How Community Solar Can Benefit Low- and Moderate-Income Customers
June 16, 2022 By Nate Hausman Cover Image by: Werner Slocum / NREL
Residential clean energy projects are typically associated with affluent customers. Community solar, however, offers a pathway for low- and moderate-income customers to benefit from clean energy projects too.
Residential rooftop solar projects often only benefit the households who live under the array — but community solar projects can reach beyond the property where a project is located, impacting many more customers who otherwise might have a hard time accessing renewable power.
Here, we explain how community solar works and how it can deliver benefits for low- and moderate-income customers where projects are sited and beyond.
What is community solar?
Community solar are solar projects where financial benefits flow to multiple customers within a specific area. The way customers participate in community solar often takes the form of a subscription. Customers voluntarily “subscribe” to a project — such as a solar array located in a nearby town that provides power to the local utility — and in turn, receive electricity bill credits based on their subscription. Community solar projects can be led by private businesses, by utilities, and in some cases, communities band together to develop projects themselves.
At its core, community solar amounts to a virtual accounting instrument. Unlike residential rooftop solar installations, community solar customers may never see the project they subscribe to or receive electrons generated from it. Community solar developers often outsource subscriber acquisition and subscription management to third-party servicers, so customers may not actually interface with the project owner. And community solar subscribers will not be able to legitimately claim they use solar power if they do not receive the Renewable Energy Certificates (RECs), transactable commodities representing the renewable attributes associated with the community solar project’s power generation. RECs from community solar projects are often sold to third parties to help finance the project, so subscribers do not retain the right to tout their use of solar power.
Why is community solar an important way for low- and moderate-income customers to benefit from renewable energy?
Community solar can offer financial advantages and flexibility for customers that onsite renewable energy projects may not be readily able to achieve. These advantages of community solar can enable low- and moderate-income customers to participate in solar energy projects where rooftop solar would otherwise be out of reach.
- Unlike rooftop solar installations, which can come with steep upfront sticker prices and may have rigid sizing constraints, community solar subscriptions can be sized and packaged with low upfront entry costs.
- Community solar subscriptions can be available to renters and those without control of their roofs.
- Unlike residential rooftop solar systems, which are usually small in size (with a median system size of 6.5 kilowatts (kW) in 2020) and must be installed onsite, community solar projects can harness economies of scale and can be installed on low-value land, such as on landfills or on unused land outside of urban areas. This can make community solar subscriptions a particularly economical proposition.
- Community solar does not require customers to repair or replace their roofs or do other customer-side energy upgrades before participation.
- Unlike rooftop solar installations where customers who own their systems can face sometimes sudden expenditures, such as replacing an inverter, community solar allows for maintenance costs to be embedded within subscription packages so these costs are not unexpectedly borne by customers.
- Unlike customer-owned residential rooftop solar installations, where customers without sufficient income tax liability might be unable to take advantage of the federal investment tax credit for solar, community solar providers are generally able to monetize the investment tax credit and pass savings onto subscribers, regardless of their tax liability, through discounted subscription rates.
- Unlike residential solar leases or power purchase agreements where customers usually sign long-term solar contracts that can last decades, community solar subscriptions need not involve protracted customer commitments since they can be structured to allow for subscription transfer, downsizing, or termination without penalty.
What benefits can community solar provide to low- and moderate-income communities?
The average residential community solar subscription in the U.S. is approximately 3 kW in size, saving residential customers about 10% in electricity costs over the life of the subscription. Even these modest electricity bill savings from community solar subscriptions can go a long way for low- and moderate-income customers, who often face staggering energy bills compared to their income. U.S. households at or below twice the federal poverty level spend 3.5 times more of their income on energy costs (8.1%) compared to the median other households spend (2.3%).
Beyond the savings it can bring to low and moderate-income subscribers, community solar can also offer a broad array of services to under-resourced and frontline communities. These services include:
- Community wealth-building: Community solar can help create educational opportunities, build wealth, and induce more investment in under-resourced communities. Community solar can support jobs and local workforce development. In some places, community solar can also be a source of property tax revenue. Whether it is through bill savings, jobs, or public tax revenue, the financial benefits of community solar can have a multiplying effect. Reduced energy expenditures for a household might allow more of its income to be put toward other investments, like food or housing. For a business, it might allow for greater hiring. For a municipality, it might allow for expanded public services that support the local community.
As an example of the kind of ripple effects community solar can provide, the City of Hoboken, New Jersey and the Hoboken Housing Authority have partnered on a community solar program that will deliver savings to low- and moderate-income residents. Some of the savings generated from the program will also be placed into a fund, which will go toward a future sustainability project to be decided on by housing authority residents. In addition, the program will provide job training for up to 25 Hoboken Housing Authority residents.
- Mitigating environmental impacts: Community solar can be located on industrially contaminated lands that often cannot readily accommodate other uses and are too often located in under-resourced communities. For example, in 2020, Washington, D.C. completed the Oxon Run community solar project, a 2.6-megawatt (MW) array installed on a petroleum-contaminated site in the southwest part of the city. The project will serve more than 780 income-qualifying households in the area. As noted in this RMI report, community solar can also be broadly used to reduce heat islands in under-resourced urban neighborhoods with disproportionately more heat-absorbing surfaces and fewer investments in green spaces.
- Community resilience: Community solar arrays can also be paired with battery storage at critical facilities to offer frontline communities resiliency benefits in the event of an extended electrical outage. For example, Jubilee Housing’s Maycroft Apartments in Washington, D.C. pairs a community solar array that provides savings for low-income residents with a battery storage system that can provide back-up electricity to an on-site resiliency center, where residents can shelter and access power for critical loads for multiple days.
Is the community solar market growing?
The cumulative installed capacity of U.S. community solar has grown dramatically in the last decade, more than doubling on average annually since 2010. At the end of 2021, there were at least 5,219 MW of installed community solar capacity in the U.S., with active projects in 40 states and the District of Columbia. Approximately 1,813 MW of community solar was deployed in the United States in 2021 alone, enough to power about 344,470 homes.
The size of community solar projects has increased over time too. The southern United States, a region not traditionally known for solar deployment, now boasts some of the largest community solar projects in the country.
And the market expansion shows no signs of halting. Although community solar currently represents less than 4% of all installed solar capacity in the United States, the energy market research consultancy Wood Mackenzie projects that the country will add 4.5 gigawatts of community solar capacity over the next five years. Last year, the U.S. Department of Energy announced a target of powering five million households with community solar by 2025, an increase in community solar deployment of more than 700% over the next four years.
The low- and moderate-income community solar market, in particular, promises massive growth. As of early 2021, the U.S. Department of Energy tallied at least 32.3 MW of low- and moderate-income community solar in operation with seven times that amount in the pipeline for development. In 2022, the renewable energy developer Invenergy and the investment firm Lafayette Square announced a joint venture called Reactivate focused on community solar development for under-resourced communities. Reactivate alone aims to develop 3,000 MW of solar capacity by 2030, serving up to 2.25 million homes.
How can community solar reach more low- and moderate-income customers?
While well-designed community solar programs can deliver important benefits to low- and moderate-income customers and the low- and moderate-income community solar market is growing in the United States, it needs additional support to reach its market potential. According to the National Renewable Energy Laboratory (NREL), low- and moderate-income households make up approximately 43% of all U.S. households, but only a tiny fraction are currently being served by community solar. Most of the community solar capacity in the United States is served by “anchor tenants,” large subscribers that are often commercial entities rather than residential customers.
The disconnect between community solar’s existing reach and its potential may partly be because most current community solar offerings are not designed for low- and moderate-income customers. Some community solar programs ask consumers to pay a premium for their subscriptions. These programs are designed for customers who can afford to sacrifice financially to support renewable energy, but they are typically out of reach for low- and moderate-income customers.
Even programs that provide customer savings may not be appropriate for low- and moderate-income customers if subscriptions come with sharp risks. For example, subscriptions that carry penalties or fees associated with contract termination will not be suitable for low- and moderate-income customers who rent and may need to relocate during the term of their subscription. Even small risks can outweigh the savings benefits for low- and moderate-income consumers, since they have less financial cushion to absorb any unexpected losses.
Many subscriptions ask for payment upfront. NREL calculates that about 46% of community solar projects employ upfront payment subscription models, while another 21% have subscriptions with combined upfront and monthly payments, which can make understanding and calculating the subscription value particularly challenging. Low- and moderate-income customers often simply do not have the means for an upfront financial investment, no matter the long-term savings these subscriptions may promise.
Without strong incentives and policy support, even well-meaning community solar providers may be slow to market to low- and moderate-income customers. Acquisition costs are higher for subscribing low- and moderate-income customers than for their higher-income counterparts. There are several reasons for this, including:
- Low- and moderate-income customers may have less disposable income or low/no credit, making it hard to afford or finance subscriptions.
- Low- and moderate-income customers are less likely to speak English as their primary language, which can present an added barrier for English-speaking marketers.
- Low- and moderate-income customers who have discounted utility rates may have less incentive to subscribe to community solar.
- Legacies of exploitation may make low- and moderate-income customers justifiably distrustful of marketers, and as a result, have less awareness about community solar.
What kinds of support can help community solar reach more low- and moderate-income customers?
To effectively reach low- and moderate-income customers, establishing a community solar program by itself is not enough. To enable meaningful low- and moderate-income customer participation, community solar programs must include incentives and special outreach strategies.
Many states are catching on. Twenty-three states and Washington, D.C. now have community solar programs with low- and moderate-income customer-specific provisions.
These provisions generally either mandate or incentivize low-and moderate-income participation, such as setting minimum levels of low- and moderate-income subscribers on a project or program basis, or subsidizing subscriptions. States with low- and moderate-income community solar mandates include Colorado, Connecticut, Hawaii, Maryland, Nevada and Oregon. States with low- and moderate-income community solar incentives subsidize low- and moderate-income subscriptions. States with such incentives include California, Illinois, Massachusetts, New Hampshire and Rhode Island.
Even in places with established low- and moderate-income community solar programs, reaching those customers can be challenging. Community-based organizations can be instrumental partners for community solar engagement. Take UPROSE, a multi-racial, women-led community organization in Brooklyn, New York, that has helped develop a cooperatively-owned community solar project on the roof of the Brooklyn Army Terminal. The project promises to deliver bill savings to about 200 households in the neighborhood, where over 30% of residents live below the poverty line. UPROSE breathed life into the project through local meetings, door-to-door outreach, and disseminating informational materials in multiple languages.
Education and community outreach are especially important because community solar can be confusing. Community solar involves complex ownership structures with multiple parties, and different subscription and payment configurations. The value proposition of subscriptions can vary dramatically across programs. Even the term “community solar” can be confusing because under many programs, a community solar project does not need to be sited in the same community as those who subscribe to it. (Many programs allow projects to be located anywhere within the same utility service territory as its subscribers.)
What role can utilities play in expanding community solar?
More than half of U.S. states have not enacted state policies to enable community solar or establish community solar programs. In the absence of state-level enabling legislation, some utilities are launching community solar programs on their own. In Florida, Duke Energy and Florida Power & Light have both created utility-led community solar programs with provisions to ensure savings for participating low-income customers on an ongoing basis.
Supported by the Leon Lowenstein Foundation, WRI is working to expand utility-led community solar programs in targeted geographies to ensure they benefit low- and moderate-income customers. For example, in Kentucky, WRI advanced a partnership between electric utilities, Kentucky Habitat for Humanity and a philanthropic organization to pilot a community solar subscription gifting program for low-income Kentuckians. Under the program, Kentucky Habitat for Humanity leverages philanthropic donations to purchase community solar subscriptions on behalf of low-income customers, who receive credit on their electric utility bills associated with their subscriptions. The pilot has already lowered grid emissions and reduced the electricity bills of participating low-income households by an average of $27.94 a month and will continue to do so over the decades-long life of the project.
Achieving Community Solar’s Full Potential
Community solar offers tremendous promise for providing low- and moderate-income customers with much-needed electricity bill savings, but reaching these customers will require focused policy support, deliberate program design and engagement. States, cities, utilities, community organizations, nonprofits, solar developers and financial institutions all have roles to play to ensure that community solar benefits low- and moderate-income customers. After all, many hands make light work.
This is the first installment of a three-part series on community solar for low- and moderate-income costumers. The next piece will focus on how partnerships with community-based organizations can catalyze low- and moderate-income community solar, while the third will explore the role local governments can play in accelerating low- and moderate-income community solar.