CS 101: What are the common contract structures for Community Solar?
Overview: Community solar vendors structure payments in a few simple ways, most commonly through a Fixed % Discount, but also with Fixed $/kWh Discounts or Fixed $/kWh Payment. Each structure offers different tradeoffs between predictability, risk, and financial upside. Turquoise Trail Energy Solutions helps businesses navigate these options to secure savings while aligning with their risk tolerance and long-term energy goals.
With a strong foundation addressing why programs exist and how projects generally work, let’s take a closer look at how vendors structure the payments associated with participating in community solar.
First, it helps to understand that bill credits are calculated by deriving the financial value that solar energy has when sent to the grid, and that value can vary depending on your state, utility, and local energy costs. As energy prices change, so do credit values. The various structures used for partnerships each have a different view of how a business’s savings may change as the value of a bill credit potentially changes over time.
The Main Options:
To keep things simple, vendors usually ask for payment in one of three ways:
• A Fixed % Discount (most common)
• A Fixed $/kWh Discount (rare)
• A Fixed $/kWh Payment (very rare)
Each approach reflects how the credit’s value may shift over time, while still offering savings. We’ll dive deeper now into the benefits/risks of each.
Fixed % Discount:
The most popular Community Solar transaction structure is the Fixed % Discount Model. It guarantees your business a set savings percentage, typically 10 to 15%, off the value of the energy credits you receive. If energy prices go up, your savings grow. If they drop, your savings shrinks, but critically, you’ll never pay more than what the credits are worth. That built-in protection is why so many businesses choose this model; it’s simple, predictable, and low-risk.
Best solution for: Businesses looking for a safe hedge against growing electricity pricing using a simplified contract structure.
Figure 1: Fixed % Discount Model example
Fixed $/kWh Discount:
Less common than the Fixed % Discount model, the Fixed $/kWh Discount model gives your business the same savings per unit of energy, no matter how energy prices change. For example, if your discount is $0.02/kWh, you’ll always save that amount whether the bill credit is high or low. This setup is great for predictable budgeting, but it also means you won’t see bigger savings if energy costs go up. It’s steady, simple, and ideal for businesses that value consistency in savings over putting in place a hedge over rising electricity costs.
Best Solution For: Businesses who value predictability in savings and are less concerned with protecting proportionally against rising electricity prices.
Figure 2: Fixed $/kWh discount example
Fixed $/kWh Payment:
The Fixed $/kWh Payment model is extremely rare and works by setting a locked-in rate. Your business agrees to pay a set price, ($0.09/kWh in the example below) for solar bill credits throughout the contract.
If the bill credit’s value is higher, you save. If it’s lower, you pay the difference out of pocket.
This setup offers strong upside potential but also carries more risk, since your business is betting on future energy prices to drive savings. It’s a model often used in large-scale energy deals such as virtual power purchase agreements and best suited for businesses which are confident in their own long-term forecasts for bill credit values.
Best Solution For: Businesses with a strong view of how bill credits will fluctuate during the duration of the partnership.
Figure 3: Fixed $/kWh Payment example
While the Fixed % Discount model is the most common, other transaction structures may be possible based on a business’s risk profile, long-term view of the market, and size of partnership.
We believe energy savings should be simple
Turquoise Trail Energy Solutions was established to help businesses address rising energy costs make confident choices on their energy strategy with clarity, transparency, and ease. To learn more, continue with our 5-part Community Solar 101 Series, where you’ll also learn:
Whether you have questions related to community solar, your electric bill, or your savings options in general, we’re here to guide you towards a smarter solution. Reach out to speak with an expert that can help you choose the right path.
