Community Solar Power Explained

Solar energy is becoming more and more widespread across the United States. However, it has historically been very difficult for people who don’t own their own property to enjoy the benefits of solar.

Community solar seeks to address this problem. It enables renters, condo owners, and other people who can’t (or don’t want to) add solar panels to their roofs to still benefit from solar energy. The reality is that some homes aren't a good fit for solar panels or some consumers don't want to purchase depending on how much solar panels cost upfront in their areas.

In this article, we will explain how community solar projects work, why you might consider joining one, and how to join one, among other related topics. Continue reading to learn more.

What is community solar?

Community solar projects enable people who either can’t or don’t want to own their own solar panels to still benefit from solar energy. In most areas, you can join a community solar program regardless of whether you are a homeowner, renter, small business owner, or another type of organization.

How community solar projects work

Under the community solar model, stakeholders share access to a single solar generation facility. This facility uses solar panels to generate power in just the same way that solar panels on your roof would create power.

The difference is that no single party gets access to all of the power that a community solar program generates. Instead, all or most of the power generated is typically sent back into the electrical grid.

Then, anyone who subscribes or has an ownership stake in the community solar program gets a percentage discount on their electrical bill based on their stake in the project and how much power the solar panels sent back into the grid.

Understanding the benefits of a community solar program

Now that we understand what a community solar program is, let’s take a look at why you might want to join one.

Customer benefits

Many people who join a community solar program do so because they believe it will save them money on their energy bills. This is made possible by something called virtual net metering.

Net metering is a solar energy incentive. It gives people who own solar panels credit on their electricity bill based on the amount of solar energy that they send into the electrical grid.

Virtual net metering lets people who don’t own solar panels themselves still enjoy the financial benefits of net metering.

Indeed, some estimates show that people who sign up for community solar programs can reliably expect to save about 10% on their monthly energy bills.

The financial benefits of community solar are perhaps the most common reason that people choose to join these programs. But some people also do so because they want to play a role in supporting the clean energy revolution but aren’t able to purchase solar panels and solar batteries themselves.

Benefits for utilities

Utilities benefit from community solar programs as well. This is because most community solar projects are located off-site, which means they can be installed in strategic locations to support an area’s electric grid.

Additionally, some utilities are mandated by law to purchase a certain percentage of their power from renewable sources. Community solar programs help utilities with this requirement meet their obligations.

Types of community solar programs

There are four different types of community solar programs that are worth exploring. We’ll talk a little bit about each of them in this section.

Off-site

Off-site community solar programs are the most popular type of project in this space. They enable energy customers to join a community solar program and to start benefiting from solar power without actually having to install solar panels on their building or even be close to any solar panels.

One thing that is important to note here: if you sign up for an off-site community solar program, it doesn’t mean that you are powering your home with energy generated by the off-site solar panels.

Instead, you are subsidizing the production of solar energy and receive a credit for it on your energy bills. The actual power generated by the off-site solar panels won’t usually go to you.

On-site

On-site community solar power projects are less common than their off-site counterparts. However, they are still popular among apartment buildings, condos, and other shared housing spaces.

On-site community solar is when solar panels are installed at the site where the power they generate will be used. With this model, you may use some of the energy created by the panels to power your home, or you may not. It depends on the specifics of your program.

Subscription

Some community solar projects follow a subscription-based model. With this plan, community members can become subscribers to a project in order to start paying less on their monthly electric bills.

But subscribers are just purchasing electricity at a lower rate than they otherwise would. They don’t actually own any portion of the solar panels that are generated the power.

Ownership

Ownership-based community solar projects also exist. These let community members sign up to purchase a select number of panels or a percentage of the total project. Under this model, your savings will be proportional to your financial interest in the project and the amount of energy that the solar panels create.

For example, if you own 10% of the project, you will receive credit for approximately 10% of the power that the solar panels generate in a given time period.

Joining a community solar program

The availability of community solar programs varies based on location. So if you are interested in joining one, the first step is to determine what’s available in your area.

The good news is that there are 40 states that have at least one community solar project. And that number is only expected to grow as we move into the future.

You may or may not have multiple community solar options to choose from based on where you live. But if you do have multiple choices, you will need to figure out what you prefer among on-site, off-site, subscription, and ownership models.

Joining an ownership-based community solar power project can cost more upfront but can also lead to a bigger reduction in your monthly electricity bill. Subscription models require no upfront investment and may be a better option if you aren’t sure how long you will stay in your current home.

State programs and government efforts surrounding community solar

The United States government has an interest in promoting the adoption of solar energy. Given that, it’s not surprising that the U.S. Department of Energy’s Solar Energy Technologies Office (SETO) is working to increase the adoption of community solar.

SETO is working towards this goal through an initiative called the National Community Solar Partnership. Their collective goal is to give every American household access to at least one community solar option by 2025.

The partnership is doing this by leveraging peer networks and technical resources to overcome the barriers that exist in expanding community solar access to communities that are currently underserved.

Many states have adopted their own legislation in support of community solar initiatives as well. For example, each of the following states has enacted legislation that is supportive of community solar projects:

• California
• New York
• Illinois
• Colorado
• Minnesota
• Washington
• Maine

Programs that are commonly mistaken as community solar

We hope that the information above has provided you with the overview of community solar power that you were looking for. To close this piece out, we will just take a moment to review some similar initiatives that are often confused for community solar.

Group Purchasing

In some communities, homeowners are able to get a discounted rate on solar panels for their homes by buying in bulk alongside their neighbors. The city of Philadelphia has a program like this, which is called Solarize.

However, this isn’t community solar power because it involves each homeowner purchasing and using their own solar panels instead of sharing a single solar facility.

Green Power

Green power is also sometimes confused with community solar projects. This is when a utility gives its customers the option to purchase some of their power from renewable energy sources.

These programs differ from community solar projects in that they aren’t focused on saving the customer money. Instead, utilities offer the option of purchasing clean energy for individuals who are interested in supporting the health of the planet. But green power usually costs more than fuel-generated electricity, while community solar projects reduce a customer’s electricity bill.

Crowdfunding

Sometimes you will find crowdfunding-based investment opportunities online for new solar panel projects. However, these are just financial investments. You don’t actually save any money on your monthly energy bill. You would just hope to get a return on your investment over time, in the same way you would if buying a stock or investing in a startup.

Community solar payment options

If you would like to join a community solar program, you have two main options to choose from. You can either join a project that follows a subscription-based model or you can join a project that offers partial ownership in a shared solar generation system.

Each of these options can be a good fit for different types of energy consumers. In this section, we will illuminate the details of each option so that you can get a better sense of which one is right for you.

Subscription

Subscription-based community solar projects are more popular than ownership-based ones in the United States. They enable homeowners to enjoy some of the cost-saving benefits of solar power without having to own any panels themselves.

There are a few different ways that a subscription-based community solar project can work. Often, a new subscriber will pay a monthly charge to the solar project in order to receive a discount on their monthly electricity bill.

It is important to note that subscribers don’t actually save money by using solar energy from the community solar project to power their homes. Instead, the energy that the panels create is sent back into the grid. Then, each subscriber gets a credit from their utility, which reduces their monthly energy charges.

Some subscription-based community solar projects follow different models. For example, a new subscriber may be asked to pay the total annual cost of their subscription upfront.

Or a subscription-based community solar program may not even offer any cost-saving benefits. It may instead sell subscriptions as a way of giving people in the area an opportunity to support clean electricity initiatives.

Ownership

Some community solar projects follow an ownership pricing model. This involves paying a set upfront price for a stake in the project and then receiving benefits that are proportional to that stake.

For example, you might purchase 10% of a community solar project. If so, you would likely be entitled to earn around 10% of the benefits that the project generates. These benefits will typically come in the form of a reduction of your monthly electricity bills.

It will take you some time to recoup your initial investment in an ownership-based community solar project. But once you do recoup your investment, you will continue enjoying savings on your energy bill until you either sell your share or the project terminates (typically happens 25-30 years after starting).

You can purchase a stake in a community solar project with either cash or a solar loan.

Ownership vs subscription-based: Which is right for you?

Although it’s expanding rapidly, community solar is still relatively new. That means many consumers will only have one or two options to consider when deciding whether they want to join one. So you may not even get to make this decision.

That being said, if you do have the option of both ownership and subscription-based community solar projects, there are a few factors to consider.

Membership, signup, and early termination fees

Subscription-based community solar options can carry a variety of fees, including monthly membership fees, one-time signup fees, and early termination fees if you exit the project before your agreement with the company that’s managing the project ends.

It is important to consider these fees while doing the math to see if joining the project will save you money or not. Additionally, if you think there is a chance that you will move out of the area while under contract with the company that’s managing the project, you wouldn’t want to join a program with a high early termination fee. If you have to pay one, your savings from the project could evaporate.

Size of Share

When you join an ownership-based community solar project, it is important to understand exactly what your share of the project includes. This is often measured in kilowatts or watts.

You need to know this because it will tell you how much energy you can expect your share of the project to generate. The more power that your part of the program creates, the more that you will be able to save on your energy bill.

Payback Period

It can also be useful to calculate your payback period if you are purchasing a stake in a community solar project. You can do this by calculating your total upfront investment and dividing it by the cost savings that you expect to receive on your energy bill each month. This will give you the number of months it will take you to break even on your investment.

Once you have this number, you can use it to determine whether you’re making a smart decision by purchasing a share in a particular project. For example, if a community solar program is expected to last another 15 years and it will take you longer than that to break even on your investment, joining probably isn’t the right decision.

Choosing between community solar and your own system

You might also be trying to decide between joining a community solar program and adding a solar system to your home. There are pros and cons to each option, which will appeal to different types of consumers.

With a community solar project, you won’t usually have to worry about maintaining or repairing the panels yourself. This is something that the company that manages the project usually does.

Community solar projects also enable consumers to make smaller investments in solar power, which can be appealing. For example, if you don’t want to have to spend five figures on adding solar panels to your home, then joining a community solar program could be a good way to enjoy many of the same benefits without having to make as large of an investment.

But owning your own system allows you to enjoy the full benefits of solar power. Even if you aren’t able to pay for a solar system upfront, you may still qualify for a solar loan or lease. Often, these will help you save more on your monthly energy bill than what would be possible by joining a community solar program.

The bottom line on community solar pricing models

Both subscription-based and ownership-based community solar projects can be beneficial to consumers. Subscription-based projects often have zero, or very low, upfront fees. They enable you to start enjoying the benefits of solar immediately without having to spend a lot of capital to do so.

Ownership-based projects may save you more on your energy bill long-term. You will have to pay more upfront to join one but you will break even on your investment at some point. When that happens, you will continue enjoying lower electricity bills at no cost to you.

Regardless of which pricing model you prefer, community solar projects are an excellent alternative to adding solar panels to your home. Joining one will enable you to benefit from solar power without having to assume financial responsibility for your own solar system.

What to consider before joining a community solar program

As you consider whether a particular community solar program is right for you, there are a number of questions that you can ask yourself to arrive at a decision. Here are eight of the most important questions to consider before joining a community solar program.

How much solar energy are you looking for?

The amount of energy that you get from joining a community solar project will vary from month to month based on how much power the panels generate. But generally, people who join one of these projects can expect to save between 5 and 15% on their annual electricity bills.

That’s a solid number and could represent hundreds or even thousands of dollars saved for you each year. However, you may not be able to get all of your energy needs fulfilled by the community solar project. If you would like to save even more on your electricity bill, you may want to look into alternatives.

What ownership model does the community solar project use? \

A project’s ownership model will play a big role in determining whether it’s a good fit for you. Community solar projects can be either subscription-based or ownership-based.

These are exactly what you would expect. Under a subscription model, you pay a monthly fee to access a share of the solar energy that the project’s panels produce.

With an ownership model, you typically pay an upfront fee to own a share of the project. You then receive a portion of the energy that the project produces, which is roughly equal to your stake in it.

Subscription-based projects typically are easier to join and cancel. They also have much lower upfront fees. However, you may not save as much on electricity depending on how long you plan on using the project.

Ownership-based projects cost more to join upfront and may be more difficult to cancel. But if you plan on being a part of the project for a decently long time, you should save more on electricity by joining one of these.

Will you begin saving immediately? Or is there an upfront cost of joining?

With subscription-based community solar projects, you typically begin saving money immediately. But an ownership-based project will require you to put up some cash up front. This means that it will take some time to break even on your investment.

If you prefer to start saving immediately, then finding a subscription-based community solar project will likely be your best option. But if you don’t mind paying a bit extra now to save more in the future, ownership will likely be the way to go.

Are you free to cancel whenever you want?

This will be a very important factor to consider if you think you might be moving soon or you aren’t sure about committing to community solar long-term.

It can be difficult and take some time to leave an ownership-based community solar project. But many subscription-based projects will allow you to cancel whenever you want. So going with a subscription service will likely be the better choice for you if you want to keep the option of canceling whenever you want.

What happens if you move?

You will also want to consider what happens when you move before joining a community solar project. Many projects will allow you to transfer your share or your subscription to a new address for free as long as it’s in the same utility area. But you should still check to make sure that’s true for your project just to be safe.

Are you eligible for any tax incentives?

You likely won’t be eligible for any tax incentives if you join a subscription-based community solar project. But you might be eligible for some if you join an ownership-based project.

There is no hard and fast rule for this, as the availability of incentives varies greatly based on the pricing structure of the project, your state, and your utility company. But it’s something you’ll definitely want to look into as you determine whether joining an ownership-based project is a good financial investment.

How do your costs and savings compare to a roof system?

If you don’t have the option of adding a solar energy system to your roof, then you can skip this question. But if you do have that option, then you will want to compare the benefits that you can get from joining a community solar program to those that you can get from simply purchasing or leasing your own solar panels.

Community solar programs offer a lot of conveniences. They enable you to enjoy the benefits of solar energy without having to worry about upkeep or managing a solar system on your own.

However, it’s often the case that you can save more money by adding solar panels to your roof, depending on how much solar panels cost in your area. And keep in mind, you don’t necessarily have to pay much upfront to do this.

There are a wide variety of solar loans and lease options available, which could enable you to add a solar energy system to your home without having to outlay a lot of cash to do so.

How much will you save on your electricity bill by joining?

This is, perhaps, the most important question that you need to ask yourself before joining a community solar program.

You need to know what your monthly or annual savings will be in order to determine how much you can spend on a monthly subscription fee or for an ownership stake and still come out positive on your solar investment.

How to read community solar reviews

Online community solar reviews can be a fantastic source of information about these projects. But they can also be somewhat misleading if you don’t use the proper context while evaluating them.

The key thing to keep in mind while reading community solar reviews is that they document the isolated experiences of a single customer. These can be illuminating but they can also highlight problems or benefits that are not representative of the community solar project as a whole or indicative of what your experiences with it will be.

That’s why it’s best to look for trends across multiple community solar reviews instead of focusing too intently on any single review. If there are lots of reviews that mention the same problems or benefits, then it becomes much more likely that you will experience something similar if you join the project.

Community solar in different states

Another thing to keep in mind while reviewing community solar projects is that they differ quite a bit from state to state.

For example, each state has its own project size limit. Generally, states where project size limits are larger are able to offer community solar to their residents at lower prices. Here’s a table that shows the project size limits for states where community solar projects are widely available.

(Table courtesy of NREL.gov)

Some states have also placed restrictions on which customers are able to subscribe to certain projects. These are typically geographical locations. For example, you might have to live in the same electric utility area that a project is located in before you can join it.