Community solar: what is it?
Last updated 7/15/2020
A community solar project is a solar power plant whose electricity is shared by more than one property.
The primary purpose of community solar is to allow members of a community the opportunity to share the benefits of solar power even if they cannot or prefer not to install solar panels on their property. Project participants benefit from the electricity generated by the community solar farm, which costs less than the price they would ordinarily pay to their utility.
Community solar allows people to go solar even if they do not own property/roof, making it an attractive option for renters or those who live in shared buildings.
What are the benefits of community solar?
Community solar is becoming an increasinly popular offering from new energy companies, utilties, and more. For this reason, it is important that anyone considering a community solar program comparison-shop across all available offers, including rooftop solar options, in order to find the one that offers the best value for them.
In a nutshell, community solar offers a way for virtually anyone to go solar, without installing solar panels on their roof or their property.
Financial benefits of community solar
Virtural net metering and other policies
Thanks to Virtual Net Metering (VNM) and similar policies in a growing number of states, the community solar power option is gaining steam as the primary means for those who are not in the market for rooftop solar to participate in the benefits that solar power systems offer.
Like net metering for rooftop solar power, VNM and similar policies allow households or businesses to receive the net metering credits associated with a renewable energy project installed at a remote location. These credits are worth as much or close to as much as what they would pay for electricity from their utility. For example, every unit (kilowatt-hour or kWh) of electricity generated by the community solar farm will effectively reduce the participant’s power bill, either as a one-for-one kilowatt-hour basis, or as a monetary credit.
Although most community solar projects aim to save participants money, there may also be cases in which environmental or social outcomes are the main goal. For example, a community may sponsor a solar array for a church or other public building. In such cases, the church or public building will not only save money on their energy bills, but also meet their environmental and/or local economic growth objectives.
What community solar is not
Community solar is similar to but distinct from a number of other vehicles that allow individual investors, households and businesses to get involved in the quickly expanding clean energy economy.
Below are some of the approaches that are sometimes confused with community solar.
- Group Purchasing: Group purchasing deals allow a large number of households or businesses to purchase their own individual solar systems at bulk rates through negotiations with a solar installation company. As such, group purchasing does not result in a communal project whose benefits are shared—once completed, each participant benefits separately from a separate system. In contrast, in a community solar project, all participants benefit from the same system, which is usually located on a piece of land not necessarily owned by any of the participants.
- Green Power: Green power arrangements allow a utility’s customers to purchase electricity from renewable energy generation plants—mainly hydro, wind, and solar. Those who sign up for green power programs generally do so to ‘do the right thing,’ rather than to save money on their power bills, since these options often come at a price premium. Importantly, participation in a green power plan does not necessarily result in the build-out of additional renewable power plants, as the electricity may be sourced from pre-existing facilities. Most community solar projects, on the other hand, are developed with a primary aim of saving participants money on their power bills.
- Crowdfunding / Online Solar Investment Platforms: Some companies have opened up renewable energy investment to the masses with online platforms that allow virtually anyone to invest into new solar power system installations. Under such arrangements, buy-in is set up purely as an investment, and the power that such a system generates is not associated with the participant’s electricity bill in any way—and indeed may not be located in the same utility region, state or possibly even country. Returns from these projects may be taxable, whereas the benefits from a community solar plant are not.
Community solar projects and programs are typically offered in two formats:
- Ownership: This model allows participants to own some of the panels or a share in the project. They get to benefit from all the power produced by their share of the solar panels or the system.
- Subscription: This model allows participants to become subscribers and pay a lower price for the electricity sourced from the community solar farm. They do not own the panels—they just buy the power at a reduced rate.
When projects are ownership-based, you can either purchase their panels up-front or finance them through a loan provided by the project developer or your bank. In this way, ownership-based community solar models are very similar to purchasing a rooftop system—except, of course, that no system will be installed on your roof or property. Instead, you own a set number of panels in the array or, rather, a certain number of kilowatts (e.g. 5kW) out of the solar project’s total capacity.
In such programs, you can only purchase enough share to meet your annual electricity usage. A matching proportion of the project’s actual output will be credited you through your electricity bill or through some other arrangement with the project administrator.
Ownership-based projects can be complicated to develop and administer, and the ‘ownership’ factor can be a barrier to entry for those who do not have the capital or credit rating necessary to get involved. These sorts of projects—especially when initiated by the community hoping to benefit—may also run into hurdles when it comes to tapping into the solar investment tax credit (ITC) incentive if the developer of the project does not have a substantial tax liability.
In subscription-based community solar programs, participation is more fluid: a third party or a utility company will develop and own the project (sometimes investing in it with the aim of taking advantage of associated tax credits) and extend an opportunity to the public to participate.
Program details will vary, but most require no upfront fees to join while offering savings right away. In this case, subscribing to a community solar project is akin to signing up for a green power program, except that instead of paying a premium for clean electricity, participants typically pay a lower price for their electricity.
As with ownership-based projects, there are limitations on participation with many subscription programs. Depending on your state and/or utility company, you may need to reside within a certain distance from the community solar project (i.e. your utility's coverage area) in order to join the community solar program. Many community solar companies also place a limit on how much electricity you can receive from the project (with 120 percent of average electricity consumption being the rule-of-thumb upper limit).
Most subscription-based programs are easy to sign up for, and easy to cancel. If you decide to opt out or move to a different utility area, your spot will be opened up to the next aspiring participant in line.
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