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Here Comes the Sun: How Securities Regulations Cast a Shadow on the Growth of Community Solar in the United States

The cascading cost of solar photovoltaic technologies over the past five years presents a ripe opportunity to change the way people think about solar energy, and the nascent community solar model offers the vehicle for such change. Community solar offers any electricity ratepayer the opportunity to purchase a small portion—as little as one panel—of an offsite, local solar array in exchange for reductions in the ratepayer’s utility bill for the entire life of the solar system. By removing traditional siting and financial barriers to solar ownership, community solar drastically expands access to solar energy to persons of all socioeconomic levels while also conferring a host of ancillary benefits. Although traditional financial barriers to solar ownership have been effectively eroded, inflexible securities regulations continue to pose a formidable threat to the fledgling community solar model by imposing onerous and expensive registration and information disclosure requirements—essentially creating a minefield of potential liability for community solar developers. Due to the novelty of the community solar model, however, courts have yet to consider whether this arrangement constitutes a “security” within the meaning of the Securities Act of 1933. Nonetheless, an analysis of the case law to date quite strongly suggests that community solar interests are, in fact, securities. On the other hand, this Comment posits that the policy underlying securities regulations points in both directions, and therefore the classification of community solar interests as securities is not as airtight as some judges might think. Notwithstanding this conclusion, the proliferation of community solar is still feasible if such projects can qualify for an exemption from the most onerous of the Securities and Exchange Commission’s requirements. This Comment explores four potential exemptions: Rules 504 and 506, the Intrastate Exemption, and the pending crowdfunding exemption. It concludes that, unfortunately, the uniqueness of the community solar model does not lend to easy categorization into any of these exemptions—which mainly target startup companies seeking funding from wealthy investors or from people with a preexisting relationship to the entrepreneur. In summary, though implemented to protect unsophisticated investors, the practical effect of securities regulations is to exclude altogether those investors from myriad benign investment opportunities. While this tradeoff may be worthwhile in other contexts, the risks and rewards of a community solar project are simple, consistent, and obvious. Thus, while investors would benefit from securities laws’ antifraud provisions, the onerous registration and disclosure requirements are unnecessary and in fact detrimental in the community solar context—they largely work to prevent communities from having the opportunity to invest in community solar at all. In light of these tensions, this Comment concludes that the additional layer of antifraud protection triggered by securities classification is probably beneficial for community investors. But only by coupling that securities characterization with an exemption from strict registration requirements can the federal government and states strike the proper balance in protecting community investors while also safeguarding their rights to purchase solar energy.
Samantha C. Booth
UCLA School of Law
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