Most customer-owned solar systems in the US are distributed generation (DG) projects installed at the site where the customer consumes the electricity. However, many customers do not have sites that are good candidates for solar photovoltaics (PV). To solve this problem, developers have started offering “community solar” projects that allow customers to invest in remotely located solar facilities. Shared Renewables HQ lists 55 projects across the US with shared ownership structures, and this number is growing rapidly.
Who Can Benefit from Community Solar?
Community solar can be an attractive option for many customers who want to go solar but do not have good sites for PV. This can include both large commercial and industrial customers as well as small business and residential customers, though the types of community solar arrangements they join will vary based on their needs. There are three primary reasons for investing in community solar rather than onsite DG:
- Many sites are shaded by nearby trees, buildings, or other obstructions that would limit PV output. According to the National Renewable Energy Laboratory (NREL)’s A Guide to Community Solar, just 22 to 27 percent of rooftop area is suitable for solar.
- Large-scale facilities with major energy loads and limited rooftop space (e.g. large office buildings or energy-intensive industrial facilities) often have insufficient space to support installations relative to the amount of electricity they consume.
- Finally, residential and commercial renters typically have little incentive to invest in the properties where they are living – and in many cases are prohibited from doing so. Remotely located facilities give them the flexibility to go solar.
In addition, property owners with land that is not well-suited for other purposes can benefit by using their sites to support solar DG. In particular, capped landfills or closed industrial facilities with hazardous materials (“brownfields”) are often difficult to develop—and are typically connected to the grid already. Solar development on this type of land can be an attractive option for the property owners.
Community Solar Models
The NREL guide describes four ownership models:
- Power-purchase agreement
- On-bill crediting
- Special-purpose entity
Under a power-purchase agreement (PPA) model, the developer (or another party) retains ownership of the facility, and the customer agrees to purchase a portion of the power from the facility. Like other retail energy contracts, a community solar PPA offers a specified rate over a period of time. Large commercial and industrial customers are more likely to negotiate PPAs, whereas residential customers are typically interested in simpler, more standardized arrangements.
Some community solar projects have arrangements with utilities that allow customers to buy into a pool of energy from the facility. This usually provides customers flexibility to join or exit the program, whereas a PPA locks them into a long-term agreement. This can operate like a green power program, where the customer pays an alternative rate to utilities in order to purchase renewable energy rather than the standard energy mix.
Some states have also created “virtual net metering” (VNM) policies, whereby customers can buy shares of community solar projects and use the portion of the project output that they have purchased to offset their energy usage. (Under net metering, customers receive credit for their energy at the full retail rate, not just the energy supply cost, making this a favorable policy.) According to a May 2014 DOE report, California, Colorado, Delaware, Massachusetts and Vermont offer VNM. Minnesota has since established a community solar program with VNM, and Energy Manager Today reported that Illinois is also considering this type of program.
In order to take advantage of certain tax incentives, a group of investors can create a special-purpose entity (SPE) when developing a shared solar project. These incentives can be extremely beneficial, though managing it can be a challenge. Effectively, customers investing in SPEs become developers themselves. Investors can either use the energy themselves, typically through a PPA with the SPE, or they can sell the energy to the grid or to other customers.
Under this model, a non-profit or public entity either invests directly in a PV system or raises funds through tax-deductible donations. Non-profits and public entities cannot benefit from tax incentives the same way as other projects, but they can often receive net metering or other credits—and donors or local taxpayers are often happy to sponsor these projects.