By: Vincent Potter, Policy Analyst
What is Community Solar?
The U.S. Department of Energy (DOE) defines community solar as any solar project or purchasing program, within a geographic area, in which the benefits of a solar project flow to multiple customers, such as individuals, businesses, non-profits, and other groups.
Image: Co-op Power
Community solar programs can expand access to renewable energy for customers that cannot or choose not to install resources themselves. Participation in community solar programs does not require that customers own property, have ideal conditions on a site that they may own, or pay construction and siting costs for renewable generation installation. If offered in their area, customers may simply choose to subscribe to a desired amount of renewable electricity, pay a subscription fee, and receive bill credits from the energy generated from their portion of the community solar array.
As of September 2022, 21 states have rules that require utilities or allow other entities to develop community solar programs.
Community solar programs can differ greatly from state to state, or utility to utility. Some programs are open to third-party development, others must be run by utilities. Subscription size limits, purchase options, and bill credit rates can all vary. Many programs have provisions for lower-income households.
Rules around community solar can be related to net metering policies, virtual net metering policies, or as entirely separate entities. In states without formal community solar program structures, utilities may choose to offer these programs. As of September 2022, 22 states and the District of Columbia had pending actions relating to community solar in their legislatures or before their utility regulators.
Benefits from Community Solar
Subscribers to community solar programs receive the renewable electricity that they desire. This can be a benefit in and of itself. In some locations, community solar is viewed as a "premium product" and therefore, subscribers are not expected to save money on their electric bills overall.
Policymakers and utilities throughout the United States are wary of "cross-subsidization" and tend to design programs such that only the beneficiaries pay. In North Carolina, community solar programs must not be supported by ratepayers that do not receive the benefits of the solar electricity generated. Ideally, subscribers would receive more tangible benefits, such as annual bill savings like net metered customers do. Community solar programs can be designed with participation or savings targets for lower-income customers. Lower-income households tend to pay proportionally more of their income for energy than wealthier households and community solar, which provides a bill savings, can offer relief.
In areas with regional transmission authorities, community solar operators can gain additional value from market participation. This participation in capacity markets or other ancillary services can reduce the subscription costs needed for projects to stay afloat, meaning that customers can potentially benefit as well. In regulated markets, ancillary services cannot be valued by open markets. If a community solar installation has a host that can benefit from demand reductions, those savings can be passed along to subscribers at the host's discretion.
Program Designs
Community solar programs throughout the United States use a range of different designs. Some programs sell the output of a panel for the life of the facility with a high up-front cost, similar to buying a solar panel and having it installed on the customer's property. Monthly and annual subscriptions are common options, which allow a smaller commitment from the customer but provide some additional uncertainty for the host. An additional common fee is an origination charge that would be imposed for the creation of new subscriptions.
Most community solar programs use an opt-in subscription design. This requires customers to choose to participate. The facility or subscription administrator would educate and/or advertise the services and benefits of community solar electricity under this program model. When community solar programs are "premium offerings" and provide subscribers with net costs, this program model ensures that participants make informed choices before getting a more expensive product.
Opt-out program design enrolls participants automatically. This design requires the subscriber to see a net savings or it creates a potentially unwanted additional charge on their energy bills. In New York and a few other states, this program design is used to ensure that lower-income customers can receive benefits from participation in community solar and similar programs without the necessity for educational and advertising campaigns by subscription administrators. This can reduce barriers to renewable electricity access, especially for lower-income households.
Image: ISO/RTO Council
Improving Benefits in the Southeast
Most of the Southeastern United States does not have access to a regional transmission organization that would allow easy market participation for community solar installations. Community solar facilities can provide additional benefits based on its host's electric service rates, especially if paired with energy storage. Cooperative and municipal utilities can experience significant savings from the coincident peak fees on their wholesale contracts. If community solar and storage systems are located strategically, they can also defer distribution system upgrades needed to support load growth on highly utilized infrastructure.
Research in North Carolina
Research conducted for the American Rescue Plan Act in 2022 analyzed the rate structures and wholesale contracts of several cooperative and municipal utilities in North Carolina. The research compared solar scenarios, battery sizes, and storage durations to identify general sizing and deployment strategies. The largest benefit found was in coincident peak reductions from solar and storage. None of the utilities analyzed had distribution infrastructure with forecasted load limitations that would create benefits from distribution deferral.
Municipal and cooperative electric utilities are non-profit entities owned by their customers. Benefits accrued through coincident peak or demand reductions can be shared between the utility and customers. Program design can set subscription fees and credit rates such that customers receive a net savings on an annual basis while allowing the utility to support program administration costs and operations & maintenance expenses. Net annual bill savings can make community solar more accessible and appealing to lower-income customers. However, additional barriers may hinder participation.
There are informational and administrative barriers for community solar facilities to make customers aware and acquire subscribers. Some amount of annual attrition should be expected as customers relocate or their preferences change. Opt-out program design, seen in New York and in a few other states, can significantly reduce these barriers. If the program's intent is to benefit lower-income households and community solar programs provide a net benefit for participation, then an opt-out program design, where lower-income subscribers are automatically enrolled as capacity becomes available, can fulfill that mission.
Conclusion
Community solar programs can provide tangible benefits not only to subscribers, but also host facilities and host utilities through demand charge reductions. When paired with energy storage, or optimally located within utility distribution infrastructure, the facilities can provide additional savings for their hosts. Program design can incorporate these host benefits and distribute a portion of them to subscribers to increase community solar participation benefits. To make benefit distribution more streamlined, an opt-out program model can be used to automatically enroll participants, reducing the administrative burden of subscriber acquisition. Opt-out programs require community solar program participation to result in subscriber savings to ensure that customers are not being drawn into a program which actually increases their bills, a particularly difficult prospect for lower-income households.
Keep up with legislative and regulatory changes related to data access with the 50 States of Solar report or DSIRE Insight’s Single-Tech Solar Subscription.