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Community solar is gaining traction in many states. The concept,
also known as shared solar or solar gardens, originated in the
mid-2000s as a way to allow broader participation in the ownership
of solar photovoltaic (PV) systems, while also encouraging local
solar broadens access to solar beyond homeowners with suitable
roofs. A National
Renewable Energy Laboratory report from 2015 estimated that 49
percent of households cannot own solar because they do not own
their own home, or they live in high-rise buildings with
insufficient roof space. Rooftop solar is impractical for
many more because of shading, homeowners’ association rules, or
But now there’s another way to invest in solar
projects in the public market: YieldCos.
Which is a better investment for homeowners looking to
support the build-out of new clean energy projects?
benefits of community solar
residential solar, the financial benefits of community solar
subscriptions have been improving over time as the price of
solar equipment falls and electricity prices have mostly risen.
interviewed Tom Sweeney, chief strategic markets officer at
community solar developer Clean Energy Collective (CEC), to gauge
the current and future marketplace. CEC has developed many
community solar farms in its native Colorado, as well as
Massachusetts, Rhode Island, Wisconsin, Washington and Kansas. The
company is also developing community solar projects in New York,
which recently passed enabling legislation.
says that CEC’s typical subscribers are educated baby boomers
who are motivated both by financial benefits and by a desire to
promote renewable energy. But, like residential solar
installations, improving economics are likely to draw in a
rising number of shareholders motivated purely by financial
the past few years, solar installers have moved from needing an
upfront payment to offering solar leases and loans that allow
the homeowner to begin saving money immediately. In
Massachusetts, a combination of high electricity prices and
robust incentives allow CEC to offer a pay-as-you-go (PAYG)
model requiring no upfront payment. The subscribers pay only for
the credits to their bills, at a cost of 85 percent to 90
percent the value of the credits. The company plans to offer
similar subscriptions to its first projects in New York, as well
as to introduce the PAYG model in Colorado.
low risk and immediate financial benefits of the PAYG model are
likely to broaden the market for community solar subscriptions,
just as first-year savings have broadened the market for
residential rooftop solar beyond environmentalists and early
as an alternative to community solar?
the motivation to buy community solar subscriptions becomes
increasingly financial, it makes sense to start comparing them
to a purely financial investment, such as renewable energy
YieldCos. YieldCos are publicly traded companies that own clean
energy assets and use the income to pay dividends to
community solar subscribers (Including Ms. Ostrom) consider comparing
a stock market investment to a solar subscription to be
“apples and oranges.” The main grounds for these
to be the assumptions that:
solar is not an investment in the same sense as Yieldcos are.
a Yieldco on the secondary market does not help build new
solar is a hedge against rising electricity prices in a way
that Yieldcos are not.
each of these in turn, it is true that community solar
subscriptions are not an investment according to the IRS or Securities
Exchange Commission (SEC.) Community solar has
exemptions from the rules governing investment so long as the
subscriptions only offset electric bills, and they are not being
held with the intent to resell at a profit. On the other
hand, the Supreme Court has defined an investment as a
a person invests his money in a common enterprise and is led
to expect profits solely from the efforts of the promoter or a
third party.” Except for the “expectation of
profits” this sounds exactly like a solar subscription, and,
even there, offsetting an electric bill seems very
similar. I can imagine a person buying a Yieldco, and
using the dividend checks solely for paying her electric
bill. In short, the main difference between a solar
subsription and a Yieldco is that a Yieldco investment is more
flexible in terms of what the dividend can be used for.
the other hand, buying a Yieldco on the secondary
market (as opposed to during a primary or secondary
offering direct from the company) does help new solar or wind
farms get built. Currently, most Yieldco prices are very
low. In fact, they are so low that few Yieldcos can issue
new shares to invest in new facilities without reducing the
dividend to existing investors. Yieldcos have in fact
stopped issuing new shares and buying solar and wind
farms. Buy buying Yieldco shares, investors help to
increase the share prices, and will eventually raise them to the
point where the Yieldcos can again issue shares in a secondary
offering and invest in new wind and solar farms again.
connection may seem tenuous, but the connection between a solar
subscription and building a particular solar farm is tenuous as
If the subscription is purchased after the farm is built, it
clearly was not essential to the construction of that solar
farm. If the subscription was purchased earlier, it still
may not have been essential: Most solar subscriptions sell out
quickly, and another subscriber would have been found to buy the
subscription in any case.
community solar subscriptions are a much better hedge against
rising electricity local prices than Yieldco dividends,
Yieldco dividends also have value as a hedge. Long term
increases in electricity prices will make it easier for Yieldcos
to renew their power purchase agreements on favorable terms,
making Yieldcos more valuable over time. Falling
electricity prices would hurt both community solar subscribers
and Yieldco investors as well. Hence, while a Yieldco
investment is not as good at hedging a particular electricity
bill, it is still a hedge, and it makes sense to compare the
also worth noting that Pay As You Go solar subscriptions have
little hedging value against electricity prices, since the cost
of the solar subscription will increase or decrease along with
YieldCos invest in both clean energy and conventional
generation, but a few have only clean energy investments.
8point3 Energy Partners (CAFD), TerraForm Power (TERP), and
TerraForm Global (GLBL) all invest almost entirely in solar.
Pattern Energy Group (PEGI) is almost entirely invested in wind,
Brookfield Renewable Energy Partners (BEP) is mostly invested in
hydropower, with some wind and solar, while Hannon Armstrong
Sustainable Infrastructure (HASI) invests in a broad range of
efficiency, wind and solar investments. I will focus on these
six for the most accurate comparison.
a fair comparison to community solar, I asked two community
solar subscribers — homeowner Jacquie Ostrom and renewable
energy expert Joe McCabe — why they made the leap. Below are
their reasons, in the rough order of importance they assigned to
innovative local companies
to educate the local utility about the benefits of solar
complicated to sell a house with solar on it
Since a YieldCo’s assets are almost never local, they
cannot compete with community solar on the basis of supporting
local companies and jobs. But they have a number of advantages
over community solar subscriptions.
can buy shares in a YieldCo. So far, only 14 states and the
District of Columbia have adopted legislation enabling community
solar. YieldCos also do not sell out (as community solar almost
always does), and they can even be held in a tax-preferred
retirement account such as an IRA.
also have a broad range of YieldCos to choose from that support
a variety of clean energy technologies with different risk and
reward profiles. Many potential community solar subscribers
(including McCabe) have been waiting for years for the
opportunity to subscribe to just one.
Let’s look at a few of the reasons that Ostrom
and McCabe gave for investing in community solar and then
compare them to YieldCos.
in different clean energy technologies can have wildly different
climate impacts, and solar is seldom the most effective. In
fact, the most important factor in determining the climate
impact of a solar farm is the carbon intensity of the
electricity it displaces. While community solar farms and
wind farms in the coal dependent Midwest are very effective at
reducing greenhouse gas (GHG) emissions, community solar farms
in California are much less effective at reducing GHGs, since
California’s grid is already very clean.
other question to ask is how much electricity generation an
investment in a solar subscription of Yieldco creates.
According to its annual report, Pattern Energy sold 5.1 million
MWh in 2015, or about 1.6 MWh for every $1000 invested in the
company. A typical solar farm at $2/W after incentives
would produce between a third and a half as much electricity per
dollar invested. Hence, unless the community solar
installation feeds power to a very carbon-intensive utility,
investing in Pattern seems like a much more effective way to
fight climate change than a similar investment in a community
investment in any of the YieldCos listed above is as much an
investment in clean energy (when including energy efficiency) as
a community solar subscription. If we drop energy efficiency
from consideration, that still leaves five viable YieldCos.
to Sweeney, CEC’s subscribers have never had problems selling
their subscriptions. Community solar projects are mostly sold
out, and CEC has been able to find a buyer at the price the
seller wanted the 20 or so times the company has been asked to
step in. That said, selling community solar subscriptions is not
as easy as selling YieldCo stock, where buyers are available
whenever the market is open.
YieldCos cannot offer anything like the reliable and safe
returns of a PAYG community solar subscription, the size of
those returns is limited by a subscriber’s electric bill. If,
for example, a subscriber pays CEC $0.90 for every dollar of
bill credit, and her monthly electric bill is $100, then the
savings will be no more than $120 per year.
to Sweeney, CEC’s solar subscriptions in Colorado that had
upfront payments have typically repaid 5 percent to 8 percent of
the subscription cost in the first year. This number rises and
falls with the price of electricity. The comparable number will
be 6 percent to 9 percent in New York.
number is roughly comparable to the dividend yield for YieldCos.
At the end of February, the YieldCos listed above offered the
following dividend yields at the market close on April 1st:
general, current YieldCo dividends are in the same range as
returns from solar subscriptions. The dividend yields from
8point3 (CAFD), Pattern (PEGI), Brookfield (BEP), and Hannon
Armstrong (HASI) all fall neatly into the 6 percent to 9 percent
range that CEC expects to offer subscribers in New York.
much higher yields at TerraForm Power (TERP) and TerraForm
Global (GLBL) reflect uncertainty around the bankruptcy of their
sponsor and controlling shareholder, SunEdison (SUNE).
This puts the two YieldCos’ dividends in danger, and the much
higher yields are the consequence of the greater risk.
dividends (excluding the TerraForms) are likely to grow faster
than the growth of electricity prices, making the YieldCos much
more compelling at current prices than upfront investments in
are currently much more attractive than community solar
subscriptions — particularly when it comes to financial
returns, greenhouse gas reductions and ease of transactions. The
exceptions are benefits to the local economy provided by
factor that has so far prevented the widespread comparison of
community solar and YieldCos is the perception of risk. After
all, the reason most YieldCo yields are high enough to compare
favorably to community solar is that their prices have fallen
drastically since a year ago.
record predicting that the bottom of the YieldCo market
was reached in September of last year. I stick by that call.
YieldCos invest in the same types of assets as community solar,
and the cash flows that underlie their dividend carry the same
sorts of risk. Most community solar subscribers purchase
their subscriptions with no intent to ever sell. A YieldCo
investor who does the same should, on average, outperform the
subscriber because of the higher current dividend and expectation
of dividend growth.
YieldCos currently seem more attractive than community solar
subscriptions in many respects, they cannot match the potential
of local development or the minimal risk of a PAYG subscription.
Hence, the best option would be to invest in both.
Take the no-money-down PAYG subscription and save a little on your
electricity bill while helping the planet and your local economy.
Then, take any money you were thinking of investing in community
solar and buy a YieldCo or three.
Disclosure: Tom Konrad owns CAFD, TERP, GLBL, PEGI, BEP, and
HASI. He does not yet own a solar subscription, but he plans
to subscribe as soon as one is available for his utility.
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