‘Community solar’ can refer to both ‘community-owned’ projects as well as third party-owned plants whose electricity is shared by a community.
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 on which to put their own system.
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.
To avoid complicated securities laws and the possibility of associated taxation, community solar project developers and administrators work from early stages to ensure that their projects are legally distinct from conventional, taxable investments. Community solar participants are therefore not viewed as ‘investors’ per se. Similarly, any energy bill savings earned by households through the community solar farm are not considered income.
For these reasons there are usually rules governing community solar project participation. For example, community solar projects invite households that are geographically located within a city, town or the utility service area. Additionally, each household can only source enough power that would meet their annual needs.
Because community solar is a relatively new concept, new groups, companies and even utilities are entering this industry and building community solar projects. For this reason, it is important that anyone considering a community solar program comparison-shop across all available offers, including rooftop 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.
Thanks to mainly to Virtual Net Metering (VNM) 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.
Much as with Net Metering for rooftop solar power, VNM allows a household or business to receive the Net Metering credits associated with a renewable energy project with which they do not share an electricity meter. 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 on a one-for-one basis; if the participant’s share of the plant produces 5kWh of electricity on a given day, they will receive 5kWh of solar Net Metering credits on their power bill.
While VNM is currently helping to promote community solar projects across the nation, other models are already emerging to allow both consumers and developers to get involved in community solar without it. A report on the future of community solar by the Massachusetts Department of Energy Resources (DOER) suggests that other programs may supplant VNM as state Net Metering quotas are filled and alternative models become more common. Although the report is for the Massachusetts context, its observations apply to other states as well.
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.
Community solar projects and programs are typically offered in two formats:
When projects are ownership-based, participants can either purchase their panels up-front or finance them through a loan provided by the project developer or their own 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 the participant’s roof or property. Instead, the participant will own a set number of panels in the array or, instead, a certain number of kilowatts (e.g. 5kW) out of the solar plant’s total capacity.
In such programs, participants may only purchase enough share to meet their annual electricity usage. A matching proportion of the project’s actual output will be credited to the customer through their 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 Income Tax Credit (ITC) incentive if the body formed specifically to develop the project (usually a Special Purpose Entity or SPE) does not have a substantial tax liability.
In subscription-based community solar programs, participation is more fluid: A third party or a utility 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. The project will generally be administered by the utility, which will manage participant enrollments and billing.
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 Green Power, except that instead of paying a premium for clean electricity, participants will pay a lower price for their electricity.
As with ownership-based projects, there are limits on participation. Participants must reside within the utility’s network area, and their share of power from the project will not significantly exceed their electricity usage (with 120% of average electricity consumption being the rule-of-thumb upper limit).
Subscription-based programs allow participants easy entry into and exit out of the scheme. If a subscriber decides to opt out or move to a different utility area, their spot will be opened up to the next aspiring participant in line.
Interested in learning more about community solar, or seeing if there are any community solar projects available where you are? Join the EnergySage Solar Marketplace to check out your options.