Community solar projects are an essential part of the clean energy transition. Not only do they help cut greenhouse gas emissions, but they can create local jobs and boost the economy.
There are a variety of different models for community solar. Understanding these models can help project developers and participants decide which fits their needs best.
The Developer-Owned Model
There are several ways to structure a community solar project. These models range from special-purpose entities to developer-owned projects, and all are designed to achieve a specific goal.
In a developer-owned model, a group develops a shared solar project and registers it as a business enterprise. This approach can be advantageous for taking advantage of tax incentives unavailable to nonprofits or utilities. However, this approach requires the developer to comply with various federal and state securities regulations.
A key challenge to building community solar is accessing capital. The availability of capital impacts the business and subscriber model, how value is distributed, and how a project can be done.
If a developer cannot raise enough capital, the business and subscriber model must be altered to compensate. This may involve bringing in an investor who can fund the entire project, or it can mean that less of the total value will be distributed to subscribers.
Many mission-driven developers seek to build wealth by generating clean energy savings for their members and community. In addition, they are seeking to create jobs and improve workforce development. Some are even looking for ways to increase resilience in their communities.
So, it’s essential to know what are community solar projects because it is a relatively new industry, and it has much potential to bring affordable, clean energy to more consumers than ever before. As the sector matures, policymakers must work with utilities and project developers to develop solutions.
The Utility-Sponsored Model
A utility-sponsored community solar project is an easy, accessible way to go solar without the upfront costs and hassles of installing a rooftop system. Residents can subscribe to a community solar farm and get credited for a portion of the electricity the farm produces monthly as part of their electric bill.
Utilities typically have the legal and program management infrastructure to develop these projects. They can be structured as long-term, fixed-rate programs with customers receiving credits on their bills proportional to the amount of solar electricity generated.
The utility-sponsored model is an ideal way to build and expand community solar. It allows all customers to participate in and benefit from renewable energy, a goal that is critical to the overall health of our nation’s economy.
It also makes renewable energy more available by decreasing financial commitments from homeowners and business owners. It’s essential for utility-sponsored community solar projects to follow all regulatory and consumer protection laws, as well as comply with securities, tax, and other regulatory requirements.
There are three common types of community solar projects: utility-sponsored, particular purpose entity (SPE), and nonprofit. All three share similar characteristics.
The Shared-Owned Model
In the shared-owned model, community solar projects are financed and operated through a renewable energy consumer stock ownership plan (RE-CSOP). This type of financing model is ideal for community-owned energy projects that need to be able to attract a variety of co-investors to be viable.
In addition, this financing structure is also beneficial for municipal leaders who want to prioritize energy efficiency and climate policy goals but may not have the budget to implement them. This model can also help municipalities achieve their sustainability goals by encouraging more significant investment in their infrastructure.
There are many models for community-owned energy projects, including co-operatives and RECs. However, in most cases, community-ownership frameworks focus on environmental, economic, or social community benefits rather than profits, and control rests with a community-based organization.
This allows communities to impact their environment, economy, and society actively. It empowers members to act as a group on local challenges, which can lead to a higher sense of belonging and solidarity.
Based on an empirical analysis of 67 best-practice examples involving citizen (co-)ownership, the RE-CSOP prototype is a practical and attractive model for the governance of renewable energy community projects. It meets the RED II prerequisites for RECs and the individual needs of different co-investors, especially in RE clusters that target sector coupling and involve electricity sharing, storage, e-mobility, and/or cogeneration [15]. In light of these results, the European Union is working on a new legal framework for energy communities to secure their acceptance by the electricity markets.
The Shared-Funding Model
In the shared-funding model, a third-party organization, a sponsor, selects a site to build a community solar project. The host then pre-sells panels to its members, who pay the sponsor a monthly fee for their share of the solar array and receive virtual net metering credits on their utility bills.
The program also provides tangible economic benefits to participants, allowing them to save money on their electric bills while locking in those savings for years to come. These programs often help stabilize the electric grid, which saves utility money on costly power repairs and maintenance.
One key benefit of the shared-funding model is that it can expand access to solar energy to a broader group of energy consumers, particularly low-income households and communities of color. In addition, many programs offer payment plans or “pay-as-you-go” options for participants, which can be more affordable than upfront payments and increase accessibility to a broader range of customers.
Despite these benefits, the lack of financing options is a significant challenge to the growth of community solar. A recent Smart Electric Power Alliance (SEPA) report found that banks and investors hesitate to fund solar community projects.
To overcome these barriers, innovative financing models are emerging that can provide much-needed capital to local projects. These models may include up-front payments, leasing agreements, or co-op-style ownership.
