Community solar is a clever solution to a big problem — almost half of all households and businesses cannot host rooftop solar.
A local building — say a school or business — installs solar panels for the community, and neighbors share the benefits, contractually, without installing anything on their roofs.
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But community solar does more than create greater access to solar. These projects also usually cut electricity bills and generate local energy wealth.
So it’s not surprising that the model has been having a good run with nearly 500% growth in the last six years.
How exactly do the economics of community solar work? Why can community solar companies guarantee savings and still make money? What are their returns? When and how is community solar ownership financially risky?
To answer these questions, I contacted Rob Hong, the founder of Sapling Financial Consultants. I’ve turned to him over the years with economic questions that demand clarity and depth.
Hong kindly took the time to analyze an existing community solar project in Virginia using publicly available financial data. He presents his findings in our new podcast: The Economics of Community Solar: How money is made, saved, and even sometimes lost.
Here are a few of my takeaways from the conversation:
—Returns to developers and operators on community solar are respectable but not extravagant
—Bill savings for community solar participants tend to range from 5-20%
—Participation is generally offered under one of two models: direct ownership of a share of the project or a subscription to the energy benefits. The direct ownership approach usually provides greater savings, but it also carries the typical risks of ownership.
“You’re going to gain or lose from the project as an owner,” Hong said. “The expectation is you invest in them, and you can make money off of them, so you’re kind of like a mini developer.”
Hong also describes the costs and risks borne by the developer and the community solar operator and explains why, from a financial perspective, households and businesses are better off installing solar systems on their own premises. Of course, that requires a rooftop accessible to solar, something renters and those of us with lots of trees don’t have.
The podcast provides useful financial insights for anyone interested in developing, operating, or participating in community solar. I also encourage state government decision-makers to listen if they are considering incentives or policy changes to encourage more community solar, which is needed to continue growing the resource in the United States.