A Framework for Energy Independence via Solar Hosting Farms

Many of us have probably considered buying solar panels at
one time or another only to pass on the idea when confronted by some type of
barrier. Since we are limited to deploying solar panels at our place of
residence or business, we are essentially prevented from investing in solar
energy if our place of residence or business faces one, or more, of these
barriers. But, what if we had another option at our disposal, i.e. the Solar
Hosting Farm (SHF)? SHFs would overcome most, if not all, of these barriers.
Located on a plot of land with an abundant source of sunlight, SHFs could be
designed and developed for the sole purpose of hosting solar panels for both
residents and businesses. Energy generated at SHFs would be sold directly to
the grid with the income received by SHF customers used to offset utility
bills. If SHFs were readily available, might consumers change their minds about
buying solar panels? The answer may be yes for a large number of residents and
businesses.

In order to answer the question above, a framework should be
developed around the concept of SHFs by asking additional questions: What are
the common types of barriers encountered in traditional solar panel deployments?
Is there a similar type of hosting model being used successfully in another
industry that might serve as a guide? What would a SHF look like? What benefits
might residents and businesses gain from a SHF? What energy and tax policies
might be enacted by federal and state governments to encourage the use of SHFs?
What key metrics can we evaluate at a high level to gain an understanding of
existing and potential solar panel adoption levels in the United States? Finally, what actions are necessary to facilitate the development of SHFs?

I. Types of Barriers

• To install solar panels residents and businesses may
  confront many types of barriers, including:
• Lack of ownership and control over the premises;
• Insufficient source of sunlight due to neighboring trees,
  hills, mountains, or surrounding structures that block out sunlight;
• Cost of solar panels and related equipment;
• Cost of labor associated with installing solar panels;
• Insufficient and/or dysfunctional space on the rooftop or
  lot;
• Risk of relocation in the near term; and
• Insufficient knowledge about the permitting process, types
  of solar panels, financing options, available tax credits, installation
  process, and maintenance requirements for solar panels.

These barriers have a negative impact on decisions to buy
solar panels.

One type of business model that is being used to overcome
some of these barriers is the cooperative. For example, the Cooperative
Community Energy Corporation (CCEnergy),
located in San Rafael, California, states: “The intent behind forming a
cooperative is to influence the market and breakthrough these barriers,
starting at the local level.”[1] Some of
the barriers reflected on their website include the following: (1) lack of
consumer awareness and understanding; (2) lack of purchasing channels; (3) lack
of trained installers and inspectors; and (4) minimal financing options.[2]

These types of cooperatives are useful in dealing with some
of the barriers—for example, permitting, cost, and installation. For
instance, they focus on pooling large numbers of residents and businesses
together in certain geographic areas in order to drive down prices for solar
panels and installation costs. One major disadvantage of this business model is
that residents and businesses must have a place to deploy their solar panels.
This requirement can be a significant drawback for residents or businesses that
either rent, own a building or land with unusable or limited space, or reside
in an area that receives insufficient sunlight.

II. The Colocation Center Approach

One example of a successful hosting model that is used in
the high-technology industry that could be used as a guide for developing a SHF
is the Colocation Center. According to Online Tech Inc., the term “colocation”
is described as follows:

Colocation is the practice of putting your equipment,
generally Internet Servers, into another’s data center. While scary at first
thought, the Telecommunication industry has succeeded with colocation for
decades. At the core, colocation is the market’s response to the enormous
capital required to provide high quality, reliable environments for critical
communications equipment. By spreading the costs across multiple organizations
everyone gets more for less.[3]

According to Data Center Map, a web service that tracks
colocation centers globally, there were 1302 Colocation Centers in 59 countries
throughout the world.[4] Of that
total, 688 Colocation Centers were located in the United States with 120
Colocation Centers in California.[5] These
numbers indicate that the high technology industry’s hosting model is proven
and thriving around the world, especially in the United States.

Both individuals and businesses alike host their servers at Colocation Centers rather than operating their servers at their place of residence or
business. Colocation Centers are attractive because they provide access to high
speed broadband service, back-up power, added security, and an ability to scale
up or down due to available racks, power, cooling, IP addresses, etc. with a
minimum of cost and complexity. Hosting servers at a Colocation Center greatly reduces the costs and hassles of owning servers. This model, if applied to solar
power via a SHF, could provide similar benefits for SHF customers, including
the elimination of the permitting process, lower installation costs, reduced
solar panel prices, lower financing costs via the pooling of hosting customers,
and ready access to the grid.

III. The SHF Model

A SHF would look like any other solar farm with one
significant difference—it would include a “hosting” component. Likely
candidates for owning and operating a SHF include utilities, privately-held
companies, and non-profit organizations. Developing a SHF will involve several
steps. First, the SHF would be created through the formation of a legal entity
such as a limited liability corporation or a non-profit organization. Next, the
SHF would need to enter into a long-term land lease at a minimal cost with the
federal or state government. Thereafter, the SHF would enter into power
purchase agreements [6] (PPAs)
with both the hosting customers and a utility. The PPA entered into between
the hosting customers and the SHF would include a hosting fee paid by the
hosting customers to the SHF. Finally, the SHF would then be in a position to
secure a long-term loan necessary to fund the cost of onsite and offsite
improvements, including permits, ground-based racks, wiring, inverters, meters,
storage units, security fence, and other related equipment including a
connection to the grid.

In return for this arrangement, the owner of the SHF would
create access to another source of electricity without having to pay for the
entire cost of the solar farm since the cost of the solar panels would be paid
for by the hosting customers. The hosting fees received by the SHF from the
hosting customers would provide a return on investment for constructing the
SHF, hosting the solar panels, and storing, selling, and distributing energy.
Non-profit organizations would certainly have a financial advantage due to
their tax-exempt status. Zero taxes would translate into additional funds to
recoup the upfront investment in the SHF and pay for ongoing maintenance.

A. Benefits of a SHF

Possible Benefits for SHF Owners

• Opportunity to expand a portfolio of renewable energy;
• New type of revenue source (e.g. hosting fees); and
• Reduced capital requirements since solar panels will be
  purchased and owned separately by hosting customers.

Possible Benefits for Hosting Customers

• Income from solar panels can be used to offset utility bill
  at place of residence or business;
• No requirement to own a building or a plot of land to deploy
  the solar panels;
• Opportunity to receive a fully integrated solution to ease
  the acquisition, financing, and installation of solar panels;
• Opportunity to reduce purchase price of solar panels and
  financing costs through the aggregation of a large number of hosting customers;
• Reduction in installation costs by placing solar panels on
  ground-based racks rather than on rooftops;
• Greater return on investment if location of SHF offers more
  sunlight;
• Possible use of ground-based sun tracking racks that allow
  the solar panels to track the sun thereby increasing the production of solar
  energy relative to having solar panels fixed on rooftops;
• Easier for operator to clean solar panels on ground-based
  racks than for traditional owners to clean rooftop panels;
• Opportunity to connect hosting customers to the SHF via a
  web interface to track kWh generated, purchase price of electricity, hours of
  sunlight, etc.;
• Higher probability of using onsite electrical storage units,
  i.e. batteries, as a result of economies of scale when spreading the cost
  amongst several hosting customers via a hosting fee;
• Opportunity to create a secondary market for buying and
  selling solar panels when the solar panels are located on a SHF; and
• Ability to relocate to another place of residence or
  business while retaining solar panel ownership.

Some of these benefits can be realized via the cooperative
business model described above, particularly with regard to costs and
installation process. CCEnergy touts the benefits of collective bargaining
noting “[w]e seek out the lowest prices for solar electric and other renewable
energy equipment and pass the savings on to our members.” Further, the co-op
provides management and technical expertise that most residents and businesses
lack, such as “project management services that include site inspection, design
review, installer referrals, rebate and permit processing, quality assurance,
and post-installation inspections.”[7]

Cooperatives such as CCEnergy serve as a useful business
model for dealing with barriers such as permitting, cost, and installation.
However, cooperatives are not designed to overcome certain barriers such as a
lack of space for the deployment of solar panels or an insufficient source of
sunlight. Further, the cost of installation without a cooperative will likely
be significantly higher relative to installing solar panels on ground-based
racks. However, SHFs can address these barriers which, in turn, give them a
huge advantage in increased access to a significantly larger market.

B. Assistance from Federal and State Governments

Federal and state governments are uniquely qualified to
assist in the development of SHFs for two important reasons. First, they
control vast quantities of land that are located in areas that provide abundant
sunlight and, second, they control our energy and tax policies.

The federal government owns approximately 650 million acres
of land, or nearly 30 percent of the entire area of the United States.[8]
Many federal- and state-owned lands offer abundant sunlight[9]
and would not interfere with environmentally-sensitive habitats.[10]

Focusing solely on the land owned by the federal government,
it would appear that there is an ample supply of land that would be suitable
for SHFs [11].
Similar analysis of state-owned lands would likely yield additional suitable
sites. Once sites are selected, both the federal and state governments could
enact policies to set aside such land at minimal cost under long-term leases to
the owner/operator of the SHFs in order to increase the financial viability of
SHFs and incentivize the development of private renewable energy. Policy makers
could also revise the tax codes so hosting customers would be excused from
paying taxes on the revenue generated from their solar panels located on SHFs.

IV. Some Perspectives and Opportunities

In the fall of 2008, about 40,000 homes were equipped with
solar panels in the United States.[12] The
number of homes tied to the grid using photovoltaics was about 50,000 as of
March 2008.[13] While
these numbers are expected to rise sharply in the next few years, they are
small when compared to the 127.9 million housing units in the United States.[14]
In California alone, there were about 13.3 million housing units in 2007.[15]
In 2000, the percentage of housing units in multi-unit buildings was 26.4
percent in the United States and 31.4 percent in California.[16]
If we turn our attention to the number of businesses, there were about 7.6
million private nonfarm establishments in the United States and nearly 1
million in California in 2006, all of which represent another significant pool
of untapped investors.[17]

Certainly, the United States has a long way to go, but,
there are also plenty of opportunities for growth given the numbers above if
solar panel deployment mechanisms can be expanded. Perhaps federal and state
governments can lay the groundwork for SHFs. After all, vast sections of land
and coastal areas have already been opened to energy, timber, and mining
companies. Isn’t it time to return the favor to the American taxpayer by
opening up certain sections of public land for SHFs?

V. Recommendation for Next Steps

Both the federal and state governments must play a vital
role in creating energy and tax policies to enable the use of SHFs. Building on
its track record as a trendsetter for environmental issues, California should
take the lead by creating a pilot program to construct two SHFs. The
construction of the two SHFs would require the following steps:

• Selection of state-owned land to be made available under a
  long-term lease at minimal cost for the construction of the two SHFs;
• Selection of a utility, privately-held company, or
  non-profit organization that will operate the SHFs to sell the electricity
  under a PPA;
• Payment for the onsite and offsite improvements by the State
  of California;
• Creation of a marketing campaign;
• Creation of a lottery system to accept applications from
  home owners, apartment renters, and businesses using the volume of the three
  types of applicants as a metric for measuring interest in SHFs; and
• A turn-key solution offered by the SHF to assist hosting
  customers with the purchase, financing, and installation of solar panels, the
  application for tax credits, and sale of electricity via a PPA with the SHF.
  The PPA will include a hosting fee arrangement between the hosting customers
  and SHF.

The results of the first SHF must be evaluated by both the state
and the SHF to apply the lessons learned to the construction of the second SHF.
After evaluating the results from the second SHF, the state could then make a
final assessment to determine if this business model should be rolled out on a
larger scale throughout California. Such lessons should also be shared with
other states, utilities, and the federal government to replicate the program
elsewhere.

Conclusion

The number of homes equipped with solar panels throughout
the entire United States was a mere 40,000 by one account, and 50,000 by
another. Such numbers are insignificant when compared to the total number of
housing units in the United States, which was a staggering 127.9 million. The
low adoption rate for solar panels by residents seem to indicate that current
methods of solar panel deployment may not be capable of providing the broader
spectrum of residents access to solar energy due to the various barriers
mentioned above. Businesses, non-profit organizations, and governments are also
feeling the effects of these barriers. One type of business model—the
cooperative—has succeeded in overcoming some of these barriers such as
permitting, cost, and installation. However, this model also has limitations
since it cannot overcome other types of barriers such as lack of ownership,
unusable/limited space, and an insufficient source of sunlight.

We do have a choice in where we go from here. We can choose
to ignore these barriers and suffer the same consequences, or we can choose to
overcome these barriers by changing the way we deploy our solar panels. If we
choose the latter path, we must take the next step by lobbying our federal and
state legislators to enact energy and tax policies that will assist in the
development of SHFs. Thereafter, we must demonstrate our conviction by
embracing this business model and making SHFs a reality.

Copyright 2009 The Regents of the University of California. All rights reserved.

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