Grants to repair or replace roofs and electrical systems in preparation for the installation ofCDGsolararrayswillhelpalleviateamajorhurdletothedevelopmentoftheCDGmarketinNYand make more properties viable for CDG. In addition, this recommendation leveragesestablishedprogramsandfunds,therebyreducingadministrativeburden.Advantages:

• Expandsthepoolofsuitableroofs• Reducesamountofupfrontcapitalneeded• Leveragesexistingprogramsratherthancreatingnewones• Takesadvantageofinstitutionalknowledgeofcurrentsystems• AlignswithenergyaffordabilitygoalsoftheEmPowerprogram

Challenges:

• Maylimitthepooloffundsavailablefortheprogram’sweatherization/efficiencygoals

Takeaway:NYSERDAshouldmakeexistingEmPowerweatherizationfundsavailablefornecessaryroofandelectrical repairsassociatedwith low-incomeCDGprojects inorder toreducesiteconstraintsandup-frontcosts.

126HomeBuying InstituteAverageCostofRoofReplacement, "People inNewYork (oneof themoreexpensiveregions) can expect to pay $12,000 - $14,000, on average, for a complete roof replacement job."http://www.homebuyinginstitute.com/averages/roof-replacement.php

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Recommendation5.

NYGreenBankshouldprovidelower-costdebtforlow-incomeCDGprojects.

Objective:ProvetheviabilityoftheCDGmarketandincentivizeprojectsthatincludelow-incomeNewYorkers.

Access todebt is essential forprojects tobecome financially viableand for the scalingupofCDGinNewYorkState,asdescribedinSection3.3.Low-costdebtisavailableforlow-incomehomeowners to perform solar and energy efficiency upgrades to their homes. In addition,publichousingagenciesoftenhaveaccesstolow-costloanstoperformsimilarupgrades.The NY Green Bank shouldmake lower rates available to CDG developerswho include low-income customers in their projects. We propose the interest rate be proportional to thenumber of low-income subscribers, with no-interest loans for projects entirely composed oflow-income subscribers, andmarket-rate loans for projects with no low-income subscribers.Thiswouldenticedeveloperstotakeontherealorperceivedfinancialriskassociatedwithlow-incomeofftakersandstrengthenthemarketforCDGprojects.Inaddition,thisprogramwouldgenerate data on projects that include low-income subscribers for use in the assessment ofalternativecreditworthinesscriteriaproposedinRecommendation8.The0%rate,withoutanyadditionalincentivization,maybesufficienttogenerate10%returnson Downstate projects; however, additional incentives may be required to ensure projectviability,particularlyforUpstateprojects(Recommendation6).To ensure that projects maintain their starting proportion of low-income customers,subscriptionbaseswouldbeassessedonaregularbasis,andrateswouldincreaseifdevelopersreducetheproportionoflow-incomecustomersincludedintheirproject.Inaddition, inorder to receive thispreferential interest rate, sponsors shouldbe required tomeetthecontractstandardsoutlinedinRecommendation7. Advantages:

• Improvesprojecteconomics• Buildsatrackrecordofsuccessfulprojectstoincreaseavailablemarketdata• Allowsprivatesectortobecomemorecomfortablewithlow-incomeCDGprojects• Wouldbeeasytophaseoutovertime,asprojectreturnsincrease

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Challenges:

• Would require buy-in from NY Green Bank as existing low-cost debt programs aretargetedtodifferentactorsandthereforeadministeredbydifferentfinanciers

• MayrequirePSCinterventionifNYGreenBankinsistsonmarket-rateinterest• Could incur additional monitoring costs to ensure low-income subscribership is

maintained

Takeaway:The PSC should encourage NY Green Bank to provide low-cost loans to low-income CDGprojectsinordertodevelopthemarketandprovetheconcepttotheprivatesector.127

127FromtheMarch2017PSCorder:“TheCommissionthereforedirectsStafftoworkwithNYSERDAtocontinuetoexploreNewYorkGreenBankoptions,includingbutnotlimitedtodevelopingsolutionstolowerthecostofcapitalandprovidecreditsupportforCDGprojectsthatareeitherfullyorproportionallycomprisedoflow-incomecustomers.Inparticular,theinvestigationofoptionsthroughtheGreenBankshouldincludeconsiderationofsolutionsthatcansupportlocalcommunitybasedinvestmentintoCDGprojects.”Page140.

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Recommendation6.

NYSERDAshouldincreaseMWBlockincentivesforlow-incomeCDGprojects.

Objective:Incentivizelow-incomeCDGprojectinwaythatiscost-effectivetoNYS.

While access to debt improvesproject economics, returns aremore sensitive to increases inMWBlock(Table3.3).OurmodelingresultsdemonstratedthatwhileprojectsaresensitivetoMWBlock, the current incentive levels are insufficient to generate financially viable projectsthatalsoprovide20%savingsforlow-incomecustomersacrosstheState.Currently,underNYSERDA’sNY-SunAffordableSolarprogram,single-familyhouseholdsearningup to 80% AMI are eligible for double the current MW Block incentive available in thatregion.128 This program has had success in bringing low-income homeowners into the solarmarket, bringing over 125 projects online at an approximate total of ~ 1 MW installedcapacity.129 However, it is only available to homeowners and therefore leaves out a largeportionoflow-incomeNewYorkers.InordertounderstandtheimpactofapotentialexpansionoftheAffordableSolarprogramtoinclude CDG projects, we modeled the impact of the same 2xMW Block incentive on low-incomeCDGprojecteconomics(Section3.3).InDownstateareas,whereMWBlockincentivesare high and therefore proportional increases are substantial, some projects were able togenerate returns. This was not the case for Upstate projects, where the base rate is muchlower.AproportionalincreaseinMWBlockratethereforefavorsDownstateareas,whereMWBlock incentivesarehigherandwhereprojecteconomicstendtoalreadybestronger,yetareimpededbysitingandotherbarriers.WerecommendthatNYSERDAprovideaMWBlockadderfor low-incomeCDGprojectsusingresourcesfromtheCleanEnergyFund.NYSERDAshouldprovidethesamemagnitudeadderforallregionsequaltothehighestavailableMWBlockintheState.Thiswillprovideequalaccesstoincentivestolow-incomehomeownersandrentersalikeandmakeprojectsfinanciallyviableacrosstheState.Giventhecurrentblocks,theNewYorkCitymetropolitanareahasthehighestMWBlockrate.Currently,aNYCprojectwouldgettheregionalbaseincentive($0.61forlargesystems;$0.70

128“AffordableSolarProgram,”NewYorkStateEnergyResearchandDevelopmentAuthority(NYSERDA),https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Available-Incentives/Affordable-Solar129NYSERDAdatabase.

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forsmallsystems),thenanadditional$0.61or$0.70ontop,tototal$1.22foralargesystemand$1.40forasmallsystem.Anupstateprojectwouldgettheirbase-rate, ($0.22fora largesystem;$0.40forasmallsystem),plustheNYCRate(becauseitisthehighestavailablerateintheState), fora totalof$0.83 fora largeprojectand$1.10 forasmallproject.Asblocks fill,theserateswoulddeclineaccordingly.A magnitude increase has severaladvantages over a proportional increase:1) It maintains the same differentialbetween regions, as was in the originaldesignofMWBlock;2) It isdynamicandresponds to changes in installed capacityacross the State, preventing one regionfrom advancing faster than others andkeeping in the spirit of the step-downfeature of theMW Block by phasing-outover time as more solar is adopted andinstallation costs decline; 3) It treatsUpstate and Downstate projects equallyintermsoftheamountofadditionalStatefunds available to low-income CDGdevelopersineachregion;4)ItwillenablebothUpstate andDownstate low-incomeCDG projects to become viable (Section3.3).Finally,theMWBlockwasdeterminedtobe the highly cost-effective incentive forsolar development Statewide.On a dollar-for-dollar basis, increasedMWBlock can generatefinancialvalueequaltodoubleoreventripleofthecostoftheincentiveitself(Section3.4).Advantages:

• ImprovesprojecteconomicswhileusingStatefundseffectively• Reducesup-frontprojectcostsforlow-incomeCDGdevelopers• Allowstheprivatesectortobecomemorecomfortablewithlow-incomeCDGprojects• Providesparitywithexistinglow-incomesolarprogramforhomeowners• Phasesoutautomaticallyovertime,asMWBlocksfillandinstallationcostsdecline

Figure 4.1. Proposed MW Block adder for low-income

CDG Projects given current MW Block levels for large

commercial systems. While Upstate projects receive alowerbaserate,the increase in incentivesproposedherewould be of equal magnitude in the highest-MW Blockregion as in the lowest MW-Block region and should besufficient to make projects financially viable, particularlywhencombinedwithlow-costdebt(Recommendation5).

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Challenges:• Posesriskthatsavingsarenotpasseddowntocustomers,asitisanup-frontincentive• Could incur additional monitoring costs to ensure low-income subscribership is

maintained

Takeaway:Increasing the MW Block incentive, especially when paired with low-cost debt(Recommendation5),enablesprojectstogeneratehealthyreturnsinacost-effectivemanner.We recommend NYSERDA pair this incentive Recommendation 5 and with consumerprotections requirements in CDG contracts (Recommendation 7) as part of a one-stop low-incomeCDGincentivepackage.

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Recommendation7.

NYGreenBank&NYSERDAshouldrequire low-incomeofftakercontractualprotectionsforprojectsreceivingincreasedincentives.

Objective: Ensure consumer protection and favorable contract terms for low-incomecustomers.

Inthepast,low-incomecustomershavebeenfoundtobeparticularlyvulnerabletopredatorybusinesspractices(seeESCOBanPage35).Therefore,itisimperativethatCDGprovidersagreetomaintaincertainstandardsandrobustsubscriptionagreementsinordertoensurethatlow-income subscribers are not subjected to unfair, abusive, or deceptive practices. Imposing astatewidemandateforsubscribercontractsmaynotbelegallyviable,andwouldlikelydampenmarket-ratesystemsthatincludehigher-incomehouseholds.Therefore,we recommend thatNYSERDAandNYGreenBank require these specific contractprotections forprojectsreceiving low-income-specificCDG incentives (Recommendations5&

6):Locked-inSavings:Conceivably,aCDGsubscriptionfeecouldexceedthefinancialbenefitsfromtheenergy flows. Therefore, a keyguaranteeof consumerprotectionagainstovercharging isguaranteeingsubstantialbillsavingsascomparedtolocalutility-providedelectricity.Asperourassumptions in our financial models (Appendix 3) and based on expert interviews, werecommend a guaranteed net reduction greater than or equal to 20%of electricity costs beincludedinallcontractswithlow-incomesubscribers.ShortDurationofAgreement:Manyexistingsolarsubscriptioncontracts lock in thecustomerfor long periods of time to ensure there will always be offtakers throughout the life of thesystem. Some PPA contracts are set for 20 ormore years. Potential low-income customers,particularlyrenterswhoaremorelikelytomovethanhomeowners,maynotbeabletomakesuch long-term commitments. Based on expert interviews, we recommend developers berequiredtoofferoptionsforshortercontractsthatdonotexceed5years,witheasyoptionsforrenewal,andlimitedpriceescalationbetweencontracts.Thiscanhelpinreducingrisksforbothlow-income customers and project developers. Low-income customers canmake use of this'shorterdurationcontract'asatrialperiodtogetacquaintedwiththesystemaswellasensurethatprojectedsavingsarerealistic.Developerswillexpecttoretaincustomerswithwhomtheyhavehadgoodexperiencesintheinitialcontractperiod.

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Transferability/LowContractTerminationFees:Highterminationcostsmaybeadeterrentforpotential CDG subscribers, particularly low-income households who cannot make long-termcommitments because of projectedmoves or financial instability.We recommend that solarproviders be flexible with their termination policies, for instance by allowing terminationpenaltiestobewaivedifthesubscriptionistransferredtoanotherlow-incomecustomer(whichwouldbe renderedmore feasible ifpairedwithRecommendation9). In theMarch2017PSCorder,utilitieswereexplicitlyaskedtoexploreoptionsforinterzonalsubscriptions.Inresponsetothisorder,utilitiesshouldpilotinterzonalcreditingbyallowingsubscriberstotransfertheirsharesoutsideoftheprojectzoneiftheymoveduringacontractperiod.ThisrecommendationshouldbepairedwiththeStatewideonlinesubscriberwaitlistdescribedinRecommendation9toensurestablelow-incomeparticipationinCDGprojectsandinclusionofmoretransientcustomers.Advantages:

• Ensuresconsumerprotectionforlow-incomesubscribers• Encourageshigherparticipationoflow-incomehouseholds• Increasesstandardizationofcontractsandhigherpredictabilityforthemarketplace• Doesnotstymiehigher-incomeprojects,asamarket-widemandatemight

Challenges:

• MayfacelimitstoStatecontroloverprivate-sectorcontracts,andwouldthereforeneedtobestrictlylinkedtolow-income-specificincentives

• CouldbeseenasanadditionalbarriertodevelopmentofCDGprojectsTakeaway:WerecommendNYSERDAandNYGreenBankrequiredevelopersreceivinglow-income-specificCDG incentives (Recommendations 5 & 6) to include subscription contract conditions thatprotect consumersandmotivate this community to signup forCDGprojects.We specificallyrecommend locked-in savings, short-duration contract options and modified terminationclausesforlow-incomecustomers.

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Recommendation8.

NY Green Bank should pilot a program to assess alternative underwritingcriteria.

Objective: Determine the most accurate predictors of creditworthiness in New York’slow-incomeCDGmarket.

Low-incomehouseholdstendtobeunappealingtotraditionallendersforreasonsthatmayberealorperceived.Whilenotall low-incomecustomershave lowFICOscoresorhighdebt-to-income ratios, average metrics are below those of upper-and middle-income customers.However,manyperceivedrisksmaynotaccuratelyreflectalow-incomehousehold’sabilitytopay.Therefore, we recommend that NY Green Bank deploy pilot funds (potentially throughRecommendations2&5) inordertostudyalternativeunderwritingcriteria inthecontextofshared renewable energy programs serving low-income communities in NYS. It would issueloans to projects including low-income customers and collect information in regards tocustomerrepaymentprofilesandriskdiversificationacrossthevarioussubsetsof low-incomegroups. Potential predictors of ability to pay could include 12-month utility bill repaymenthistory,receiptofaspecificpublicassistanceprogramorprograms,oralowerFICOthresholdthantypicallyrequired.Advantages:

• Buildsmarketconfidenceinprojectsthatincludelow-incomesubscribers• FallswithinthepurviewofNYGreenBank

Challenges:

• Requiresfundsnotonlyfortheloans,butalsoforanalysis• Doesnotguaranteethattraditionallenderswillmodifytheirpractices

Takeaway:

We recommend that NY Green Bank pilot the use of alternative metrics to assesscreditworthiness.Whilethesocializationanduptakeofnewcriteriaamongtraditionallendersislikelytotaketimeandeffort,webelieveitwillmakethemarketmorecomfortablewithlow-incomeprojects.

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Recommendation9.

NYSERDAshouldcreateanonlinesubscriberwaitlistwithopt-inenrollmentforlow-incomecustomers.

Objective:Givelow-incomecustomersenrollinginotherassistanceprogramstheoptiontoenrollinaCDGwaitlistfromwhichdeveloperscanselectsubscribers.

Inordertostreamlinetheprocessandreducecustomeracquisitioncosts,werecommendtherebeaCDGopt-inoptionthatfeeds intoawaitlistforhouseholdsseekinganypublicassistancehelp suchasHEAPpaymentsorSNAP.Whencustomerscome toapplyor re-apply forpublicassistance programs, theywould be informed of the benefits of CDG projects and have theoption to join a waitlist. Given that all programs use 60% of the State Median Income toestablish eligibility and some already have automatic cross-eligibility, an opt-in program thatfeeds into an online waitlist should increase awareness of CDG projects within low-incomecommunities. Developers would benefit from the waitlist by having a constant stream of offtakers, whichwould reducecustomeracquisitioncostsandmitigate financial riskof subscriberdrop-outornon-payment. In addition, thewaitlist shouldbemarketed todevelopers in conjunctionwiththeadditionalincentivesavailableforprojectsthatincludelow-incomesubscribersasdescribedinRecommendations5&6.

Advantages:

• Leveragesexistingpublicassistanceinfrastructure• Enablesdeveloperstoconnectwithlow-incomecustomersinordertoreceiveincreased

incentives• Eliminatesriskofunfilledsubscriptionsorsubscriberdefaultbyprovidingacontinuous

poolofnewsubscribers• Reducesnumberofstepsneededforlow-incomecustomerstoenrollinbenefits

Challenges:

• Requirestrainingofstaffinpublicassistanceoffices• Incurscoststomaintainasecuredatabase• Needsmarketingcampaignsinordertomakedevelopersawareoflist

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Takeaway:

Thesubscriberwaitlistwouldprovideakeylinkbetweensupplyanddemandinthelow-incomeCDGmarket.BypairingthisrecommendationwithRecommendations5&6,itwillincentivizedeveloperstoincludelow-incomeofftakersintheirprojects.

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C. PreparationfortheLaunchofVDERPhaseTwoinMay2017The PSC should revert back to net metering for all CDG projects. Based on stakeholderinterviews,welearnedthatthenewValueStackincreasesuncertaintyinanascentmarket.ThisparticularuncertaintywillhinderthedevelopmentofCDGprojects.

Recommendation10.

The PSC shouldmandate net-metering rates for all CDGprojects in lieu ofVDER.

Objective: Ensureequal access to solar andenable theCDGmarket togrowona solidfooting.

TheMarch2017order that establishedaPhase1ValueofDistributedEnergyResourceshasgarneredalotofattention.ManystakeholdershaveexpressedconcernsthattheuncertaintyoflocationalandotheraspectsoftheValueStackmaymakedevelopersandsponsorsunwillingtoinvestinCDG.Manyfearthatthisuncertaintyinfuturecashflowswouldstiflemarketgrowthinthisfledglingindustry.Webelieve thatCDGnotonlyhas thepotential todisproportionallybenefit low-incomeNewYorkers,italsohasadditionalvaluepropositionsforNewYorkStatebeyondthevalueofsingle-family residential or commercial solar. Benefits such as health improvements in low-incomeneighborhoods, reducedarrearagesand shut-off forutilities, reducedcostsofenergyburdenpublicassistanceprograms,andsocialbenefitsincludingcommunityengagementinthegreeneconomyarenotcurrentlyincludedintheValueStack.Moreover, providing retail rates to single-family homeowners with their own solar arrays,which tends to include higher-income households, while providing lower rates to CDGsubscribers,whichwillincludemorelow-incomehouseholds,raisesquestionsaboutequity.TheremaystillbearoleforVDERinNewYorkState.However,usingCDGasthepilotinitiativewillverylikelylimitgrowthinthisnascentindustry.Therefore,anexemptiontoVDERshouldbecreatedtoallowallCDGprojects,andespeciallythosethatincludelow-incomesubscribers,toreceivethefullretailvalueofsolarintothenextdecades.

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Advantages:

• Provides equitable compensation for solar energy production between homeownersandrenters

• Reducesriskof incentivesbeingcapturedbydevelopersbyprovidingdirectbillcreditstoconsumers

• Iseasierfordeveloperstounderstand• Providesmorepredictabilityinprojectreturns

Challenges:

• Maynotbefavoredbyutilities,whomayneedtoabsorbadditionalinfrastructurecosts

Takeaway:

Confusion around the actual value of solar may stymie potentially beneficial CDG projects,simplybecauseoftheuncertaintysurroundingfuturecashflows.Inaddition,low-incomeCDGhas additional benefits beyond the categories included in the value stack. Finally, New YorkStatemust provide equal valuesof solar for all residents in order touphold its commitmentenvironmentaljustice.

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ConclusionCommunitydistributedgenerationcanprovideaccesstocleanandaffordableenergyto largenumbersofNewYorkerscurrentlyleftoutofthesolartransformation,particularlylow-incomehouseholds. Though themarket for CDG remains new and largely untested, it has rightfullyattractedtheattentionofpolicymakersanddevelopersthroughouttheState.CDGhasahighpotential,whichcanbeunlockedwithsupportfromtailoredpoliciesandincentives,andcarefulevaluation of existing markets. We believe that this report provides actionablerecommendations to address the unique barriers that limit low-income participation in therenewableenergyrevolutionandjumpstartCDGdevelopmentacrossNewYorkState.

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Acknowledgements

The authors would like to thank the many individuals who contributed their expertise andadvicetothisreport.WewouldalsoliketothankPeterMandelstam,BenCuozzo,andMichaelMoomjyofGRIDAlternativesfortheircontributionstoourresearchandforchallengingustoexplore solar community distributed generation inNew York State to its fullest. A full list ofstakeholdersinterviewedisavailableonPage91-92.

Special thanks are due to Professor Steven Caputo, faculty advisor to this project, whoseinsight,expertise,andunwaveringsupporthavemadethisprojectpossible.ProfessorCaputoiscurrentlyanAdjunctFaculty inSustainabilityMetricsandUrbanizationat theColumbiaEarthInstitute, the Principal of SCA Collaborative and the former Deputy Director of NYCMayor’sOfficeofLong-TermPlanningandSustainability.

Finally,wewouldliketorecognizetheColumbiaUniversityCapstoneteam,particularlySuzanneHollmannandSalehaAwal,forguidingourCapstoneexperience.

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StakeholdersConsulted

Weconsultedwith the following stakeholderswho representa cross spectrumofnon-profit,governmentandfor-profitorganizations. These individualsprovidedviewsthat informedthedevelopment of this report. The views and recommendations expressed within this reportsolely represent theopinionsandconclusionsof theauthors,anddonot reflect theviewsoftheindividualsororganizationslistedbelow.Wethankeachindividualforgraciouslyspeakingwithusduringthepreparationofthisreport.

AlignIntermediary

PeterDavidson

BrightPower

JamesHannah

BuffaloNiagaraMedicalCenter

PaulTynoCGEP

BobHallmanDavidSandalowCitiBank

BruceSchleinConEdison

MargaretJollyAlisonKlingConnecticutGreenBank

BenHealyCUMC

DianaHernandez

CUNY,SolarPartnershipProgram

GabeLandes

EmbarkSolar

GraceTamble

EnterpriseGreenCommunities

EstherToporovskyEnterSolar

DennisPhayreGreenHousingPreservationProgramHPD

DaraYaskilICF/NYCRetrofitAccelerator

DaphanySanchezMayor’sOfficeofSustainability

BenMandelNewJerseyBoardofPublicUtilitiesJeanneFoxNewYorkGreenBank

AlfredGriffin

NRDC

SamanthaWittMilesFarmer

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NREL

RanFuRobertMargolisNYCHA,EnvironmentalDefenseFund

RoryChristian

NYSERDA

RebeccaHughesMaxJoelVickiColelloPosiGen

BethGalanteSafariEnergy

DanGiuffridaSolarLiberty

RobGauchierSolarOne

NoahGinsburg

SolarCity

JamilKhanSolstice

KellyRoacheSouthernTierSolarWorks

AdamFlintSunRun

NicoleSitaramanU.S.Bank

EdRossierUSSolar

MartinMobleyVoteSolar

MelanieSantiago-Mosier

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AbouttheAuthors

Ariane Benrey is pursuing herMaster of International Affairs (MIA), with a concentration inEnergy and Environment, at the School of International and Public Affairs at ColumbiaUniversity.Arianehasexperienceworkinginpublicpolicyandinternationalaffairs,withafocusonclimate,resourcemanagement,andenergypolicy.ArianereceivedherBachelorsDegreeinPoliticalScienceandInternationalAffairsfromSciencesPoParis.Ellie Kahn is pursuing a Master of Public Administration (MPA) with a concentration inEnvironmentalPolicyandSustainabilityManagementattheSchoolofInternationalandPublicAffairsatColumbiaUniversity.Shehas8yearsofexperienceworkinginnon-profitsandsocialenterprises focusedon sustainabledevelopmentand currently servesasAssistantDirectorofSpecial Projects at Columbia's School of Public Health. Ellie received her Bachelors at theGallatinSchoolofIndividualizedStudyatNYUinLanguageandSustainableFoodSystems.Mark Kim is pursuing his Master of Public Administration (MPA), with a concentration inInternational Economic Policy and Management, at the School of International and PublicAffairsatColumbiaUniversity.Markhasworked in the financial services industry forover10years and currentlyworks as a high-yield research analyst covering the oil& gas sector at aglobal asset management firm. Mark received his Bachelors of Science in economics andBachelorsofArtsinphilosophy,politicsandlawfromBinghamtonUniversity.DavidMaravillaispursuinghisMasterofPublicAdministration(MPA),withaconcentrationinGlobal Energy Policy and Management, at the School of International and Public Affairs atColumbia University. David hasworked in energy and climate policy over three years in theMexicanFederalGovernmentandiscurrentlytheco-editorofPerspectivasEnergéticas(EnergyPerspectives in English), an academic journal focused on energy issues. David received hisBachelorsofArtsinPoliticsandPublicadministrationfromElColegiodeMéxico.JullyMeriñoCarelaispursuingherMasterofPublicAdministration(MPA),withaconcentrationin Environmental Policy and Sustainability Management, at the School of International andPublicAffairsatColumbiaUniversity. Jullyhas10yearsofexperienceworkingwithnonprofitand academic institutions with focus on women, community relations, and workforcedevelopment. Jully received a Bachelors of Arts in Women’s Studies, Bachelors of Arts inPoliticalScience,andaminorisSociologyfromPennStateUniversity.ParthVaidyaispursuinghisMasterofScience(MS)inEarth&EnvironmentalEngineering,witha focus on Sustainable Energy from the Fu Foundation School of Applied Sciences &

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Engineering,ColumbiaUniversity.Parthhasanacademicresearchbackgroundincleanenergytechnologies,greenbuildingsandenergyefficiency.ParthreceivedhisBachelorofTechnology(Hons.)degreefromtheCenterforEnvironmentalPlanning&TechnologyUniversity,India.

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Abbreviations CDG-CommunityDistributedGeneration

CEF-CleanEnergyFundCES-CleanEnergyStandard

ConEd-ConsolidatedEdison

CUNY-CityUniversityofNewYork

DC-DirectCurrent DOB-DepartmentofBuildings

DPS-DepartmentofPublicServices ESCO-EnergyServiceCompany

GHG-Greenhousegas

GWh-Gigawatthour HEAP-HomeEnergyAssistanceProgram

HPD-NewYorkCityDepartmentofHousingPreservationandDevelopment ITC-InvestmentTaxCredit IRR-InternalRateofReturn

IRS-InternalRevenueService

kW-Kilowatt kWh-kilowatthour MACRS-ModifiedAcceleratedCostRecoverySystem

MTC-MarketTransitionCredit MW-Megawatt MWB-MWBlock

NPV-NetPresentValue NREL-NationalRenewableEnergyLaboratory

NYC-NewYorkCity

NYPA-NewYorkPowerAuthority

NYS-NewYorkState

NYSERDA-NewYorkStateEnergyResearchandDevelopmentAuthority

OTDA-OfficeofTemporaryandDisabilityAssistance

PPA-PowerPurchaseAgreement PSC-PublicServiceCommission

PV-Photovoltaic REV-ReformingtheEnergyVision

RPS-RenewablePortfolioStandard

SAPC-SolarAccesstoPublicCapital SAM-SystemAdvisorModel SNAP-SupplementalNutritionAssistanceProgram

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SPE-SpecialPurposeEntity VDER-ValueofDistributedEnergyResources

W-Watt WAP-WeatherizationAssistanceProgram

$/W-CostperWatt

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Appendices

Appendix1.DefinitionofLow-IncomeNYSERDA defines low-income as 60% of Area Median Income or 150% above the federalpoverty line,whilemoderate incomeis identifiedusingHUD’sclassificationof80%ofmedianincomeorbelow. MostNewYorkStateNYS low-incomeenergyassistanceprogramsusetheStateMedian Income to determine eligibility. In order tomaintain consistency and allow forcross program registration, for our report, we will define low-income as household withincomesatorbelow60%oftheStateMedianIncome(SMI).This will allow for ease of information sharing since clients signing up for one low-incomeenergy assistance programwill know they automatically qualify to receive solar energy. Thisincome eligibility requirementwill also alleviate and cut down on thework the subscriptionmanagerwillhavetodosinceverificationforoneprogramwillsufficetoqualifyforCDG.NewYorkSMIasofMarch2017:130HouseholdSize MaximumGrossMonthlyIncome MaximumGrossAnnualIncome

1 $2,300 $27,5972 $3,007 $36,0883 $3,715 $44,5804 $4,423 $53,0715 $5,130 $61,5626 $5,838 $70,0547 $6,122 $73,4608 $6,815 $81,7809 $7,508 $90,10010 $8,202 $98,42011 $8,895 $106,740EachAdditional Add$693

130EmPowerwebsitewhosecurrentguidelinesare60%oftheStateMedianIncome(https://www.nyserda.ny.gov/All-Programs/Programs/EmPower-New-York/Eligibility-Guidelines).ThemonthlynumbersalsomatchtheincomelimitsintheHEAPwebsite(http://otda.ny.gov/programs/heap/#income-limits).

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Appendix2.AdditionalEnergyAffordabilityandEnergyEfficiencyPrograms

UtilityEnergyAffordabilityProgramsIn addition to the state and federal energy affordability programs, utility companies offerseveraldiscountratesandpaymentoptionstolow-incomehouseholds.ConEd,forinstance,hasanElectricLowIncomeProgramunderwhichqualifyingcustomersgetadiscountof$9.50offthe basic service charge. There are several ways to establish eligibility, including havingreceived payments from HEAP, the Supplemental Nutrition Assistance Program (SNAP), oranotherrecognizedpublicbenefitsprogram.TheEnergyShareProgram isaone-timegrantofup to$200 fundedbyConEdemployees forcustomers at risk of servicedisruptionwhoalso receive government assistance and/orHEAPpayments.TheLevelPaymentPlanallowscustomerstopayafixedamountmonthlyina12-monthperiod,whilePaymentAgreementsprovideConEdandacustomer inarrears thepossibility to jointlyworkoutanappropriatepaymentterm.NationalGridhasaLow-IncomeGasDiscountProgramgivingHEAPbeneficiariesa$10creditoffthebasicservicecharge.EnergyEfficiencyProgramsFurthermore, although direct bill assistance can make a real difference for householdsstrugglingtopaytheirelectricitybills, it isnot theonlymeansthroughwhichtoalleviate theenergyburdenof low-to-moderate incomehouseholds.Weatherizationandenergyefficiencyprograms seek to tackle the problem at its source, by reducing the electricity needs ofconsumers. The New York StateWeatherization Assistance Program (WAP), in particular, isfundedbytheUnitedStatesDepartmentofEnergyandHealthandHumanServices.Grantsareawarded to states to distribute for projects that improve the energy efficiency of incomeeligiblehouseholds.Providersperformanenergyaudittodeterminewhatservicestotargettobest improveenergyefficiency,whichmay includeupgradingtohigherefficiency lightingandappliances;insulatingwalls,waterheaters,andpipes;andreplacingwindowsanddoors.Thesekinds of updates to the home can result in annual energy savings of over 20%.131 In NYS,householdswithincomesatorbelow60%ofStateMedianIncomeareeligibleforassistance.Theprogramisavailabletobothhomeownersandrenters.Ifahouseholdmemberisreceiving

131AbouttheWeatherizationAssistanceProgram:http://www.nyshcr.org/programs/weatherizationassistance/

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aHEAPbenefit,theyareautomaticallyeligibleforWAP.Beingafederally-fundedprogram,thefutureofWAPundertheupcomingfederalbudgetisuncertain.While not specifically targeted to low-income households, theNYC Retrofit Accelerator canhelp low-income families reduce their electricity bill by helping large building owners andoperatorsundertakepropertyretrofits.TheprogramexistsaspartofNewYorkCity’sGreenerGreater Buildings initiative. It is a free service designed to help streamline home energyefficiencyimprovementprojects.Theprogramhelpsbuildingownersimproveheatingsystems,cooling, lighting, water usage, and access renewable energy by working one-on-one withclients, connecting them to contractors, and finding incentives and financing to pay for theimprovements.

The NYC Department of Housing Preservation and Development (HPD) Green HousingPreservation Program provides private building owners low- and no- interest loans to fundenergyefficiencyprojects, includingsolar installations.Buildingownerscantakeadvantageof0%-2% loansofup to$50,000perunit.132WhileHPDhasnot fundedanyCDGprojects, theyhave financed individual solararraysonbuildings.Tohelpoffsetcommonelectricitycharges.HPD has also financed a solar thermal project, which helps to bring down common waterheatingchargesforthebuilding.Ownerswhowishtotakeadvantageoftheseprogramsmustconductanenergyauditandcapitalneedsassessmentofthebuilding.Theownerwillhavetopursue this as part of the scope of work, for which they will need to find financing.Whenworkingwithapartnerdeveloper,HPDiswillingtobethebridgefinancer.Ifanownerdecidesto take theHPD loan, theywillneed tocommit toaffordability restrictionson theirpropertyincludingrentstabilizationandhouseholdincomelimitations.

132NYCHousingPreservation&Development,GreenHousingPreservationProgramTermSheet,http://www1.nyc.gov/assets/hpd/downloads/pdf/developers/term-sheets/green-housing-preservation-program-term-sheet.pdf.

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Appendix3.SystemAdvisoryModelInputsforModelingExercise

A.InputsInput Source Link

TECHNICALPARAMETERSModuleType Standard GridAlternativesTri-State N/ADCtoACRatio 1.2 GridAlternativesTri-State N/AInverterefficiency 96% GridAlternativesTri-State N/AArrayType FixedOpenRack GridAlternativesTri-State N/ATilt 10° GridAlternativesTri-State N/AAzmith 180° GridAlternativesTri-State N/ATotalSystemLosses 14.08% GridAlternativesTri-State N/A

ELECTRICITYRATES

RetailUtilityRateNYC-$0.192;

Buffalo-$0.116 Seebelow

CustomerDiscount 20%GridAlternativesTri-State,expertinterviews,Seebelow N/A

PriceEscalation 2%PSCorderCASE15-E-0751&CASE15-E-0082

http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={5B69628E-2928-44A9-B83E-65CEA7326428}

SYSTEM

Cost/WInstalled SeeTable3.1SolarElectricProgramsReportedbyNYSERDA

https://data.ny.gov/Energy-Environment/Solar-Electric-Programs-Reported-by-NYSERDA-Beginn/3x8r-34rs

Insurancerate 0.5%/year GridAlternativesTri-State N/ANetsalvagevalue GridAlternativesTri-State N/A

O&MCostsNYC-$20.9/kW;Buffalo$19/kW Seebelow

Degredation 0.5%/yr GridAlternativesTri-State N/A

DISCOUNTRATEInflation 2.50% GridAlternativesTri-State N/ARealDiscountRate 2.76% GridAlternativesTri-State N/A

WACC 5.33% GridAlternativesTri-State N/A

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DEBTTenor 20years GridAlternativesTri-State N/AAnnualinterestrate 6.82% Seebelow N/A

Amortization Equalpayments GridAlternativesTri-State N/AClosing/financingcosts $50,000 GridAlternativesTri-State N/A

INCENTIVES

Federal 30% NY-SunTaxCreditFormsforSolarInstallations

https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Tax-Forms-for-Customers

Reducesdepreciationbasis Yes

StateITC $5,000 NY-SunTaxCreditFormsforSolarInstallations

https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Customers/Tax-Forms-for-Customers

Reducesdepreciationbasis Yes

MWBlockSeeText,Table3.2

NY-SunMWBlockDashboards

https://www.nyserda.ny.gov/All-Programs/Programs/NY-Sun/Megawatt-Block-Dashboards/

Taxableincentivefederal NoTaxableincentivestate NoReducesdepreciation&ITCbases

Yes

TAXESFederalincometax 35% IRS https://www.irs.gov/pub/irs-pdf/i1120w.pdf

Stateincometaxrate 7.10%NYSDepartmentofTaxation&Finance2016taxtables

https://www.tax.ny.gov/pit/file/tax_tables.htm

LocalincometaxrateNYC-7.675%;Buffalo-0%

NYSDepartmentofTaxation&Finance2016taxtables

https://www.tax.ny.gov/pit/file/tax_tables.htm

SalestaxNYC-4.5%,Buffalo-0%

Localsalestaxrates-salesandinstallationsofsolarenergy

https://www.tax.ny.gov/pubs_and_bulls/publications/sales/solar_energy.htm

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OTHERFINANCIALPARAMETERS5-yrMACRS 90%

GridAlternativesTri-State N/A

Bonusdepreciationfederal Yes

Bonusdepreciationstate YesITCqualificationfederal Yes

ITCqualificationstate YesInterestonreserves 1.25% GridAlternativesTri-State N/A

WorkingCapitalReserves6monthsof

O&MGridAlternativesTri-State N/A

DebtServiceReserveAccount

6monthsofP&I GridAlternativesTri-State N/A

Replacementreserve $0.25/W GridAlternativesTri-State N/A

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B.DetailedExplanation.RetailUtilityRates.Utility rates fluctuatedaily. Inordertoperformthisexercise,wechoseutility rates fromMarch2017.SummerandWinterwereavoidedtoavoidextremehighorlowtemperatures.NewYorkCityratesweredeterminedfromindividualresidentialConsolidatedEdisonbillsforunitsinmulti-familybuildingswithinNewYorkCity.For a sample Buffalo utility rate,we utilized a sample bill with utility rates fromMarch 2016133, andrequestedinformationfromupstatestakeholdersonwhetherthisnumberadequatelyreflectedcurrentrates.Allnumberswereverifiedwithexpertinterviews.CustomerDiscount.A customer discount of 20%was chosen based on conversationswithGrid Alternatives Tri-State andexpert interviews. This is the lower end of the spectrum of what commercial lease-based solarinstallationprogramsprovideaccordingtotheexpertinterviewsconductedinthisproject.O&MCosts.O&Mcostswill likely vary fromproject toproject.Webeganwitha figure fromNREL’s recent reportthatdetailedthecostsofsolarinNYS.WeassignedtheStatewideaveragetoBuffalo.ForNewYorkCity,wemultipliedtheStatewideaveragebythedifferenceinminimumwagebetweenNYCandupstate,toget$20.90.Thesenumberswereverifiedthroughexpertinterviews.AnnualInterestRates.BasedonourconversationswiththeNYandCTGreenBanks,generallytargetedcostofdebtcapital isaround 350 to 500 bps over benchmark treasuries. We have also found select PACE programs andassociatedinterestratesrangedfrom5%to6.75%.134Forourmodelingexercise,weusedanaverageofL+550-575 with 3-month LIBOR (approximately 1.19%) to arrive at blended ‘6.82%’ to represent our‘Market’ interest rate. This interest rate approximates transactions that may be taking place in themarket.Whileweunderstandthecostofdebtfinancingwilldependontheunderlyingprojectandcreditrisk factors, we believe this interest rate is an appropriate reference point to compare against ourinterest rate scenarios. As illustrated in our modeling findings, interest rates need to be below ourdefinedmarketrateforprojecteconomicstobeattractivetoincentivizemarketparticipation.Inotherwords, low and affordable cost of debt financing is an important consideration to accelerate CDGprojectsacrosstheState.

133“UnderstandingourBillsandCharges,”NationalGrid,https://www.nationalgridus.com/Upstate-NY-Home/Bills-Meters-and-Rates/Understanding-Our-Bills-and-Charges.134 David Fledman and Mark Bolinger, “On the Path to SunShot: Emerging Opportunities and Challenges inFinancingSolar,”NationalRenewableEnergyLaboratory,May2016.http://www.nrel.gov/docs/fy16osti/65638.pdf.