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Community Solar: What it is and how it works

Avatar for Ben Zientara
Published on 09/13/2019 in
Updated 10/01/2019
A Community Solar installation with subscriber names

In Short: Community solar installations, also sometimes called solar gardens or solar farms, are medium to large-scale solar installations that are used to generate electricity for multiple shareholders. If you don’t have a suitable roof for solar, exploring your options with community solar might be a great way to make your life solar powered!

Individuals and businesses can either purchase a “share” of a community solar garden or “subscribe” to a community solar membership. Either way, their purchase or subscription represents a portion of the solar energy generating potential of the garden.

Community solar gardens are a great way for people who can’t put solar panels on their home to enjoy the benefits of solar energy and save money.

How Community Solar works

Only a few states have laws that support community solar. These laws provide for something called “virtual net metering,” which is a billing arrangement that allows shareholders to receive credits on their electricity bill for energy generated by their share of the solar garden.

Shareholders can either pay an up-front charge for their share and recoup their cost and even earn profits over time through the bill credits their share generates.

An example of Community Solar in action:

Say your friend Jill buys a share equal to 12 panels’ worth of solar generation from a community solar garden in Minnesota. During the month of June, those panels generate 580 kilowatt-hours (kWh) of electricity. Jill’s home is powered by Xcel Energy, and during the month of June, she used 735 kWh to power her home, at a rate of $.13/kWh.

Without her community solar garden membership, the usage charge on Jill’s power bill for June would be $95.55 (735 kWh * $.13/kWh). But the energy produced by her solar share earns her a bill credit of 580 kWh, reducing her net usage down to 155 kWh. So Jill’s total usage charge will be only $20.15 (155 kWh * $.13/kWh).

Every month (yes, even during snowy and cloudy months), Jill’s solar panels will generate electricity, and every month, Xcel will reduce her bill by the number of kWh her panels produce. Over the course of the year, Jill’s share of the solar farm might eliminate 60% of her annual electricity cost.

Who Can Get Community Solar?

In theory anyone can benefit from buying into a community solar farm and offsetting their electricity usage with solar. In general, we advocate for homeowners to first investigate getting solar installed on their own roof. When it comes to attaining the benefits of solar energy, nothing beats owning your system on your property.

But some folks don’t have a house that’s good for solar. Some houses get too much shade from beautiful old trees, or have a roof of the wrong shape or pointed in the wrong direction. Others are part of a condo building or HOA that doesn’t allow solar panels (althoughh we’re working on erasing these limitations).

Like we said above, only a few states have laws that support community solar. There are current solar projects available in the following states:

  • Arizona
  • Colorado
  • Florida
  • Illinois
  • Kansas
  • Massachusetts
  • Michigan
  • Minnesota
  • New Mexico
  • North Carolina
  • Utah

Is Community Solar Worth It?

Just like all investments, buying a share in a community solar farm can be judged based on expected returns (i.e., savings) and compared to other ways you could invest your money.

Sometimes it’s easy to tell when something is a smart investment. If you’re interested in becoming a subscriber to a community solar program, and the cost of solar energy from the subscription is lower than what you’re paying now, it’s probably a good deal! Read the fine print to see if the contract includes periodic increases to the cost of your subscription. These “escalator” provisions are used to keep pace with inflation. Increases smaller than 2.5% annual will likely keep your costs below retail electricity, but be wary.

If instead you’re buying a share in a community solar project, you have to look at the difference between the total up-front cost and your expected savings. Make sure you understand whether your solar company guarantees solar energy production and/or offers warranties for the equipment you’ve invested in.

Furthermore, check to see whether you can benefit from any solar tax credits or incentives available in your state, or whether those are baked into the initial cost you pay.

Who Benefits from Community Solar?

The last sentence above brings up an important point: with all the solar tax credits and incentives available, who exactly benefits from community solar?

We live in a capitalist society, and most people (and solar companies) don’t undertake complex infrastructure projects like this without some idea that they’ll make money doing so. Community solar is no different.

A solar developer makes money because their total cost of designing and building the solar farm is less than what they make from people who buy a share. Add in the solar tax credit and rapid depreciation, and the economics of community solar can be very favorable to developers.

But the key to making community solar work is to ensure that everyone benefits. Developers who can afford to put up the capital to make these projects work can make profits, and people who subscribe or purchase shares can see energy bill savings. Similarly, solar equipment manufacturers make a profit on their goods and the rest of us get a great source of clean energy that helps power some of our neighbors’ homes.

Other places to look for information

Original photo credit: unsplash-logoAndreas Gücklhorn

Last modified: October 1, 2019

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