Written by Christopher on July 21, 2022

What Is Community Solar?

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In simple terms, Community solar projects are a combination of solar panels and a central location. These projects are owned by a small investor and are not subject to federal securities laws. Instead, investors make monthly payments to the solar community project, which receives their investment output credit and tax benefits. In some cases, solar community projects are also known as solar farms. 

Community solar projects are located in a central location.

Unlike private solar projects, which are usually on a property, solar community projects are built at a shared location. As a result, solar community projects eliminate the constraints associated with on-site development and keep the environmental benefits local. Customers of solar community projects purchase shares of the panels in exchange for a low monthly fee. Because there’s no initial investment, community solar subscribers can begin saving money immediately. In addition, the energy generated from the community solar garden will be fed back into the electric grid, benefiting everyone in the area.

Public utility companies run these projects. Some companies are offering community solar subscription plans to encourage community participation. These plans require monthly fees but provide low-cost energy for a long time. The benefits of community solar subscriptions are apparent: low maintenance and long-term returns on investment. A solar community project won’t require a lot of maintenance; it only needs occasional cleaning. Community solar projects are becoming increasingly popular to generate energy and cut utility bills.

A small-scale investor owns them.

There are some significant challenges to building Community Solar in the United States. One of them is the financial structure of the subscriptions. Many of these require a substantial upfront payment, making it difficult to understand how the subscription will benefit customers. This is especially problematic for low- and moderate-income customers, as they often lack the disposable income to pay an upfront fee. Low-income individuals may also have no or poor credit and are less likely to speak English as their primary language.

The structure of the ownership model in Community Solar is similar to that of a rooftop system. The difference is that there are no property-based installation costs. Instead, the subscribers purchase a certain number of panels or kilowatts from the project’s total capacity. The monthly payment goes to the project’s sponsor, while the electricity generated by the solar community project is credited to the subscriber’s electric bill.

They are a subscription-based model.

Subscription-based models for community shared solar include developer-owned solar projects and subscription-based models, where individuals pay a monthly lease to a sponsor. The sponsor manages relationships with subscribers and the utility. These entities can be the same, or the sponsor and host may differ. Subscribers purchase a share of electricity generated by the solar community project, which they then sell back to the utility. Subscription-based models are a great way to help combat energy consumption while saving the environment.

A community solar subscription has several advantages. For one, it allows customers to avoid long-term commitments. Subscriptions can also be structured so that subscribers can downsize or cancel at any time without penalty. In addition, solar community projects often generate more RECs than they consume so that subscribers will pay fewer monthly bills. Another advantage of a subscription-based model is that the cost of customer acquisition is lower per subscriber than with a traditional rooftop solar project.

They are not subject to federal securities laws.

Community Solar is not a security, but the federal Securities and Exchange Commission regulates it. As a result, customer agreements in solar community projects can be considered securities, requiring developers to file offering memorandums with regulators and disclose certain information. This registration protects investors from fraud and helps companies communicate their plans to potential customers. However, it is also costly, particularly for small community solar projects.

The most significant benefit of community solar is the ability to enjoy reduced utility bills for the system’s lifetime. The federal securities laws, however, create an undue burden on community solar developers and investors. Moreover, inflexible securities laws add expensive disclosure requirements and could pose additional liability issues for solar community developers. An exemption from securities laws would ensure a high level of investor protection while protecting community investors.

They reduce energy costs for households.

A primary goal of solar community projects is to reduce household energy costs. By working with the utilities to attract low-income customers, this type of solar installation can reduce household energy costs while also helping the utility improve its returns. Community solar projects may benefit low-income customers, as most customers do not have access to a solar array on their roofs. Moreover, low-income customers are often not able to make significant upfront investments. They may also have less disposable income, no or poor credit, and limited knowledge of English.

In addition to helping the environment, solar community projects are suitable for the local economy and can reduce household energy costs. Since a group of people runs solar community projects, a lower price of electricity is generated for all members. This is a benefit for consumers, as it reduces electricity bills for households and strengthens the grid. The only disadvantage is the lack of available solar power projects, but the costs will fall as more people become aware of the benefits of solar community projects.

They allow utilities to improve relationships with customers.

One of the biggest challenges for solar community developers is attracting enough potential customers to build projects. The number of potential customers can be high, and the enrollment process can be fast. One New York developer managed to sign up 400 potential customers in just a few hours. However, such rapid enrollments are the exception rather than the rule, as most potential community solar customers are unfamiliar with the model or product options. Consumer education is crucial and should be done early and often across traditional and social channels.

A significant challenge in implementing community solar is changing the consumer mindset. Although New York and Minnesota policies have required that the process be integrated into the utility bill, this practice has yet to catch on. Developing a user-friendly platform for community solar will improve customer understanding and help utilities build deeper relationships with project owners. This will go a long way toward increasing utility customer adoption. Ultimately, it is the customer who will drive the market.