Jan Borchert, Current Hydro and Dana Hall, Esq.
CDG Subscription Models
While the business model and ownership structure of the CDG host primarily affect the hydro site owner, CDG membership is defined by the rules and stipulations of the membership contract between host and subscribers. The way the CDG is set up and the rules and stipulations of the CDG membership contract influence the overall financial success of the project – from financing to payback period.
Have a look at the following scenarios and examples. They demonstrate a range of ways that a CDG can be configured, in accordance with the CDG Key Requirements and include a short calculation example to demonstrate the implications of the respective structure. We’ll look at:
- Monthly Billing Subscriptions,
- Subscribers as Shareowners (Investors),
- Community Supported Hydropower Model, and
- the benefits of using Anchor Subscribers.
All models have in common that their goal is create a legal and financial structure that allows the allocation of the electricity output of your hydro-system (the host) to offset the consumption by multiple residential and/or small business customers (the subscribers). For simplicity all examples are based on the following assumptions:
Let’s assume you own a 20 kW-microhydro facility that generates 120,000 kWh annually on average (10,000 kWh each month) and interconnects to the distribution utility using a non-demand host meter (volumetric crediting), with no on-site electricity consumption (120,000 kWh net export). The project is looking to generate $0.10 per kWh – $1,000 per month.
- 1% of the annual electricity generation equals 1,200 kWh per year or 100 kWh per month – at a cost of $10 per month.
- 8% of the annual electricity generation equals 9,600 kWh per year or 800 kWh per month – $80 per month.
- 40% of the annual electricity generation equals 48,000 kWh per year or 4,000 kWh per month – $400 per month.
The installation of the facility including design, permitting, construction and interconnection amounts to $120,000.
Residential subscribers in the project’s utility zone consume an average of 800 kWh per month at a retail electricity supply charge of $0.12/kWh ($96 / month). The average annual consumption is 9,600 kWh, supplied for $1,152 annually per subscriber.
Monthly Billing Subscriptions
In this model, subscribers sign up to receive a percentage of output each month as a credit on their bill. The subscription needs to be equal to or less than their historic average monthly consumption (per key CDG requirements). The frequency of credits is monthly, and the length of their subscription term depends on the contract terms offered by the host (from monthly to multiple years).
It is the CDG host’s responsibility to find subscribers and to submit the CDG allocation form to the utility. Once the CDG allocation form is submitted, identifying participating subscribers, the utility applies the credit each month, and the host bills the subscriber in the subsequent month.
Monthly Billing – single owner with all small subscribers
Base Scenario + Additional Assumption: With the goal of minimizing the total number of subscribers for easier management, the project aims to have subscribers satisfy all of their electricity supply with the CDG output.
Based on CDG requirements, no member can sign up for more energy than they use on average in a year. Our example project thus offers 12 full subscriptions (8% of the generation) and one-half subscription (4% of the generation) to the hydro CDG: 120,000 / 9,600 = 12.5 subscriptions. The project’s CDG allocation form contains 13 names and utility account numbers: 12 of whom receive 8% and one receives 4% of the generation for $80 and $40 per month respectively.
Monthly Billing – single owner with one large-demand customer as a subscriber
Prior Example + Additional Assumption: The CDG host finds a local business with high electricity to join the CDG for as much electricity as possible. The local business uses more electricity per year than microhydro project can generate.
Based on the key CDG requirements, the maximum share a single entity may buy from a CDG is 40% – in this case 48,000 kWh annually. The remaining 72,000 kWh need to be distributed among at least 9 other members (minimum 10 members in total is another key CDG requirement). Whether these nine members each receive 8,000 kWh annually or are distributed among 6 full shares (9,600 kWh) and 3 half shares (4,800) or any other combination, depends on individual members and the project’s marketing efforts.
The example project’s CDG allocation form contains 10 names and utility account numbers: 1 commercial member receiving 40% of the generation ($400 per month), 6 members receiving full shares (8% for $80 per month) and 3 receiving half shares (4% for $40 per month).
Subscribers as Shareowners (Investors)
Our hydro site owner creates the SPE structure and finds other individuals willing to invest in the SPE by providing cash to help construct the project in exchange for a share of future output, in perpetuity. Once the project is operating, these same individuals receive a percentage of output allocated by the utility that is proportional to the size of their investment. The amount of the allocation received on a monthly basis is defined in the contract between the host and the subscriber and should be sized carefully to not exceed the subscriber’s average monthly consumption. Subscribers do not receive any output during construction and must be willing to provide cash up front and wait for construction to be completed to receive the benefit.
Subscribers as Shareowners
Base Scenario + Additional Assumption: The site owner offers other electricity customers in the utility service territory the opportunity to invest in the microhydro project and form a SPE. To minimize annual maintenance costs of the hydro facility shareholders will need to agree to take over basic maintenance tasks – keeping O&M cost below $2,400 annually. Nobody invests more into the SPE than would equate to their energy consumption. To balance energy credits received from the project and investment amount, the SPE shall consist of ten shareholders.
The percentage of power output each shareholder receives in this example depends on the expected maintenance cost. To finance the $2,400 O&M costs, 24,000 kWh (20% of the output) annually need to be sold externally (to non-shareholder CDG subscribers) at $0.10 per kWh. The remaining 96,000 kWh can be distributed among the ten shareholders.
The ten shareholders finance the $120,000 installation costs, the non-shareholder CDG subscribers finance the O&M costs. In order to become a shareholder of the SPE, each interested party invests $12,000 upfront to be credited an expected 9,600 kWh annually in perpetuity (life of the facility).
The project’s CDG allocation form contains 15 names and utility account numbers: 10 shareholders, receiving 8% of the generation (at no charge) and 5 members receiving half shares (4% for $40 per month).
In an alternative version of this model, shareholders pay for maintenance and operations costs directly and split the facility’s power output without involving external non-owner subscribers.
Community Supported Hydropower
The Community Supported Hydropower (CSH) model is inspired by the construct of community supported agriculture (CSA), a system that allows consumers to subscribe to the harvest of a certain farm or group of farms.
Subscribers pay in advance for a percentage of kWh generation until the host sells an entire year’s worth of expected generation output in advance. The host estimates their average annual generation, finds subscribers interested in this structure and they agree upon a percentage of output to buy at an agreed upon price; the expected or average energy output will be a reference for the pricing of the shares.
Subscribers receive a monthly percentage of output allocations and benefit from rainy years (as they will receive more energy for their fixed price), but also bear the risk of less productive years in the same way (when generation falls short of the expected output). CSH members are not shareowners, but they actively support their local microhydro project by joining the CSH.
Community Supported Hydropower Model
Base Scenario + Additional Assumption: The host decides to market his CDG as a CSH, selling individual 1%-shares (estimated at 1,200 kWh) – for $120 (priced at estimated $0.10 per kWh).
In this example, the host subscribes 20 residential customers each to purchase 5 shares of 1%, estimated 5 x 1,200 kWh at $0.10/kWh (totaling 6,000 kWh for $600 per year) which they expect is about 60% of their annual consumption. This is approximately 500 kWh per month, or 5% of the total output of the plant for each subscriber. The host has collected a total of $12,000 up front for the first year of output. The members will receive a bill and pay upfront, while receiving credits on their electricity bill in the following months based on the actual generation of the facility.
In a particularly rainy year, where the actual output of the microhydro facility surpasses the planned output of 120,000 kWh, each CSH-subscriber will receive more kWh than their expected 6,000 kWh. The subscribers’ price per kWh thus is below the expected $0.10/kWh as they still only paid $600 in advance. The project’s CDG allocation form contains 20 names and utility account numbers: 20 members receiving 5% of the energy generation at no charge. The host receives monthly statements from the utility that show how much credit was applied.
CDG program rules prohibit any one subscriber from accepting more than 40% of the generation output and no more than 40% of the generation output may serve CDG subscribers of 25 kW or greater. However, if the size of the project is large enough, a host can find a subscriber with more than 25 kW of demand and contract with them to accept extra generation if other mass market subscribers drop out, so long as the total allocation they receive is not more than 40% of the output of the plant. By accepting varying amounts of output, depending on the fluctuations of subscriptions, this demand subscriber can be considered an Anchor subscriber. The initial or base amount this anchor subscriber subscribes to has to be significantly less than 40% of the CDG output in order for the anchor subscriber to be able to absorb the fluctuations of mass-market subscribers.
It is also important to understand the utility’s role in the CDG program.
Community renewable programs almost always involve the distribution utility which meters the host generation and applies credits to customer accounts
Depending on the utility, there are nuanced differences related to how the CDG host interconnects, submits the allocation form, and how pricing works in a specific location as it relates to specific characteristics and needs in the grid.
Find more info in our full Microhydro Community DG report.