The extended value and growing importance of community solar

On average, Americans paid 14.3% more for electricity in 2022 than in 2021, and the Energy Information Administration believes those costs are only going to go up. Turning to solar is a viable path for some to power their home and cut costs. But, putting solar on your roof isn’t an option for everyone – some might live in apartment units or crowded cities, or simply can’t afford the upfront costs required.

Community solar presents a promising way for residents, companies, and municipalities alike, to reduce their carbon footprint and electricity bills costs, while promoting a clean energy transition.  As such, awareness around community solar continues to increase in cities across the country, so much so that President Biden hopes for 700% community solar growth by 2025.

Let’s take a look at where community solar has evolved, and how it can continue to flourish in the future.

Adoption in urban areas and municipalities

Even with its realized potential, community solar still faces headwinds, especially land use concerns in various markets. Most projects are currently developed in greenfield settings, since it’s easy to site and is more cost effective to deploy arrays of ground mounted canopies. States with more mature programs, such as New York, incentivize more difficult and cost-intensive developments on brownfield sites or canopies over parking lots in order to diversify site design and encourage the incorporation of community solar into urban landscapes.

Normally, community solar deployed in urban environments – such as multiple rooftop, garage top, carport, and ground mounts spread across a city – is costly to implement and permit, and requires more diligence and engineering. But, for states and local governments who are opening their eyes to this idea, the value is significant. These projects not only provide energy cost savings to local residents, businesses, and the municipality, but it also helps them reach sustainability targets, increase reliability for facilities powered by these systems, and avoid developing on land that can be used for other applications. Additionally, with these projects generally owned and maintained by the solar developer, it can offer the municipality a revenue stream through lease payments received from the developer/asset owner for hosting the system.

Take the recently completed project for the City of White Plains, New York – 6.8 megawatts (MW) of community solar were deployed at nine different sites across the city, including rooftop, garage top, ground mounts, and a landfill solar installation. The project provided local residents and businesses a 10% discount on their energy bills, while also providing the city with a projected $1M of value annually through the discounted energy and lease payments. Urban community solar deployments may be more rare to come by now, but will no doubt grow in adoption as their value is realized and land use concerns continue to take hold.

More inclusive of low-to-moderate income groups

Historically, accessibility of community solar for low-to-moderate income (LMI) residents has been a roadblock. LMI residents are often renters or aren’t able to put solar on their roof due to high upfront costs or the unwillingness for residential developers to lease panels. Community solar seems like the obvious solution, but LMI residents oftentimes aren’t eligible to subscribe to community solar projects because programs have traditionally used FICO scores – with minimum score requirements in the 650-700 range – to determine eligibility.

However, recent advances in community solar programs and policy are changing this. The Inflation Reduction Act will also include specific incentives for community solar located in LMI communities and serving a majority of LMI residents. California recently passed a bill to create a community solar program that ensures at least 51% of subscribers are low-income.

Not only is there incentive to cater projects to LMI residents, but financial structures of projects are also shifting to become more inclusive and accommodating of these communities. FICO scores have been the most comfortable underwriting criteria for banks funding these projects, but the industry is realizing that it’s an imperfect metric that doesn’t fairly determine whether a resident will be a good community solar customer. More developers are educating investors to get them comfortable with alternative data-driven methods of determining eligibility, such as historical default rates or prior utility bill payment history, that ultimately increase eligibility across the potential subscriber pool.

Big businesses are hopping on board

More retailers, including big-box stores, and corporations have been eager to take part in community solar. T-Mobile, Dollar Tree, and Walmart are just three examples of large  businesses realizing the numerous benefits community solar has to offer.

Cost-effectiveness certainly plays a role, but it’s also practically a business imperative to commit to cleaner practices. More than 90% of S&P 500 companies publish environmental, social, and governance (ESG) reports in some form. Although companies can host their own project on-site, not every store location or office building is big enough to support a community solar program. Being the first major U.S. telecom to sign the RE100 commitment, T-Mobile turns to community solar – helping develop and subscribing to off-site projects as an anchor tenant – to help meet the company’s ESG benchmarks, offset energy usage, and offer clean energy to surrounding communities.

It is also a clear indicator of how large retailers are supporting the community around them. Oftentimes, with large retailers or companies serving as an anchor tenant in a community solar project, it not only helps get the project off the ground and implemented, but it also provides financial security to investors, opening the door for more lenient eligibility requirements for other subscribers, such as LMI residents.

How to keep community solar growing

Incentives for implementing community solar are dropping, and that needs to change. Many newer community solar markets are heavily scrutinizing incentives or are looking to cut them drastically. Those incentives are critical for the future of these programs, and without them, it is more difficult for states to reach the energy goals they want to achieve, while building creative, aesthetically pleasing projects that they value.

To continue growth, local policymakers need to start incentivizing the types of installations their communities want to see. The IRA will help with that — it created the Greenhouse Gas Reduction Fund that will set aside billions of dollars to provide competitive grants for clean energy projects like community solar, with an emphasis on those that benefit low-income and disadvantaged communities.

To sustain the buzz around community solar, solar developers will need to continue educating their customers (retailers, commercial real estate, corporations, etc.) on the value it provides. Municipalities will also need to continue to lead the way in developing and creating projects that allow everyone to realize the potential of solar. It is an exciting time for community solar, but strategic cost incentives will be necessary to help the market expand and bring economic and environmental benefits to communities and businesses across the nation.

Contributed by Sarah Moon, senior director of community solar origination at DSD Renewables, a “one-stop shop” for custom, large-scale commercial, industrial & municipal clean energy solutions.