Community solar is a large solar installation with multiple owners or subscribers. Community solar is an eco-friendly alternative for families who want to use green electricity but who aren’t able to install solar panels at home.
Table of Contents
- How community solar works
- Community solar program design and tax credits
- What are the customer benefits of community solar?
- Do utility companies and corporations also benefit from community solar?
- Community solar is booming in the U.S.
- The future of community solar in the U.S.
By the end of 2021, there were more than 1,900 community solar projects in the U.S., providing a total capacity of more than 5 Gigawatts AC (GWAC). These projects could, theoretically, produce enough electricity to power more than 3.75 million homes. But what is community solar?
By most definitions, community solar is a solar installation with multiple owners or subscribers. Owners purchase a share of the panels in the array and get credited with the energy produced by the panels (it’s like having a rooftop array, just on someone else’s land!). Subscribers have a contract with the solar installation’s owner or operator and receive a percentage of financial returns based on their subscriber share.
Renters, who usually can’t install solar panels at their homes and apartments, often like community solar because it allows for the use of green electricity consistent with the terms of their lease.
Community solar is sometimes referred to as a solar garden or solar share. Whatever you call it, community solar is a great way to reduce your personal carbon footprint and, potentially, save some money on your electricity bill.
How community solar works
Individuals, businesses, non-profits, community groups, and other groups wanting to benefit from and support solar power can subscribe to community solar.
On-site community solar vs. off-site. For the most part, community solar subscribers don’t live on the same site as the solar array. However, while the off-site model is most common, there is an on-site community solar model. This is where occupants of apartments, condos, or other multifamily housing developments can also benefit from a solar array on strata-owned land.
Buy or lease panels. Community solar customers either buy or lease a portion of the solar panels in an array. The customer then receives a credit on their electric bill for energy generated by their share of the system. This is very similar to how it works if you have solar panels on your roof, except that with community solar the solar panels are installed and operated (and owned, in some cases) by someone else in a location other than where you live.
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Community solar business models vary. Community solar business models vary across the U.S. The best states for community solar have policies that support equitable community solar programs. This means that project developers and utilities have to follow specific regulations regarding customer enrollment.
Some states mandate community solar. In some states, such as Hawaii and California, utilities are obligated to develop community solar. Where states haven’t enacted laws governing community solar, individual utilities, municipalities, and private developers make up their own business models.
In most states regulating community solar, subscribers receive two bills each month: one from the community solar program, showing their portion of solar energy; and one bill from the utility company for the amount of conventionally generated electricity consumed during the month. Because it can be confusing to get statements of two accounts (one showing energy generated and one showing energy consumed), some states are looking to combine these bills.
Community solar program design and tax credits
Community solar programs vary in terms of design, billing, and tax credits. Some offer bill credits as kilowatt-hours (kWh) while others compensate in dollars. Contract length, cost of participation, eligibility requirements, and types of panels all differ between projects and programs.
Typically, community solar projects are owned and operated by utilities, special purpose entities, or non-profits. The utility-sponsored model is where an existing utility sets up a solar array and allows its customers to participate voluntarily.
The second common type of community solar project is one established by a special purpose entity. In this case, a group of individuals forms a business enterprise with the special purpose of developing a community solar project. The business can then take advantage of state and federal tax incentives.
The third common model for community solar is where a non-profit entity administers a project to support its own work and, perhaps, to benefit donors.
Community solar projects usually allow for participants to retain their share even if they move within the same utility service territory or country. If not, most allow for participants to sell or donate their share or subscription.
Nowadays, many community solar projects have subscriptions set aside for low- or moderate-income customers. This is increasingly the case where states regulate community solar.
For more information, you can check out the Community Solar Business Case Tool which offers a flexible financial model for community solar. The U.S. Department of Energy’s SunShot Initiative also offers A Guide to Community Shared Solar: Utility, Private, and Nonprofit Project Development.
How community solar is billed and taxed
Community solar projects have to have a way of measuring generated electricity and crediting it to their subscribers and owners according to their investment or lease. In some cases, community solar participants can use group billing, joint ownership, or value of solar tariffs as compensation, though this depends on individual utility companies and state regulations.
A small number of community solar projects use a value-based approach to compensate subscribers. This is based on the idea that shared renewable energy projects create value for the utility company by avoiding transmission and distribution costs, including infrastructure costs and line losses. One example of this approach is the Holy Cross Energy shared solar program in Glenwood Springs, Colorado. Subscribers to this community solar program receive bill credits that are around 30% higher than the retail rate for yelectricity.
Most community solar projects use net metering to credit owners and subscribers for the energy their system contributes to the electrical grid. For most owners and subscribers this is via virtual net metering or remote net metering as they don’t live or work on the same site as the solar array.
Unlike when a homeowner installs a residential rooftop array, community solar subscribers don’t typically get a tax credit like the federal investment tax credit for solar PV systems. This depends on the structure of the program though and can be different for owners versus subscribers. It also varies where a community group or business installs the solar array rather than a utility company.
As with any investment or contract, do your research before buying or leasing a share in community solar. If the legalese in a contract is too technical, ask the company to explain it in plain language, or check with local community tax advisors or your own accountant to figure out what you can claim (if anything).
What are the customer benefits of community solar?
The benefits of community solar for customers include:
- Reducing your personal carbon footprint – depending on the size of your share or lease, you could offset all your household electricity use!
- No responsibility for the day-to-day maintenance of the panels
- No responsibility for the initial installation of the entire array
- Access to solar power even when you:
- Don’t own a home
- Don’t have a suitable roof for an array
- Have a suitable roof but little sunshine
- Can’t afford the initial cost of a full residential rooftop solar array
- The ability to maintain your lease or ownership in community solar even if you move (within the same utility service territory or county)
- The ability to end your lease or sell or donate your shares in the community solar project (subject to certain terms and conditions)
- Cost savings in areas where solar power is less expensive than traditionally generated electricity
- Greater stability for cost of electricity.
In short, community solar allows everyone to benefit from solar energy, regardless of whether they can install a residential rooftop array on their own home. There’s also the wider benefit to society of reducing reliance on fossil fuels, cleaner air, reduced greenhouse gas emissions, and a diversified energy grid.
In some cases, community solar farms can be built on former landfill sites and land otherwise unsuitable for farming, housing, or other uses. And, of course, solar arrays are increasingly common on the rooftops of warehouses and public buildings.
Do utility companies and corporations also benefit from community solar?
While utility companies often fight renewable energy projects tooth and nail, they actually stand to gain from community solar. Why? Because the companies can strategically position these off-site solar arrays in areas of the grid where they’ll provide the most benefit. This can help stabilize the grid, reduce overall cost of electricity (increasing their profits) and improve their standing in the community and with customers.
Utility companies are also increasingly viewing community solar as a way to transition away from fossil fuels while staying financially viable and profitable. Utilities even get tax credits and other financial incentives to install community solar.
As for businesses and corporations installing community solar, this can help them achieve compliance with various environmental regulations. It also gives them something nice to put in an annual environmental report and can help power company operations and offset their own carbon emissions.
Community solar is booming in the U.S.
According to the National Renewable Energy Laboratory (NREL), the U.S. boasts nearly 2,000 community solar projects across more than 40 states, with a combined generating capacity of at least 5 GWAC.
NREL tracks installation data on community solar across the country and notes that installations increased by an impressive 29% in 2021 compared to 2020. On average, community solar capacity has more than doubled every year since 2010.
Colorado was the early state leader for community solar, adding significant capacity between 2011 and 2015. From 2016 to 2019, Massachusetts and Minnesota got the community solar bug and added hundreds of megawatts. Texas was also an early adopter of community solar, having installed 95 GWAC of community solar between 2016 and 2020. The lone star state added another 200 MWAC in 2021.
Since 2019, Florida and New York have taken up the mantle. Florida added more than 1 GWAC of capacity in 2021, to remain the state with the most community solar.
That said, Governor Kathy Hochul of New York State announced in March 2022 that NY is now the “top community solar market in the United States with more than one gigawatt of community solar installed and operational.” (Florida still has more installed capacity, but it isn’t clear if this is all operational. It’s also not clear if the 1 GW is in AC or DC.)
One GW of community solar can power around 209,000 homes and is a great step towards the state’s goal of generating 70% of its electricity from renewables by 2030. NY also has enough community solar projects under construction to serve another 401,000 homes, chipping away at its goal of installing at least 10 GW of solar by 2030.
As of December 2021, about 74% of community solar is concentrated in just four states: Florida (1,636 MW-AC), Minnesota (834 MW-AC), New York (731 MW-AC), and Massachusetts (674 MW-AC).
The future of community solar in the U.S.
The U.S. Department of Energy Solar Energy Technologies Office (SETO) helps to promote community solar through the National Community Solar Partnership. This is a coalition of community solar stakeholders working to ensure that every American household has access to affordable community solar by 2025. SETO is particularly engaged in bringing community solar to low- and moderate-income households. According to NREL, nearly 4.7 GWAC of community solar projects are scheduled as of December 2021. Most of the planned capacity was in Florida, New York, Massachusetts, and Minnesota. If all of these approved projects come to fruition, the cumulative community solar capacity of the U.S. would nearly double.