How Strongly Can Community Solar Bend the Energy Market Toward Justice?

In Brief

After a long winter, the arrival of spring promises hope and opportunity as vaccines roll out at a wartime-scale deployment across the country, people return to work, and the 51st annual Earth Day turned reasons to believe that there will be meaningful progress on the fight against climate change.

It adds up to a mood of timid hope and restrained optimism- including about the idea that low-income communities will more thoroughly go solar. 

This article, the first in a three-part series examining the investment case for community solar, details one process that can encourage broad fossil-free deployment. 

The community-solar business model

This image from a community-solar vendor documents how individuals who normally can't access the solar market can build a revenue stream. 

All signs are pointed towards a surge in large-scale clean energy infrastructure, as President Biden’s team seems intent on translating a recommitment to the Paris Climate Accords into real progress with a $2 trillion plan. This plan treats energy equity in America today as a block to sound infrastructure, stipulating that disadvantaged communities receive 40% of overall benefits of spending in the areas of clean energy. This would guide investment in areas like environmental cleanup and grants for low-carbon transportation. It can also steer capital toward solar energy that doesn’t require rooftop panels. This delivery system, known as community solar, can provide an economical and equitable complement to residential solar. But the burgeoning new industry will require support from state and local policymakers to reach its full potential. 

Renewable, Not Inclusive 

The primary way that people have been able to power their homes with renewable energy is through residential solar panels, which are installed on a homeowner’s roof. Since traditional residential solar has only applied to homeowners, this has led to a disproportionate number of minority communities being excluded as Black and Hispanic house ownership is at 42% and 47% respectively compared to 73% for white families. Even among homeowners, solar installations for Black and Hispanic communities are 69% and 45% lower than those for white families. Many are excluded from residential solar due to their roof structure or sunlight exposure as well as the high initial cost of solar panels, costing an average family $16,200 for an 8-kW system with an 8-year payback period. 

This gap in renewable energy access further entrenches existing inequities in environmental health and economic outcomes. While now garnering national attention, fossil fuel pollution has always plagued low to moderate-income (LMI) communities which are more likely to be located near power plants. A nationwide study of more than 13 million people showed that lower income status consistently increased the risk of premature death from fine particulate matter.  Additionally, lower income families face a disproportionate economic energy burden. The median cost of energy as a portion of income for lower income families is 10.5% in New England, which is three times higher than for the average household in the region. Residential solar power could in theory reduce this energy inequity with lower bills, but as it stands now those that can obtain residential solar are also the least pressured by energy inequity. Expanding community solar products could extend solar -and build wealth- among more people. 

Community Solar Offers Clean and Equitable Energy

For those who cannot benefit from residential solar, which the National Renewable Energy Lab estimates is the case for approximately 75% of Americans, community solar provides an attractive alternative. These projects, typically ranging from 500 kW – 5 MW (50-750 homes) in size, are subscribed to by hundreds of people in the area and can be located on cheap land that is well suited for solar panels.

In addition to removing the homeownership barrier and roof suitability barriers, the subscription model eliminates the sizable capital investment that accompanies conventional residential solar. In this option, families or other local energy customers such as schools and hospitals can sign up to “own” a portion of a solar garden and receive a share of the electricity generated by the project, which is deducted from their monthly utility bill at a set discount, usually 10% or more of the total bill. Community solar also provides the subscribers peace of mind as the bill credit increases to match any increases in electricity costs,. These savings alone are not enough to close the energy equity gap, but the participants in Michigan’s Low- to Moderate-Income Access Program for community solar report that they can keep their homes warmer in the winter and allocate their limited funds to other necessities, which has reduced their stress levels.

The subscription model eliminates the sizable capital investment that accompanies conventional residential solar.

The energy cost savings from community solar are just one of the benefits these projects provide subscribers in LMI communities. Financial space that helps build credit is another.

 In a conversation I had with Inclusive Prosperity Capital (IPC)’s Director of Clean Energy Transactions John D’Agostino, he explained the pattern. “Community solar provides the flexibility for customers to contract for shorter periods than they would otherwise, which makes the decision-making process and impact on customers’ bills easier to understand.” Contract terms for residential solar usually last through the expected life of the panels while subscriptions to community solar can be as short term as a monthly commitment. These projects can also provide local governments with a higher tax base. The Sierra Club remarks that over the 30 year life span of the project, this could mean hundreds of thousands of dollars for the local community.

How capital flows through a community solar model
Without installers or roof requirements, solar access and other benefits can cast a wider arc. (Courtesy US Department of Energy.)

A Rapidly Growing Industry 

Community solar’s promise of improving energy equity, paired with its strong economic and environmental results, has led to a surge in interest. I spoke about the emergence of this sector with Kevin Betz, a project developer for Community Energy.  The Pennsylvania-based developer mainly works at utility scale, but they also are one of the pioneers developing community solar garden projects. As Betz tells it, “Community solar is still a relatively new industry. Colorado passed the first statewide program in 2010 (known as the Community Solar Gardens Act) and there has been significant growth in the last 10 years.” The data confirms Betz’s statement as community solar installations have grown by more than 20-fold in the last 5 years from 33 MW in 2015 to 700 MW in 2020 for a total installed capacity of 2.62 GW.

Expectations for growth of this nascent industry range widely, but Vikram Aggarwal, founder of the home solar marketplace company EnergySage, made the bullish prediction in an interview with Quartz that, “a large majority of the American population will have access to community solar in the next few years.” (How many people will enroll depends in large part on how governments design and market incentives, as we’ll see in the next part of the series.) 

The growing market is also attracting more money for community solar, and firms such as IPC are anticipating substantial development into the community solar space in 2021. D’Agostino told me that IPC is “receiving an accelerating number of inquiries for community solar project opportunities.” IPC does not yet own a community solar project. D’Agostino confirmed, though, that he expects community solar to be “an emerging area for IPC’s development, ownership and operation strategy in the coming years, especially those projects supporting traditionally underserved credits in the market.”

A key driver of the exploding interest in community solar is that it offers the modularity and distribution benefits of residential solar while providing renewable energy at a cost more comparable to utility scale systems. To compare the financials of the different solar energy options, investors evaluate the systems on their levelized cost of energy (LCOE). As the chart below shows, community solar can hit an LCOE that would justify incentives and credits. 

The LCOE calculates the net present value of the total cost to build and operate an energy system over the project’s lifetime over the lifetime energy generation of the project. The resulting number represents the average revenue per unit of energy that the plant would require to recover its construction and operational costs. According to investment bank Lazard’s 2020 estimates for the LCOE of different technologies, community solar is typically half as expensive as residential solar, but twice the price of utility scale solar. However, these LCOE estimates are not accounting for the benefits of having a distributed network and the avoided investment in transmission infrastructure that if included, would further the economic case for community solar. 

Comparing solar value from the roof to the region

Table 1: The above table compares the different attributes of residential, community and utility scale solar. It has been compiled using data and information from NREL, SEIA, and Lazard.

Given the benefits of this emerging renewable energy sector, one might expect there to be broad support from the local and federal government, however, as of April 2021, only 21 states have passed legislation that allow for the interconnection and subscription community solar projects. 

This shows either a delay in breaking through or an actual resistance. Why, though, would anyone be against opening the market to a compelling source of energy equity and scalable infrastructure that takes measure of climate change? The answer, which we’ll explore next month, looks complicated. It seems to be a combination of regional politics, implementation challenges and of course, money. 

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