For many U.S. households and businesses, installing rooftop solar simply is not an option — whether because they rent, because of the condition of the roof, because of shading, or because of the type of building involved. Community solar addresses this gap by allowing multiple customers to share the energy produced by a single off-site solar array, reducing their utility bills without requiring any installation on their own property.

Because so much of the market is unable to access solar through on-site installations — researchers at the U.S. Department of Energy's National Renewable Energy Laboratory have estimated that roughly half of U.S. households and businesses cannot host a rooftop system — other options are needed to ensure that the benefits of solar energy are broadly accessible. Community solar — also referred to as solar gardens or shared solar — addresses this challenge by providing a way for multiple customers to share the solar energy produced by a solar array.

Community solar has emerged as one of the fastest-growing sectors in the solar industry, with projects in 43 states plus Washington, D.C., and 11 gigawatts of alternating-current (GW-AC) capacity. Because these programs generally depend on enabling policy and utility program design at the state level, availability — and the terms participants receive — varies considerably from one market to the next. Whether you want to access clean energy for your home or business but cannot — or prefer not to — install a system on your roof, are a solar professional looking to understand emerging markets, or simply want to expand access to clean energy in your area, getting familiar with community solar can open new opportunities. In this installment, we explore the variety of ways community solar projects can be structured, how those different models work, and some of the complexities that project developers and participants need to consider.

What Is Community Solar?

The National Renewable Energy Laboratory (NREL) defines community solar as a solar-electric system that provides power and/or financial benefit to multiple community members. While a number of different models exist, this definition highlights the sector's core characteristic: it provides a way for a solar project to supply energy to multiple homes and businesses — and reduce their utility bills — without being located on their premises.

How Does Community Solar Work?

Community solar projects come in a variety of forms, and because the sector is still emerging, new approaches may yet arise. To date, however, a few dominant models have been developed. Across those models, the benefit typically reaches participants as credits on their utility bills for their share of the electricity generated — an arrangement often described as virtual or remote net metering, since the array sits off-site from the customer's property.

Subscription vs. Ownership Models

From the perspective of the participant experience, it is helpful to think of community solar arrangements in two broad categories: subscription models and ownership models.

In an ownership model, customers buy specific panels or a share in the array to meet their desired level of energy production. Ownership-based community solar projects require upfront payment by participants for their portion of the project, much as if a household or business were paying cash for a solar installation on its own property. Participants then receive credit for the actual amount of energy their portion of the project produces, either as a direct credit on their utility bill or through some other arrangement.

In a subscription model, the project is owned by a third party — such as the local utility or a company — and community members subscribe to a portion of the energy it produces. This approach usually requires no upfront fees to join and offers immediate savings, because members subscribe to purchase solar energy at a lower rate than they would typically pay their local utility. Because there are no upfront costs, the model also provides a way for low-income community members to access the benefits of solar.

Who Administers Community Solar Projects?

In addition to variations in how customers participate — buying in versus subscribing — community solar models also differ depending on the type of organization that owns and/or administers the project. NREL identifies three ownership models: utility-sponsored, special-purpose entity (SPE), and nonprofit.

Utility-sponsored. In a utility-sponsored model, the community solar project is owned or operated by a utility company, which opens it to voluntary participation by its customers. Depending on the project, participants may pay upfront or make subscription payments. In return, they receive credits on their utility bills proportional to their contribution and the amount of energy the system produced. Under this approach, participants typically buy rights to the benefits of a share of the energy produced — a subscription arrangement — but do not hold an ownership stake in the project itself.

Nonprofit. Another common structure for community solar projects is to have a nonprofit administer the project on behalf of donors or members. There are multiple ways a nonprofit could approach this:

• It could develop and administer the project in a way that shares the benefits with participant members.
• In a variation of that approach, the nonprofit could partner with a for-profit third party that owns the system and takes advantage of tax incentives.
• It could also solicit donations to support the development of the project. Note that this approach is not strictly 'community solar,' since donors would not directly benefit from the energy produced, though they might contribute for environmental or philanthropic reasons.

Special-purpose entity (SPE). Finally, in an SPE model, a community solar project is developed by a group of individuals who join together in a business enterprise. One reason to develop a shared solar project in this way is that registering as a business enterprise may make it possible to take advantage of tax incentives, such as the federal investment tax credit available to solar projects, that would otherwise be unavailable to tax-exempt nonprofits — and to some for-profit utilities. In choosing this approach, however, those developing the project must take on the legal and financial complexities of forming a business and complying with related regulations, as discussed below.

The Complexities of Community Solar

The development of community solar projects can be financially and legally complex because of the federal and state securities laws that govern investments. Transactions involving a financial investment in an enterprise with the expectation of earning profit through the efforts of someone other than the investor are considered securities and are subject to specific regulations. The process of ensuring compliance with securities regulations can add significantly to the time and cost involved in project development, and failure to properly comply may subject participants to liability.

For these reasons, community solar project developers typically work to ensure that the project does not meet the legal definition of a traditional, taxable investment that would be governed by securities law. This results in a variety of rules about who can participate in community solar projects and how. It is common, for instance, for projects to limit participation to those within a certain geographic area, and to restrict the amount of energy participants can obtain from the project to their annual energy consumption.

While project developers should seek professional legal and tax advice as they develop the structure of their project, NREL's A Guide to Community Shared Solar provides a great starting point for understanding some of the legal implications of the different models.

Looking Ahead: Why Community Solar Matters

Because community solar can reach the population that is unable to go solar via rooftop systems, it is one of the biggest growth opportunities for the solar industry. In the last few years, this option has grown from being almost non-existent to serving thousands of customers across the nation.

Community solar is not only a huge opportunity to supply more of the country's electricity with sustainable, domestic energy; it also has important equity implications. By providing affordable solar energy with low or no upfront costs and no credit-rating or property-ownership requirements, community solar opens up clean energy to groups that have traditionally had limited access. For readers interested in participating, the practical starting point is to check whether their state or utility currently offers a program, since eligibility rules, credit rates, and contract terms differ from market to market. We look forward to keeping an eye on this market — and keeping you posted — as it develops.

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