What You Need to Know About Community Choice and Solar Power

The advent of low cost solar power is already upending the conventional business model for utility-scale electricity generation, and the Community Choice program in California provides a strong hint that far more changes are in store. Eight Community Choice agencies now operate across the state, providing analysts with an ample real-life data platform for assessing the results.

The takeaway: by providing for local control over utility decisions, Community Choice can stimulate a significant amount of local economic activity. However, policy makers need to consider a wide variety of factors -- including the impact on small scale, distributed solar -- before taking the plunge.

What is community choice?

The concept behind community choice is relatively simple -- and quite alluring. Community choice is basically an aggregation policy that enables customers to determine their electricity contracts as a group. The utility continues to provide basic operations.

In the context of today's renewable energy landscape, the implications are enormous. Essentially, community choice programs put millions in existing revenue under the control of local authorities.

The result is a more holistic policymaking environment in which local job creation, preference for renewable power, and rate-making decisions are left to self-organized groups instead of utilities or public utilities commissions. This is a big deal because smaller groups have the ability to act more nimbly than big utility operators. Utilities with their decades-long power contracts and enormous grids to maintain are obviously reluctant to let anyone opt out of coverage. And public utilities commissions, which control the rates utilities are allowed to charge for power, fear spikes in costs.

Local groups with local interests suddenly become a more powerful force -- an important counterbalance for consolidation in the electricity market -- and the ripple effect can reach nationally and even globally.

That effect is amply illustrated in Illinois, which adopted a community choice policy in 2009. A 2014 report on the policy's impact in Chicago caught the Triple Pundit eye:

...Chicago officials came up with a plan to eliminate coal from the city’s mix and include more wind power, specifically from Illinois wind farms.

The initial response from the energy supplier, Integrys Energy Services, basically came down to, “No,” but Chicago’s 900,000-strong aggregated customers provided the supplier with a strong motivation to find a way to work with the city.

Another factor in favor of community choice is the potential for securing long term reliability and rate predictability over quick profits for investor-owned utilities.

In 2015 the National Association of State Legislatures summarized the potential benefits of community choice programs:

States may consider aggregation to reduce electricity costs, provide power from local sources or purchase energy from renewable sources. Massachusetts, for example, included aggregation in the state's electric utility restructuring policy to lower electricity costs for consumers. Ohio however, advertises both cost savings and profit-sharing potential to prospective customers, while New York is currently establishing aggregation as a method of procuring cost-effective local renewable energy.

With all these benefits, the question is why only a handful of states currently have community-choice-enabling legislation on the books, with California, New Jersey and Rhode Island joining the four mentioned above.

One obstacle to widespread adoption is the lack of real-life data on the impacts of community choice programs. Previously, policy makers focused mainly on rate setting. With community choice, the task of assessing policy is much more complex, because local control can motivate investment in local power sources that boosts local businesses and their employees.

Policy makers need concrete information to help assess the interplay between rate-setting, local power sourcing and local job creation, and the California experience provides just that.

California solar power and community choice

California's Community Choice program was launched by state law in 2002. Eight Community Choice agencies are already up and running in the state, and more are in the planning phases.

To assess the impact of the program on local economies, the community choice advocacy organization Center for Climate Protection commissioned a study from the independent consulting firm Fosterra.

Just released under the title, "Community Choice Energy: What Is the Economic Impact of Local Renewable Power Purchasing?," the study looks at San Joaquin, Fresno, and Tulare Counties in the San Joaquin Valley.

The key takeaway is that "significant local economic benefit is directly correlated with local renewable energy investment."

Fosterra's most conservative estimate is that the three counties could add 8,400 jobs and generate $845 million in economic activity from 2019 to 2024, based on the assumption that only 10 percent of the electricity supply in the region would come from locally-sourced solar.

The study also included a mid-level scenario and a "most optimistic" scenario of 33 percent solar. At the 33 percent mark, job creation could hit 27,600 and the estimated economic benefit would top $2 billion.

Even the "optimistic" scenario is somewhat conservative, because the study only considers job creation and economic activity directly related to the development of new, large-scale solar installations.

The report does not include other potential growth sectors that are intimately connected to solar development, including (but not limited to) energy efficiency, energy storage and electric vehicle charging.

Look before you leap

As encouraging as the study is, Fosterra advises that rate making is a complex process under any conditions, and the renewable energy field adds another layer of considerations.

One key issue, for example, is the tension between centralized, utility scale solar projects and small scale projects at individual buildings. The advent of low cost, small scale energy storage technology enables more customers to withdraw from the grid or at least reduce their participation, and that variable will impact rate making decisions.

Another consideration is the potential for lower rates from non-local renewable energy sources, such as remote wind farms or concentrating solar power plants. Policy makers would have to model the potential impact of low rates on economic activity compared to the activity stimulated by local development projects.

Fosterra does note that remote sourcing may be less attractive because it has broader implications for a comprehensive, regional sustainability policy. That includes the potential for environmental harm at large scale, remote sites as well as energy loss and waste associated with long distance transmission.

Be that as it may, as evidence mounts in favor of the benefits of community choice, Fosterra notes a set of factors that could make further expansion more difficult. For example, utilities may adopt policies that make it more expensive to launch and operate a community choice program.

Utilities may also offer a stronger slate of renewable energy programs to diminish the incentive for stakeholders to adopt community choice programs.

As Fosterra notes, it is also important to keep in mind that conditions in the San Joaquin Valley are "ideal for varying scales of solar development and for developing solar power at very competitive rates." Solar conditions range widely across the U.S., and policy makers in different regions need to take that into account.

In sum, though the new study doesn't make a "case closed" argument for universal community choice across the U.S., it does provide advocates with a strong argument for including local, large scale solar development in the case for expanding the availability of community choice programs.

Considering the growing interest in small scale and micro wind development, the new study may also motivate policy makers to model the potential benefits of community choice programs in regions with ample wind resources.

Even if community choice does not expand to more states in the near future, the potential for near term growth is enormous -- and it already looks like community choice is here to stay.

Community choice participation in the seven active states already includes more than 1,500 cities with 5 percent of the U.S. population, and those seven states collectively account for approximately 30 percent of the U.S. electricity market.

For more information on community choice visit the Clean Power Exchange.

Image: via Center for Climate Protection (page 33).