Deep Dive # 3: What are the most common payment structures?
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, where each 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.
Now that we’ve covered how Community Solar partnerships can benefit customers, let’s take a closer look at how vendors structure payments. First, it helps to understand that bill credits are calculated by deriving the financial value that solar energy has when sent to the grid, where that value can vary depending on your state, utility, and local energy costs. As energy prices change, so do the credit’s worth. 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.
To keep things simple, vendors usually ask for payment in one of three ways:
• A Fixed % Discount
• A Fixed $/kWh Discount
• A Fixed $/kWh Payment
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 percentage of savings, typically 10 to 20%, off the value of energy credits placed on your bill. 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 to hedge against growing electricity pricing using a simplified contract structure.
Figure 1: Fixed % Discount Model, where as the Bill Credit value fluctuates, so does the payment. The spread between the two grows or shrink proportionally with the Fixed % Discount (10% guaranteed savings in this fictitious 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 against rising electricity prices.
Figure 2: Fixed $/kWh Discount, where as the Bill Credit grows or decreases, so does the required payment in an equal amount. The spread between the two remains constant ($0.01/kWh in this fictitious example)
Fixed $/kWh Payment:
The Fixed $/kWh Payment model is less common and works like a locked-in rate. Your business agrees to pay a set price, say $0.10/kWh, 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 it would be your business betting on future energy prices to drive savings. It’s a model often used in large-scale energy deals and best suited for businesses confident in their 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, where payment remains independent of the bill credit value. When the bill credit is above the payment rate, savings are generated, whereas when it is below the payment rate, the business is paying excess out of pocket (payment set at $0.09/kWh for this fictious example)
While the Fixed % Discount model is the most common, other transaction structures are possible based on a business’s risk profile and long-term view of the market. Turquoise Trail Energy Solutions can help your business navigate this process by matching you with the vendor with the right contract structure for your goals.
