Community Solar Energy

Renewable and Sustainable Energy with Community Solar Power

Skill Level
20 Min

Chapter 7

Table of Contents

What is Community Solar?

solar panel plant

Community solar refers to a shared project which people in the same location can undertake if they are unwilling or unable to install solar panels. The people involved in this project then buy the generated electricity at a lower cost. This is specifically suitable for low-income earners or those who have limited space on their rooftops or backyards to have solar energy systems.

In community solar systems, residents come together to mandate the construction and usage of solar systems. This optimizes solar energy consumption in the residential area and might increase production by 5% to 10%.

Although solar energy is growing in popularity, statistics indicate that seventy-five percent of rooftops are unsuitable for solar panel installation. Some premises are limiting in size, shape, angle of exposure to the sun, among other reasons.

Net-metering means that you pay your electricity bill according to the units you have consumed. The consumption rate is expressed in the kilo-watts of power that you utilize every hour.

When you install a solar panel on your rooftop, there is a direct connection between your solar panels and your home system. The electricity which they produce is fed directly to your home’s appliances.

Most solar panel owners can meet personal electricity requirements from solar panels. Hence, they only have to pay the grid very little for surplus power they occasionally require.

However, your solar panels can produce more electricity than you need. Thus, you can supply it back to your electricity company and receive credit.

Back to the concept of community solar. Since the solar panels aren’t installed directly on your house’s rooftop, the word net metering is now known as virtual net metering. You’re not directly producing power and transmitting it to the electric grid.

Is Net-Metering Beneficial for Utilities?

Typically, net-metering tends to reduce consumers’ electricity needs. Hence, it decreases monthly bills.

This reduction is great for customers. But for utility companies, not so much.

However, there are benefits for utility shareholders as well. Net-metering reduces the electricity demand on days of high demand, where there is ample sunlight throughout the day. 

Reducing demand at such vital times is exceptionally advantageous. It reduces stress on the grid system, thus, reducing the frequency of blackouts and infrastructure problems.

It is only recently that solar energy systems have become prominent. Previously, they were used only by few people. Because of this rarity of use, losses incurred due to net-metering were tolerable.

However, in recent times, increased competition has led to many different utilities lobbying to revoke net-metering since the losses are a lot more substantial. However, as of now, net-metering is still available for consumers.

If you could generate solar energy for free, net-metering would be a profitable venture for consumers. Almost every individual would either subscribe to a community solar system or have solar panels on their roof.

Installing solar panels on your rooftop entails a considerable initial cost to purchase the equipment. There are other additional costs required for installation and maintenance.

The Solar Power Authority informs us that an average solar panel can cost $25,000 to $35,000. However, the average payback period is around 10 years, but you enjoy free energy as long as the system is functional. Solar panels can last for more than 30 years. 

Types of Solar Community Systems

Community solar

Although some community solar systems may charge an initial subscription fee, most use a pay-as-you-go model. Consumers pay for power costs monthly, as it is produced, transmitted, and consumed. Therefore, a community solar system allows you to start saving almost immediately.

Some community solar owners charge a partial up-front fee or pay-as-you-use. In the first option, the user pays for the community solar system over the entire length of consumption, most commonly at a predetermined rate per kilowatt-hour.

For the second option, the user pays an amount not necessarily linked to their predicted electricity usage over a certain time, for example, in three or five years. In both cases, the user can take advantage of a discount on the current market rates. The consumer can pay $0.11 per kilowatt-hour rather than paying $0.13 per kilowatt-hour.

These models impose relatively high costs on fresh subscribers. The costs often cross over five figures for users who pay the entire sum of money upfront. As a result, the break-even period is longer, sometimes even beyond the 10-year mark.

Confused? Don’t worry. The following example utilizes the pay-as-you-go model. It will make things more transparent for you as you read along.

How The Pay-As-You-Go Model Works

How much money can consumers save with a pay-as-you-go model?

First, the shares they purchase generate power. The electricity goes into the grid. Then, the grid pays the consumer a certain amount for the power they receive. This amount generally tends to be greater than the amount the consumer paid for.

The solar community then monitors and tracks the consumer’s power production levels. The local utility credits the consumer using the highest current kilowatt-per-unit hour rates.

In this way, the consumer saves on utility bills by an amount equal to the amount of power they have produced at the kilowatt-per-hour rates the local grid charges them.

To sum it up, as long as the costs the consumer incurs to produce power are less than the amount the utility company pays to purchase that power, the consumer saves money.
Are you still in confusion? Don’t worry. We’ll give you a real-world example to clear things up.

Pay-As-You-Go Case Study

Let’s say the consumer’s residence uses 900 kilowatt-hours per month. Your utility charges $0.16 per kilowatt-hour for a monthly cost of $144.

Let’s say that you subscribe to a community solar system that produces 300 kilowatt-hours every month at a rate of $0.13 per hour.

Suppose that you have to pay the community system $39 for producing this power and $96 to your utility for the remaining 600-kilo-watt hours.

If you sum the two costs, your monthly total will now be $135, which is $9 less than your previous bill.

Remember, these calculations are under the assumption of a constant consumption rate, which may not always be the case.

Some community solar providers steadily raise the rates as time goes by to match the utility hikes and maintain separation.

Since the pay-as-you-go model’s sustainability depends on this separation, unprecedented drops in utility rates or hikes in the cost of community solar can prove detrimental.

Utility Operated Community Solar

The example presented here works under the assumption that you have subscribed to a solar community system run by an external third party. You receive two bills, one from your local utility and the other from your community solar provider.

Some utilities operate community solar systems, thereby eliminating the need for a middle company.

One example is Xcel Energy, which got permits to build community solar systems as large as 50 megawatts. Their competitors’ systems produce around 2 megawatts of power.

As a result of the drastic power capacity increase, Xcel could charge its customers a lot less, as much as 40% compared to other utilities!

Utility-scale solar systems can produce energy at a lower cost due to economies of scale. They professionally optimize panel orientation and tracking. Even if your local utility isn’t cheap, it is still far simpler to subscribe to the system. The power produced is automatically subtracted from your bill. More so, you don’t have to deal with the hassle of paying two different bills.

Common Contract Terms in Community Solar Systems

Are you still uncertain about solar energy systems and want to know more about how they work? We’ve listed some of the most common contract terms that you might encounter.

Community solar contracts are complicated piles of paper. They highlight several conditions and obligations that subscribers must follow.

To make matters more complicated, most third-party providers aren’t open about the meaning of these contracts. It can be hard to find reliable information about the contract terms.

It is crucial that you carefully read your contract’s terms and resist any pressure before signing the document.

1. Length of Term

Most contracts are valid for 20 to 25 years. The long period reduces the subscriber turnover. Therefore, it increases the accuracy of the community solar providers’ financial predictions. An accurate financial forecast is essential for community solar systems that have been put in place through bank loans.

But 20 to 25 years is a long period for most people. This term can be unfavorable, especially for temporary house tenants or individuals whose jobs are likely to change.

2. Credit Score Requirements

To reduce the risk of theft or crime, many third-party community solar providers ask that their subscribers adhere to a strict credit range, from 680 to 700.

The downsides of poor credits were already enough, and now consumers have this added burden.

3. Lock-in Period

Some community solar providers include a clause in the contract that effectively ‘locks’ subscribers. That means they can’t leave the agreement before a specified period. For many providers, this period can be as much as six years!

It may be possible to remove this clause or battle it through legal means, but that isn’t guaranteed. Even if it is possible, it comes at a hefty fee.

4. Minimum Subscription Size

The contract will include a minimum number of kilowatt-hours or a minimum price that you need to pay. Most prices are economical, ranging from $10-$15. But some can be considerable. Keep an eye out for the terms in the contract.

5. Maximum Share Limits

Most contracts limit the degree of benefit a consumer can receive from the community solar system. This limit is usually at 120% of the total electricity usage.

For instance, if your home uses 1000 kilowatt-hours of electricity every month, and your community solar system subscription produces 1500 kilowatt-hours of energy per month, the maximum benefit you can receive is 1200 kilowatt-hours.

You may be coming ahead of the deal, but the contract removes any chance of you getting rich from it.

6. Geographical Requirements

Community solar systems work in a particular area. Each system provides power to the residents of a single county or a handful of counties. If you switch homes and move out of this place, you risk canceling your contract at a large price.

7. Transfer Costs

Another facility that you get is transferring your membership to another individual. However, it comes at a cost, and you have to pay for it—the money required for the transfer of membership is around $100 to $300.

There is an added difficulty in finding a subscriber. You could ask a friend or someone living in the same territory as you. Certain community solar providers don’t charge any money for subscribers who have passed away or live in a different locality, but that isn’t guaranteed.

8. Early cancellation cost

Some contracts have an exit clause that comes into play if you decide to cancel your subscription for any other reason apart from changing houses or dying. These costs can be quite high, ranging in the four-figure category.
Premature cancellation fees are usually calculated as a percentage of your future savings and the time left on your contract.
For example, a consumer with 10 years left on their contract pays more than someone with only 5 years.

9. Increase in rates

Most contracts provide a schedule of increases in rates that informs about future kilowatt-hour rates. Although such rates are typically dependent on how utility rates change, they are stable in most circumstances.

If the electricity price increase is more than predicted, your savings increase. But if it falls, your savings suffer a delay as well.

If you have to choose from a large variety of community solar options, choose a plan that offers guaranteed savings. Such as plans that include a ‘savings floor’ at around 10%.

These are the most common contract terms you’ll come across. However, it is crucial to stress that they aren’t the only ones.

There are many other issues that you should know. These include compensation if the community solar system goes offline due to bad weather or infrastructural failure.

Read your solar contract carefully to find any hidden costs or clauses.

If you’re finding it difficult to understand the contract, consult a legal professional. You might have to make an initial payment of a couple of hundred dollars, but it could potentially save you money in the long run, even as much as a few thousand dollars.

Community Solar Vs. Home-Installed Systems

If you’re uncertain whether subscribing to a communal solar system is the right move for you, we’ve listed the advantages and disadvantages of both types below.

Advantages of a Community Solar System

1. Available for Tenants

If you live in a rental house or apartment, then it’s likely that you cannot install solar panels on your roof.

Community solar systems come in handy in such circumstances. You only need to verify your address, and you will be allowed to subscribe.

2. Your Residence’s Solar Potential Does Not Matter

Each property goes through an analysis to determine how beneficial it will be to install solar panels. Factors such as the amount of direct sunlight, the degree of shade, and various others are measured. Then, you score all these factors. After that, you calculate the total sum by adding up all the numbers. Community solar does not require all these processes.

3. Lower Up-front Payment

Perhaps the most significant benefit of community solar is that it does not require a massive amount of cash as an initial payment to start the project.
The fee is nominal. You only have to pay around $100 as a one-time fee.

4. Quicker Returns

Community solar energy has low initial financial requirements. Therefore, the payback period is shorter. 

If you subscribe to a community solar system, you can start saving money almost immediately if there was no upfront fee or within a year or two.

5. No On-site Installation

Community solar projects are carried out in public or community-owned land. Therefore, it is ideal if you have limited roof space for roof-mounted solar panels

6. No Physical Equipment

You don’t have to worry about the monitoring, maintenance, and repair of the solar panels.

All of that is the responsibility of the community solar provider, who hire trained professionals.

7. No Technical Support Is Required

Since there is no physical equipment in your house, you don’t have to worry about diagnosing the system faults and fixing them.

Disadvantages of a community solar system

1. Credit Requirements

Community solar providers offer contracts to those who have excellent credit records. If your credits aren’t up to at least 680, you will find it difficult to find a deal.

Some providers make partnerships with non-profit and social enterprises to offer contracts to people while also building their credits in the process.

2. Complicated Contracts and Cost Structure

complex contracts

Buying a solar panel may be a lot more costly, but its legal ownership is far simpler and has fewer caveats.

As mentioned previously, community solar contracts are lengthy and complicated. They have high exiting costs, lock-in periods, minimum share amounts, and other such features.

3. Less Favorable Taxes

The government offers tax credits to owners of community solar to increase the use of clean energy. 

These taxes are generous and make many community solar projects economically viable. Unfortunately, you can’t take advantage of these taxes.

However, when buying and installing a solar panel, the government provides tax incentives where you save money. There is a 26% tax incentive on the installation of equipment for solar panel owners.

You can install a solar panel now at $18,000 and take advantage of $4,700 in tax credit.

4. Projected Savings Are Not Guaranteed

Many community solar providers ensure minimum savings in cost compared with the low fee you pay to attain these savings. However, not all providers do that.

If your solar contract does not mention any guaranteed minimum savings, that means you are open to price fluctuations. This could reduce your savings or even potentially eliminate them.

5. Geographical Restrictions

Subscribing to a solar community project means that you cannot move if you want to enjoy the benefits of the solar contract.

If you move, however, you should find someone to take ownership of your contract. The transfer fee often goes into triple figures, enough to damage around a year’s worth of savings.

6. High Costs in Later Years

A community solar system’s financial advantages lessen as the years go by and eventually disappear. The result is that you will probably be in a worse financial position than those who managed to pay for the installation of solar panels and are now enjoying their power at a low cost.

7. No Control Over Operations

Community solar subscribers have no control over the production and distribution of power in solar farms. If there is a power outage due to weather or technical reasons, you have no choice but to wait for it to abate to receive electricity.

In contrast, solar panel owners who experience problems with their devices can take matters into their own hands and fix them.

8. High Cancellation Charges

The amount of money required to unsubscribe from the community solar system before the specified time period can be devastating. Especially for users who are not well off.

In contrast, if you own a solar panel system and want to stop using it, you can unhook the device from the terminals and switch it off.

9. Doesn’t Help in Achieving Self-sufficiency

A community solar system may be environmentally beneficial. It might also have financial benefits. But it doesn’t help you become self-sufficient in your consumption and use of electricity.

At the end of the day, you are still dependent on an external source for your power needs and are hooked onto the local electrical grid.

A home-owned solar panel, however, helps you to achieve energy independence and live off the grid.

Key Takeaway

If you want to go green and start using solar energy, you should decide whether to go for a personal solar system or subscribe to a community system. Before taking the decision, you should evaluate the initial investment that you are willing to make.  But always keep in mind that residential solar installation gives you independence from the electricity company. 

If you decide to go for a community-solar, read the terms and conditions to avoid any regrets. You can also join utility-operated community centers if they are available in your area.

In the end, whatever decision you take, you are going for a better and greener future.

This is all from this chapter. Keep reading further to find out more about solar energy and solar panel systems.

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